Document:

EXHIBIT 4.1
                                                                     -----------
                                RIGHTS AGREEMENT

                                 by and between

                              GUILFORD MILLS, INC.

                                       and

                    AMERICAN STOCK TRANSFER & TRUST COMPANY,

                                 as Rights Agent

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

                                   Dated as of

                                  July 26, 2000

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                                TABLE OF CONTENTS
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Section                                                                                               Page
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Section 1.        Certain Definitions...................................................................1

Section 2.        Appointment of Rights Agent...........................................................7

Section 3.        Issuance of Right Certificates........................................................7

Section 4.        Form of Right Certificates............................................................9

Section 5.        Countersignature and Registration....................................................10

Section 6.        Transfer, Split Up, Combination and Exchange of Right
                  Certificates; Mutilated, Destroyed, Lost or
                  Stolen Right Certificates............................................................10

Section 7.        Exercise of Rights; Exercise Price; Expiration Date of
                  Rights; Invalidation of Certain Rights...............................................11

Section 8.        Cancellation and Destruction of Right Certificates...................................13

Section 9.        Reservation and Availability of Shares of Preferred Stock............................14

Section 10.       Preferred Stock Record Date..........................................................15

Section 11.       Adjustment of Exercise Price or Number of Shares.....................................15

Section 12.       Certification of Adjusted Exercise Price or Number of Shares.........................21

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

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

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

Section 16.       Agreement of Right Holders...........................................................26

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

Section 18.       Concerning the Rights Agent..........................................................28

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

Section 20.       Duties of Rights Agent...............................................................29

Section 21.       Change of Rights Agent...............................................................31

Section 22.       Issuance of New Right Certificates...................................................32

Section 23.       Redemption...........................................................................32

Section 24.       Notice of Proposed Actions...........................................................33

Section 25.       Notices..............................................................................34

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

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                               TABLE OF CONTENTS
                                    (cont'd)
Section                                                                                              Page
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Section 27.       Exchange.............................................................................35

Section 28.       Successors...........................................................................36

Section 29.       Benefits of this Agreement...........................................................36

Section 30.       Delaware Contract....................................................................36

Section 31.       Counterparts.........................................................................37

Section 32.       Descriptive Headings.................................................................37

Section 33.       Severability.........................................................................37

Section 34.       Determinations and Actions by the Board of Directors.................................37

Exhibit A      -   Summary of Rights

Exhibit B      -   Form of Right Certificate

Exhibit C      -   Form of Certificate of Amendment to the Designations of
                   Series A Junior Participating Preferred Stock

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                                       ii
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                                RIGHTS AGREEMENT

                  Rights Agreement (this "AGREEMENT"), dated as of July 26,
2000, by and between Guilford Mills, Inc., a Delaware corporation (the
"CORPORATION"), and American Stock Transfer & Trust Company, a corporation
organized under the laws of the State of New York (the "RIGHTS AGENT").

                              W I T N E S S E T H :
                               - - - - - - - - - -

                  WHEREAS, on July 26, 2000, the Board of Directors of the
Corporation, authorized the issuance of, and declared, a dividend payable in one
right (a "RIGHT") for each share of common stock, $0.02 par value per share
("COMMON STOCK"), of the Corporation outstanding as of close of business on
August 23, 2000 (the "RECORD DATE"), each such Right representing the right to
purchase one one-hundredth of a share of Series A Junior Participating Preferred
Stock of the Corporation ("PREFERRED STOCK") having the rights and preferences
set forth in the form of Certificate of Amendment to the Designations attached
hereto as Exhibit C duly adopted by the Board of Directors of the Corporation on
July 26, 2000, upon the terms and subject to the conditions hereinafter set
forth; and

                  WHEREAS, on such date, the Board of Directors of the
Corporation further authorized the issuance of one Right (subject to adjustment)
with respect to each share of Common Stock which may be issued between the
Record Date and the earliest to occur of the Distribution Date, the Expiration
Date or the Final Expiration Date (as such terms are hereinafter defined);
provided, however, that Rights may be issued with respect to shares of Common
Stock that shall become outstanding after the Distribution Date and prior to the
Expiration Date in accordance with Section 22 hereof;

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

Section 1. Certain Definitions. For purposes of this Agreement, the following
terms shall have the meanings provided by this Section 1, any capitalized term
defined in this Section 1 and used in the following definitions having the
meaning provided by this Section 1:

                           (a) "ACQUIRING PERSON" shall mean any Person who or
                  which, together with all Affiliates and Associates of such
                  Person, shall be the Beneficial Owner of 15% or more of the
                  Voting Stock then outstanding; provided, however, that an
                  Acquiring Person shall not include: (i) an Exempt Person; (ii)
                  any Person who or which, together with all Affiliates and
                  Associates of such Person, would be an Acquiring Person solely
                  by reason of (A) being the Beneficial Owner of shares of
                  Voting Stock, the Beneficial Ownership of which was acquired
                  by such Person (together with all Affiliates and Associates of
                  such Person) pursuant to any action or transaction or series
                  of related actions or transactions approved by the Board of
                  Directors of the Corporation before such Person (together with

NY2:\885608\05
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                  all Affiliates and Associates of such Person) otherwise became
                  an Acquiring Person or (B) a reduction in the number of issued
                  and outstanding shares of Voting Stock pursuant to a
                  transaction or a series of related transactions approved by
                  the Board of Directors of the Corporation; provided, further,
                  that in the event a Person described in this clause (ii) does
                  not become an Acquiring Person by reason of subclause (A) or
                  (B) of this clause (ii), such Person nonetheless shall become
                  an Acquiring Person in the event such Person (together with
                  all Affiliates and Associates of such Person) thereafter
                  acquires Beneficial Ownership of an additional 1% or more of
                  the Voting Stock, unless the acquisition of such additional
                  Voting Stock would not result in such Person becoming an
                  Acquiring Person by reason of subclause (A) or (B) of this
                  clause (ii); or (iii) any Person who, as of July 26, 2000,
                  together with all Affiliates and Associates of such Person,
                  was the Beneficial Owner of 15% or more of the Voting Stock
                  outstanding as of such date; provided, further, that any
                  Person described in this clause (iii) shall become an
                  Acquiring Person if (A) such Person, together with all
                  Affiliates and Associates of such Person, after July 26, 2000,
                  acquires Beneficial Ownership of an additional 1% or more of
                  the Voting Stock or (B) such Person, together with all
                  Affiliates and Associates of such Person, after July 26, 2000,
                  reduces its Beneficial Ownership of the Voting Stock to less
                  than 15% of the outstanding Voting Stock and thereafter
                  becomes the Beneficial Owner of 15% or more of the outstanding
                  Voting Stock, unless in the case of subclause (A) or (B) of
                  this clause (iii) such acquisition of Voting Stock was
                  pursuant to a transaction described in subclauses (ii)(A) or
                  (ii)(B) above; provided, further, that in the event such
                  Person described in subclause (iii)(A) or (iii)(B) does not
                  become an Acquiring Person by reason of subclauses (ii)(A) or
                  (ii)(B) above, such Person nonetheless shall become an
                  Acquiring Person in the event such Person (together with all
                  Affiliates and Associates of such Person) thereafter acquires
                  Beneficial Ownership of an additional 1% or more of the Voting
                  Stock, unless the acquisition of such Voting Stock would not
                  result in such Person becoming an Acquiring Person by reason
                  of subclause (A) or (B) of clause (ii) above. Notwithstanding
                  the foregoing, if the Board of Directors of the Corporation
                  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 of the Corporation) a sufficient number of shares of
                  Common Stock 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 an "Acquiring Person" for any purposes of this
                  Agreement.

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                           (b) "AFFILIATE" shall have the meaning ascribed to
                  such term in Rule 12b-2 of the General Rules and Regulations
                  under the Exchange Act, as in effect on the date of this
                  Agreement.

                           (c) "ASSOCIATE" of a Person shall mean (i) with
                  respect to a corporation, any officer or director thereof or
                  any Associate of any Subsidiary thereof, or any Beneficial
                  Owner of 10% or more of any class of equity security thereof,
                  (ii) with respect to an association, any officer or director
                  thereof or any Associate of a Subsidiary thereof, (iii) with
                  respect to a partnership, any general partner thereof or any
                  limited partner thereof who is, directly or indirectly, the
                  Beneficial Owner of a 10% or greater ownership interest
                  therein, and any Associate of any Subsidiary thereof, (iv)
                  with respect to a limited liability company, any manager or
                  managing member thereof and any Beneficial Owner of 10% or
                  more or any class of membership interest therein or other
                  equity security thereof, and any Associate of any Subsidiary
                  thereof, (v) with respect to a business trust, any officer or
                  trustee thereof or any Associate of any Subsidiary thereof,
                  (vi) with respect to any other trust or an estate, any
                  trustee, executor or similar fiduciary and any Person who has
                  a 15% or greater interest as a beneficiary in the income from
                  or principal of such trust or estate, (vii) with respect to a
                  natural person, the parents and children thereof and any
                  spouse or relative thereof, or any relative of such spouse,
                  who has the same home as such person, and (viii) any Affiliate
                  of such Person.

                           (d) A person shall be deemed the "BENEFICIAL OWNER"
                  of, or to "BENEFICIALLY OWN", any securities (and correlative
                  terms shall have correlative meanings):

                                    (i) which such Person or any of such
                           Person's Affiliates or Associates beneficially owns,
                           directly or indirectly, for purposes of Section 13(d)
                           of the Exchange Act and Regulations 13D and 13G
                           thereunder, in each case as in effect on the date of
                           this Agreement; or

                                    (ii) which such Person or any of such
                           Person's Affiliates or Associates has (A) the right
                           to acquire (whether such right is exercisable
                           immediately or only after the passage of time or the
                           fulfillment of a condition or both) pursuant to any
                           agreement, arrangement or understanding (whether or
                           not in writing), or upon the exercise of conversion
                           rights, exchange rights, other rights (other than the
                           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 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, alone or in concert with

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                           others, pursuant to any agreement, arrangement or
                           understanding (whether or not in writing); provided,
                           however, that a Person shall not be deemed the
                           "Beneficial Owner" of, or to "Beneficially Own", any
                           securities if the agreement, arrangement or
                           understanding to vote such security (1) arises solely
                           from a revocable proxy or consent given in response
                           to a proxy or consent solicitation made pursuant to,
                           and in accordance with, the applicable rules and
                           regulations under the Exchange Act and (2) is not at
                           the time reportable by such Person on a Schedule 13D
                           report under the Exchange Act (or any comparable or
                           successor report), other than by reference to a proxy
                           or consent solicitation being conducted by such
                           Person; 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 (whether or not in writing) for the
                           purpose of acquiring, holding, voting (except as
                           described in clause (B) of subparagraph (ii) of this
                           paragraph (d)) or disposing of any securities of the
                           Corporation; provided, however, that for purposes of
                           determining Beneficial Ownership of securities under
                           this Agreement, officers and directors of the
                           Corporation solely by reason of their status as such
                           shall not constitute a group (notwithstanding that
                           they may be Associates of one another or may be
                           deemed to constitute a group for purposes of Section
                           13(d) the Exchange Act) and shall not be deemed to
                           own shares owned by another officer or director of
                           the Corporation.

                           Notwithstanding anything in this paragraph (d) to the
                  contrary, a Person engaged in the business of underwriting
                  securities shall not be deemed the "Beneficial Owner" of, or
                  to "Beneficially Own," any securities acquired or otherwise
                  beneficially owned in good faith in a firm commitment
                  underwriting until the expiration of forty days after the date
                  of the sale of securities to the public pursuant to such firm
                  commitment underwriting.

                           (e) "BUSINESS DAY" shall mean any day other than a
                  Saturday, Sunday, or a day on which banking institutions in
                  the State of New York or the state in which the principal
                  office of the Rights Agent are authorized or obligated by law
                  or executive order to close.

                           (f) "CLOSE OF BUSINESS" on any given date shall mean
                  5:00 P.M., New York City time, on such date; provided,
                  however, that if such date is not a Business Day it shall mean
                  5:00 P.M., New York City time, on the next succeeding Business
                  Day.

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                           (g) "COMMON STOCK" when used with reference to the
                  Corporation shall collectively mean the Common Stock of the
                  Corporation as defined in the first recital hereof and any
                  other common stock of the Corporation into or for which it is
                  changed, converted or exchanged. "COMMON STOCK" when used with
                  reference to any Person other than the Corporation which shall
                  be organized in corporate form shall mean the capital shares
                  or other equity security having of all classes of capital
                  shares or equity securities of such corporation the greatest
                  aggregate voting power in the election of directors. "COMMON
                  STOCK" when used with reference to any Person which shall not
                  be organized in corporate form shall mean units of beneficial
                  interest in the profits or losses of such Person or other
                  equity security of such Person having of all classes of equity
                  securities of such Person the greatest aggregate voting power
                  in the election of the directors, trustees, managers or other
                  Persons performing like governance functions for such Person.

                           (h) "CORPORATION" shall have the meaning provided at
                  the beginning hereof; provided, however, that "Corporation"
                  shall also include any successors to the Corporation as
                  provided by Section 28 hereof and shall mean a Principal Party
                  as provided by Section 13(a) and 13(b)hereof.

                           (i) "DISTRIBUTION DATE" shall have the meaning set
                  forth in Section 3(b) hereof.

                           (j) "EXCHANGE ACT" shall mean the Securities Exchange
                  Act of 1934, as amended.

                           (k) "EXCHANGE RATIO" shall have the meaning set forth
                  in Section 27 hereof.

                           (l) "EXEMPT PERSON" shall mean (i) the Corporation,
                  (ii) any Subsidiary of the Corporation, or (iii) any employee
                  benefit plan or employee stock plan of the Corporation or any
                  Subsidiary of the Corporation, or any trust or other entity
                  organized, appointed, established or holding Voting Stock for
                  or pursuant to the terms of any such plan.

                           (m) "EXERCISE PRICE" shall have the meaning set forth
                  in Section 4 hereof.

                           (n) "EXPIRATION DATE" shall have the meaning set
                  forth in Section 7(a) hereof.

                           (o) "FAIR MARKET VALUE" of any property shall mean
                  the fair market value of such property as determined in
                  accordance with Section 11(b) hereof.

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                           (p) "FINAL EXPIRATION DATE" shall have the meaning
                  set forth in Section 7(a) hereof.

                           (q) "NASDAQ" shall have the meaning set forth in
                  Section 11(b) hereof.

                           (r) "PERSON" shall mean any individual, company,
                  firm, corporation or other entity.

                           (s) "PRINCIPAL PARTY" shall have the meaning set
                  forth in Section 13(b) hereof.

                           (t) "REDEMPTION PRICE" shall have the meaning set
                  forth in Section 23(a) hereof.

                           (u) "RIGHT CERTIFICATE" shall have the meaning set
                  forth in Section 3(d) hereof.

                           (v) "SECURITIES ACT" shall mean the Securities Act of
                  1933, as amended.

                           (w) "SPREAD" shall mean the excess of (1) the Fair
                  Market Value of Preferred Stock issuable upon the exercise of
                  a Right in accordance with Section 11(a)(ii) over (2) the
                  Exercise Price in effect at the time of determination of the
                  Spread.

                           (x) "STOCK ACQUISITION DATE" shall mean the first
                  date on which there shall be a public announcement by the
                  Corporation or an Acquiring Person that an Acquiring Person
                  has become such (which, for purposes of this definition, shall
                  include, without limitation, a report filed pursuant to
                  Section 13(d) of the Exchange Act) or such earlier date as a
                  majority of the Board of Directors of the Corporation shall
                  become aware of the existence of an Acquiring Person as
                  confirmed by action of the Board of Directors of the
                  Corporation taken by the affirmative vote of a majority of the
                  Board of Directors of the Corporation.

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

                           (z) "SUMMARY OF RIGHTS" shall have the meaning set
                  forth in Section 3(a) hereof.

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                           (aa) "TRADING DAY" shall have the meaning set forth
                  in Section 11(b) hereof.

                           (bb) "TRANSFER TAX" shall mean any tax or charge,
                  including any documentary stamp tax, imposed or collected by
                  any governmental or regulatory authority in respect of any
                  transfer of any security, instrument or right, including the
                  Rights, shares of the Common Stock and shares of the Preferred
                  Stock.

                           (cc) "VOTING STOCK" shall mean (i) the Common Stock
                  of the Corporation and (ii) any other shares of capital stock
                  of the Corporation entitled to vote generally in the election
                  of directors or entitled generally to vote together with the
                  Common Stock in respect of a merger, consolidation, sale of
                  all or substantially all of the Corporation's assets,
                  liquidation, dissolution or winding up. For purposes of this
                  Agreement, a stated percentage of the Voting Stock shall mean
                  a number of shares of the Voting Stock as shall equal in
                  voting power that stated percentage of the total voting power
                  of the then outstanding shares of Voting Stock in the election
                  of a majority of the Board of Directors of the Corporation or
                  in respect of a merger, consolidation, sale of all or
                  substantially all of the Corporation's assets, liquidation,
                  dissolution or winding up.

                  Any determination required to be made by the Board of
                  Directors of the Corporation for purposes of applying the
                  definitions contained in this Section 1 shall be made by a
                  majority of the Board of Directors of the Corporation in its
                  good faith judgment, which determination shall be binding on
                  the Rights Agent and the holders of the Rights.

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

                  Section 3. Issuance of Right Certificates.

                  (a) On the Record Date (or as soon as practicable thereafter),
the Corporation or the Rights Agent shall send a copy of a Summary of Rights, in
substantially the form attached hereto as Exhibit A (the "SUMMARY OF RIGHTS"),
by first class mail, postage prepaid, to each record holder of the Common Stock
as of the Record Date, at the address of such holder shown on the records of the
Corporation.

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                  (b) Until the Close of Business on the day which is the
earlier of (i) the tenth day after the Stock Acquisition Date or (ii) the tenth
Business Day (or such later date as may be determined by action of the Board of
Directors of the Corporation prior to such time as any Person becomes an
Acquiring Person) after the date of the commencement by any Person (other than
an Exempt Person) of a tender or exchange offer upon the successful consummation
of which such Person, or any Affiliate or Associate of such Person, would be 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 shall be
evidenced by the certificates for Common Stock (or in the case of uncertificated
shares of Common Stock, by the book-entry account that evidences record
ownership for such shares) registered in the names of the holders of Common
Stock (together with, in the case of certificates for Common Stock outstanding
as of the Record Date, the Summary of Rights) and not by separate Right
certificates and the record holders of such certificates (or such book-entry
accounts) for Common Stock shall be the record holders of the Rights represented
thereby and (y) each Right shall be transferable only simultaneously and
together with the transfer of a share of Common Stock (subject to adjustment as
hereinafter provided). Until the Distribution Date (or, if earlier, the
Expiration Date or Final Expiration Date), the surrender for transfer of any
certificate for Common Stock (or the effectuation of a book-entry transfer of
shares of Common Stock) shall constitute the surrender for transfer of the Right
or Rights associated with the Common Stock evidenced thereby, whether or not
accompanied by a copy of the Summary of Rights.

                  (c) Rights shall be issued in respect of all shares of Common
Stock that become outstanding after the Record Date but prior to the earliest of
the Distribution Date, the Expiration Date or the Final Expiration Date.
Certificates for Common Stock (including, without limitation, certificates
issued upon original issuance, disposition from the Corporation's treasury or
transfer or exchange of Common Stock) after the Record Date but prior to the
earliest of the Distribution Date, the Expiration Date, or the Final Expiration
Date shall have impressed, printed, written or stamped thereon or otherwise
affixed thereto the following legend:

                  This certificate also evidences and entitles the holder hereof
         to the same number of Rights (subject to adjustment) as the number of
         shares of Common Stock represented by this certificate, such Rights
         being on the terms provided under the Rights Agreement by and between
         Guilford Mills, Inc. and American Stock Transfer & Trust Company (the
         "Rights Agent"), dated as of July 26, 2000, as it may be amended from
         time to time (the "Agreement"), the terms of which are incorporated
         herein by reference and a copy of which is on file at the principal
         executive offices of Guilford Mills, Inc. Under certain circumstances,
         as set forth in the Agreement, such Rights shall be evidenced by
         separate certificates and shall no longer be evidenced by this
         certificate. Guilford Mills, Inc. shall mail to the registered holder

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         of this certificate a copy of the Agreement without charge within five
         days after receipt of a written request therefor. As provided in
         Section 7(e) of the Agreement, Rights issued to or Beneficially Owned
         by Acquiring Persons or their Affiliates or Associates (as such terms
         are defined in the Agreement) or any subsequent holder of such Rights
         shall be null and void and may not be exercised by or transferred to
         any Person.

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

                  (d) As soon as practicable after the Distribution Date, the
Corporation will prepare and execute, the Rights Agent will countersign, and the
Corporation will send or cause to be sent (and the Rights Agent will, if
requested, send), by first class mail, postage prepaid, to each record holder of
the Common Stock as of the Close of Business on the Distribution Date, as shown
by the records of the Corporation, at the address of such holder shown on such
records, a certificate in the form provided by Section 4 hereof (a "RIGHT
CERTIFICATE"), evidencing one Right (subject to adjustment as provided herein)
for each share of Common Stock so held. As of and after the Distribution Date,
the Rights shall be evidenced solely by Right Certificates and may be
transferred by the transfer of the Right Certificate as permitted hereby,
separately and apart from any transfer of one or more shares of Common Stock.

                  Section 4. Form of Right Certificates. The Right Certificates
(and the forms of election to purchase shares, certificate and assignment to be
printed on the reverse thereof), when, as and if issued, shall be substantially
in the form set forth in Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Common Stock or the Rights may from time to time be listed
or as the Corporation may deem appropriate to conform to usage or otherwise and
as are not inconsistent with the provisions of this Agreement. Subject to the
provisions of Section 22 hereof, Right Certificates evidencing Rights whenever
issued, (i) shall be dated as of the date of issuance of the Rights they
represent and (ii) subject to adjustment from time to time as provided herein,
on their face shall entitle the holders thereof to purchase such number of one
one-hundredths of a share (including fractional shares which are integral

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multiples of one-hundredth of a share) of Preferred Stock as shall be set forth
thereon at the price per one one-hundredth of a share of Preferred Stock payable
upon exercise of a Right provided by Section 7(b) hereof, as the same may from
time to time be adjusted as provided herein (the "EXERCISE PRICE").

                  Section 5. Countersignature and Registration.

                  (a) Each Right Certificate shall be executed on behalf of the
Corporation by its Chairman of the Board, President or any Vice President,
either manually or by facsimile signature, and have affixed thereto the
Corporation's seal or a facsimile thereof which shall be attested by the
Secretary or an Assistant Secretary of the Corporation, either manually or by
facsimile signature. Each Right Certificate shall be countersigned by the Rights
Agent either manually or by facsimile signature and shall not be valid for any
purpose unless so countersigned. In case any officer of the Corporation who
shall have signed any Right Certificate shall cease to be such officer of the
Corporation before countersignature by the Rights Agent and issuance and
delivery of the certificate by the Corporation, such Right Certificate,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
with the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Corporation. Any Right
Certificate may be signed on behalf of the Corporation by any person who, on the
date of the execution of such Right Certificate, shall be a proper officer of
the Corporation to sign such Right Certificate, although at the date of the
execution of this Agreement any such person was not such an officer.

                  (b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its principal office or one or more offices
designated as the appropriate place for surrender of Right Certificates upon
exercise or transfer, and in such other locations as may be required by law,
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.

                  (a) Subject to the provisions of Sections 7(e), 7(f) and 14
hereof, at any time after the Close of Business on the Distribution Date, and at
or prior to the Close of Business on the earlier of the Expiration Date or the
Final Expiration Date, any Right Certificate, may be (i) transferred or (ii)
split up, combined or exchanged for one or more other Right Certificates,
entitling the registered holder to purchase a like number of one one-hundredths
of a share of Preferred Stock as the Right Certificate or Rights Certificates
surrendered then entitled such holder to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Right Certificate shall
surrender the Right Certificate at the office of the Rights Agent designated for
the surrender of Right Certificates with the form of certificate and assignment
on the reverse side thereof duly endorsed (or enclose with such Right
Certificate a written instrument of transfer in form satisfactory to the

                                       10
<PAGE>

Corporation and the Rights Agent), duly executed by the registered holder
thereof or his attorney duly authorized in writing, and with such signature duly
guaranteed. Any registered holder desiring to split up, combine or exchange any
Right Certificate shall make such request in writing delivered to the Rights
Agent, and shall surrender the Right Certificate to be split up, combined or
exchanged at the office of the Rights Agent designated therefor. Thereupon, the
Rights Agent shall countersign and deliver to the person entitled thereto a
Right Certificate or Right Certificates, as the case may be, as so requested.
The Corporation may require payment of a sum sufficient to cover any Transfer
Tax that may be imposed in connection with any transfer, split up, combination
or exchange of any Right Certificates.

                  (b) Subject to the provisions of Sections 7(e), 7(f) and 14
hereof, at any time after the Distribution Date and prior to the Expiration
Date, upon receipt by the Corporation 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, if requested by the Corporation,
reimbursement to the Corporation and the Rights Agent of all reasonable expenses
incidental thereto, or upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Corporation shall cause a new Right
Certificate of like tenor to be issued and delivered to the registered owner in
lieu of the Right Certificate so lost, stolen, destroyed or mutilated.

                  Section 7. Exercise of Rights; Exercise Price; Expiration Date
of Rights; Invalidation of Certain Rights.

                  (a) The Rights shall not be exercisable until, and shall
become exercisable on, the Distribution Date (unless otherwise provided herein,
including, without limitation, the restrictions on exercisability set forth in
Section 7(e), 23(a) and 27(b) hereof). Except as otherwise provided herein, the
Rights may be exercised, in whole or in part, at any time commencing with the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase and certificate on the reverse side thereof duly executed
(with signatures duly guaranteed), to the Rights Agent at the designated office
of the Rights Agent in New York, together with payment of the Exercise Price for
each Right exercised (as the same may have been adjusted as hereinafter
provided), at or prior to the Close of Business on the earlier of (i) July 26,
2010 (the "FINAL EXPIRATION DATE") or (ii) the date on which the Rights are
redeemed as provided in Section 23 hereof or the date on which the Rights are
exchanged as provided in Section 27 hereof (such earlier date being herein
referred to as the "EXPIRATION DATE").

                  (b) The Exercise Price shall initially be $20.00 for each one
one-hundredth (1/100) of a share of Preferred Stock issued pursuant to the
exercise of a Right. The Exercise Price and the number of one one-hundredths of
a share of Preferred Stock or other securities or property to be acquired upon
exercise of a Right shall be subject to adjustment from time to time as provided
in Sections 11 and 13 hereof. The Exercise Price shall be payable in lawful
money of the United States of America, in accordance with paragraph (c) below.

                                       11
<PAGE>

                  (c) Except as otherwise provided herein, upon receipt of a
Right Certificate representing exercisable Rights with the form of election to
purchase and certificate duly executed, accompanied by payment by certified
check, cashier's check, bank draft or money order payable to the Corporation or
the Rights Agent of the Exercise Price for the shares of Preferred Stock to be
purchased and an amount equal to any applicable Transfer Tax required to be paid
by the holder of the Right Certificate in accordance with Section 9(e) hereof,
the Rights Agent shall thereupon promptly (i) requisition from any transfer
agent of the Preferred Stock of the Corporation one or more certificates
representing the number of shares of Preferred Stock to be so purchased, and the
Corporation hereby authorizes and directs such transfer agent to comply with all
such requests, (ii) as provided in Section 14(b) hereof, at the election of the
Corporation, cause depositary receipts to be issued in lieu of fractional shares
of Preferred Stock, (iii) if the election provided for in the immediately
preceding clause (ii) has not been made, requisition from the Corporation the
amount of cash to be paid in lieu of the issuance of fractional shares (other
than fractions that are integral multiples of one one-hundredth of a share) in
accordance with Section 14(b) hereof, (iv) after receipt of such Preferred Stock
certificates and, if applicable, 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 (v) when appropriate, after receipt, promptly deliver such cash to or
upon the order of the registered holder of such Right Certificate; provided,
however, that in the case of a purchase of securities other than Preferred
Stock, pursuant to Section 13 hereof, the Rights Agent shall promptly take the
appropriate actions corresponding in such case to that referred to in the
foregoing clauses (i) through (v) of this Section 7(c). Notwithstanding the
foregoing provisions of this Section 7(c), the Corporation may suspend the
issuance of shares of Preferred Stock and other securities upon exercise of a
Right for a reasonable period, not in excess of 90 days, during which the
Corporation seeks to register under the Securities Act, and any applicable
securities law of any other jurisdiction, the shares of Preferred Stock or other
securities to be issued pursuant to the Rights; provided, however, that nothing
contained in this Section 7(c) shall relieve the Corporation of its obligations
under Section 9(d) hereof. Upon any such suspension, the Corporation shall issue
a public announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect.

                  (d) In case the registered holder of any Right Certificate
shall exercise less than all the Rights evidenced thereby, 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 his assign, subject to the provisions of Section 14(b) hereof.

                  (e) Notwithstanding any provision of this Agreement to the
contrary, from and after the time (the "INVALIDATION TIME") when any Person
first becomes an Acquiring Person, any Rights that are Beneficially Owned by (x)
such Acquiring Person (or any Associate or Affiliate of such Acquiring Person),
(y) a transferee of such Acquiring Person (or any such Associate or Affiliate)
who becomes a transferee after the invalidation time or (z) a transferee of such
Acquiring Person (or any such Associate or Affiliate) who becomes a transferee
prior to or concurrently with the invalidation time pursuant to either (I) a

                                       12
<PAGE>

transfer from the Acquiring Person (or any such Associate or Affiliate) to
holders of its equity securities or to any Person with whom it has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (II) a transfer which the Board of Directors of the Corporation has
determined is part of a plan, arrangement or understanding which has the purpose
or effect of avoiding the provisions of this Section 7(e), and subsequent
transferees of such Persons referred to in clause (y) and (z) above, shall be
null and void without any further action and any holder of such Rights shall
thereafter have no rights whatsoever with respect to such Rights under any
provision of this Agreement. No Right Certificate shall be issued pursuant to
Section 3 hereof that represents Rights beneficially owned by an Acquiring
Person or any Affiliate or Associate thereof whose Rights would be null and void
pursuant to the provisions of this Section 7(e); no Right Certificate shall be
issued at any time upon the transfer of any Rights to an Acquiring Person (or an
Affiliate or Associate of such Acquiring Person) whose Rights would be null and
void pursuant to the provisions of this Section 7(e) 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 (or an Associate or Affiliate of such Acquiring Person)
whose Rights would be void pursuant to the provisions of this Section 7(e) shall
be cancelled. The Corporation shall use all reasonable efforts to ensure that
the provisions of this Section 7(e) are complied with, but it shall have no
liability to any holder of Right Certificates or any other Person as a result of
its failure to make any determination with respect to an Acquiring Person or its
Affiliates, Associates or transferees hereunder.

                  (f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Corporation 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 certificate following the form of
election to purchase set forth on the reverse side of the Right Certificate
surrendered for such exercise and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof and such other information as the Corporation or the Rights
Agent 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 Corporation or to any
of its agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Agreement. The Corporation shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall cancel
and retire, any Right Certificate purchased or acquired by the Corporation
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Right Certificates to the Corporation, or shall, at the written

                                       13
<PAGE>

request of the Corporation, destroy such cancelled Right Certificates, and in
such case shall deliver a certificate of destruction thereof to the Corporation.

                  Section 9. Reservation and Availability of Shares of Preferred
Stock.

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

                  (b) The Corporation shall use its best efforts to cause, from
and after such time as the Rights become exercisable, all shares of Preferred
Stock issued or reserved for issuance in accordance with this Agreement to be
listed, upon official notice of issuance, upon the principal national securities
exchange, if any, upon which the Common Stock is listed or, if the principal
market for the Common Stock is not on any national securities exchange, to be
eligible for quotation in the National Association of Securities Dealers'
Automated Quotation System or any successor thereto or other comparable
quotation system.

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

                  (d) The Corporation shall use its best efforts to (i) file, as
soon as practicable following the occurrence of the event described in Section
11(a)(ii), or as soon as is required by law following the Distribution Date, as
the case may be, a registration statement under the Securities Act, with respect
to the shares of Preferred Stock purchasable upon exercise of the Rights on an
appropriate form, (ii) cause such registration statement to become effective as
soon as practicable after such filing, and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the earlier of (a) the date as of
which the Rights are no longer exercisable for Preferred Stock and (b) the
earlier of the Expiration Date and the Final Expiration Date. The Corporation
may temporarily suspend, for a period of time not to exceed ninety days, the
issuance of shares of Preferred Stock upon exercise of a Right in order to
prepare and file a registration statement under the Securities Act and permit it
to become effective. The Corporation will also take such action as may be
appropriate under, or to ensure compliance with, the securities or "blue sky"
laws of the various states in connection with the exercisability of the Rights.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction shall have been obtained and until a registration statement
under the Securities Act (if required) shall have been declared effective.

                                       14
<PAGE>

                  (e) The Corporation covenants and agrees that it will pay when
due and payable any and all United States federal and state Transfer Taxes which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any shares of Preferred Stock issued or delivered upon the exercise of
Rights. The Corporation shall not, however, be required to pay any Transfer Tax
which may be payable in respect of any transfer or delivery of a Right
Certificate to a Person other than, or the issuance or delivery of certificates
for Preferred Stock upon exercise of Rights in a name other than that of, the
registered holder of the Right Certificate, and the Corporation shall not be
required to issue or deliver a Right Certificate or certificate for Preferred
Stock to a Person other than such registered holder until any such Transfer Tax
shall have been paid (any such Transfer Tax being payable by the holder of such
Right Certificate at the time of surrender) or until it has been established to
the Corporation's satisfaction that no such Transfer Tax is due.

                  (f) The requirements of this Section 9 shall apply to shares
of Common Stock of the Corporation if the Corporation has elected in accordance
with Section 11(a)(iii) hereof to substitute shares of Common Stock for shares
of Preferred Stock that otherwise may be purchased upon the exercise of Rights.

                  Section 10. Preferred Stock Record Date. Each Person in whose
name any certificate for shares of Preferred Stock is issued upon the exercise
of Rights shall for all purposes be deemed to have become the holder of record
of the Preferred Stock represented thereby on, and such certificate shall be
dated as of, the date upon which the Right Certificate evidencing such Rights
was duly surrendered and payment of the Exercise Price (and any applicable
Transfer Taxes) was made; provided, however, that, if the date of such surrender
and payment is a date upon which the Preferred Stock transfer books of the
Corporation are closed, such Person shall be deemed to have become the record
holder of such shares on, and such certificate shall be dated as of, the next
succeeding Business Day on which the Preferred Stock transfer books of the
Corporation are open.

                  Section 11. Adjustment of Exercise Price or Number of Shares.
The Exercise Price and the number of shares of Preferred Stock which may be
purchased upon exercise of a Right are subject to adjustment from time to time
as provided in this Section 11.

                  (a) (i) In the event the Corporation shall at any time after
                  the date of this Agreement (A) declare or pay any dividend on
                  Common Stock payable in shares of Common Stock, (B) subdivide
                  or split the outstanding shares of Common Stock into a greater
                  number of shares or (C) combine or consolidate the outstanding
                  shares of Common Stock into a smaller number of shares or
                  effect a reverse split of the outstanding shares of Common
                  Stock, then and in each such event the number of one
                  one-hundredths of a share of Preferred Stock issuable upon the
                  exercise of a Right after the record date for such event (if
                  one shall have been established or, if not, after the date of
                  such event) shall be the number of one one-hundredths of a

                                       15
<PAGE>

                  share of Preferred Stock issuable immediately prior to such
                  event multiplied by a fraction, the numerator of which is the
                  number of shares of Common Stock outstanding immediately prior
                  to such event and the denominator of which is the number of
                  shares of Common Stock outstanding immediately after such
                  event, and the Exercise Price to be in effect after the record
                  date for such event (if one shall have been established or, if
                  not, after the date of such event) shall be determined by
                  multiplying the Exercise Price in effect immediately prior to
                  such event by such fraction. If an event occurs which would
                  require an adjustment under both this Section 11(a)(i) and
                  Section 11(a)(ii) hereof, the adjustment provided for in this
                  Section 11(a)(i) shall be in addition to, and shall be made
                  prior to, any adjustment required pursuant to Section
                  11(a)(ii).

                           (ii) Subject to Section 27 hereof, in the event that
                  any Person shall become an Acquiring Person, then, subject to
                  the last sentence of Section 23(a) hereof and except as
                  otherwise provided in this Section 11, each holder of a Right,
                  except as provided in Section 7(e) hereof, shall thereafter
                  have the right to receive upon exercise of such Right in
                  accordance with the terms of this Agreement and payment of the
                  Exercise Price, such number of one one-hundredths of a share
                  of Preferred Stock as shall equal the result obtained by (1)
                  multiplying the then current Exercise Price by the number of
                  one one-hundredths of a share of Preferred Stock for which a
                  Right would, absent adjustment pursuant to this Section
                  11(a)(ii), be then exercisable and dividing the product by (2)
                  50% of the proportionate Fair Market Value of one
                  one-hundredth of a share of the Preferred Stock (determined
                  pursuant to Section 11(b) hereof) on the Stock Acquisition
                  Date in respect of such event; provided, however, 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).

                           (iii) In the event that the Corporation does not have
                  available sufficient authorized but unissued Preferred Stock
                  to permit the exercise in full of the Rights in accordance
                  with the foregoing subparagraph (ii), the Corporation shall
                  take all such action as may be necessary to authorize and
                  reserve for issuance such number of additional shares of
                  Preferred Stock as may from time to time be required to be
                  issued upon the exercise in full of all Rights from time to
                  time outstanding and, if necessary, shall use its best efforts
                  to obtain stockholder approval thereof. In lieu of issuing
                  shares of Preferred Stock in accordance with the foregoing
                  subparagraph (ii), the Corporation may, if the Board of
                  Directors of the Corporation determines that such action is
                  necessary or appropriate, elect to issue or pay, upon the
                  exercise of the Rights, cash, property, shares of Preferred
                  Stock or Common Stock, or any combination thereof, having an
                  aggregate Fair Market Value equal to the Fair Market Value of

                                       16
<PAGE>

                  the shares of Preferred Stock which otherwise would have been
                  issuable pursuant to Section 11(a)(ii) hereof as of the date
                  the Board of Directors of the Corporation makes such election
                  (which Fair Market Value shall be determined as provided by
                  Section 11(b) hereof). Subject to Section 23 hereof, any such
                  election by the Board of Directors of the Corporation must be
                  made and publicly announced within thirty (30) days after the
                  date on which the event described in Section 11(a)(ii) occurs
                  and shall be applicable with respect to all Rights exercised
                  after such public announcement. Notice of such election shall
                  promptly be given to the Rights Agent.

                  (b) For the purpose of this Agreement, the "FAIR MARKET VALUE"
of any share of Preferred Stock, Common Stock or any other stock or any Right or
other security or any other property on any date shall be determined as provided
in this Section 11(b). In the case of a publicly traded (as such term is
hereinafter defined) stock or other security, the Fair Market Value thereof on
any date shall be deemed to be the average of the daily closing prices per share
of such stock or per unit of such other security for the 30 consecutive Trading
Days (as such term is hereinafter defined) immediately prior to but not
including such date; provided, however, that in the event that the Fair Market
Value of any share of Common Stock is to be determined as of a date that is
within 30 Trading Days after (i) the ex-dividend date for a dividend or
distribution on the Common Stock payable in shares of Common Stock or securities
convertible into shares of Common Stock or (ii) the effective date of any
subdivision, split, combination, consolidation, reverse stock split or
reclassification of the Common Stock, then, and in each such case, the Fair
Market Value shall be appropriately adjusted by the Board of Directors of the
Corporation to take into account such dividend, distribution, subdivision,
split, combination, consolidation, reverse stock split or reclassification. 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 applicable transaction
reporting system with respect to securities listed or admitted to trading on the
New York Stock Exchange), or, if the securities are not listed or admitted to
trading on the New York Stock Exchange, as reported in the applicable
transaction reporting system with respect to securities listed on the principal
national securities exchange (which, if approved by the Board of Directors of
the Corporation, may be a securities exchange of a country other than the United
States of America) on which such security is listed or admitted to trading; or,
if not listed or admitted to trading on any such national securities exchange,
the last quoted price (or, if not so quoted, the average of the high bid and low
asked prices) in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or
such other quotation reporting system then in use in the United States of
America; or, if no bids for such security are so quoted, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in such security selected by the Board of Directors of the Corporation.
The term "TRADING DAY" shall mean a day on which the principal national
securities exchange on which such security is listed or admitted to trading is

                                       17
<PAGE>

open for the transaction of business or, if such security is not listed or
admitted to trading on any national securities exchange, a Business Day. For
purposes of this Section 11(b), a stock or other security shall be considered
"PUBLICLY TRADED" only (i) if registered under Section 12 of the Exchange Act or
exempt from such registration pursuant to Section 12(g)(2)(B), (C) or (G) of the
Exchange Act or (ii) if traded on a national securities exchange of a country
other than the United States of America approved by the Board of Directors of
the Corporation or (iii) if, in the judgment of the Board of Directors of the
Corporation, there is sufficient active trading in such stock or other security
that reported trading transactions therein fairly reflect the fair market value
thereof. If a security is not publicly traded, "Fair Market Value" shall mean
the fair value per share of stock or per other unit of such other security, as
determined by an independent investment banking firm experienced in the
valuation of securities selected in good faith by the Board of Directors of the
Corporation, or, if no such investment banking firm is, in the good faith
judgment of the Board of Directors of the Corporation, available to make such
determination, as determined in good faith by the Board of Directors of the
Corporation; provided, however, that for purposes of making the adjustment
provided for by Section 11(a)(ii) hereof, the Fair Market Value of a share of
Preferred Stock, unless the Preferred Stock shall at the time be publicly traded
(in which case its Fair Market Value shall be determined pursuant to the
foregoing provisions of this Section 11(b)), shall be 102% of the product of the
Fair Market Value of a share of Common Stock multiplied by the higher of the
then Dividend Multiple or Vote Multiple applicable to the Preferred Stock (as
defined in the certificate of designations of the Corporation relating to the
Preferred Stock); provided, however, that the Board of Directors of the
Corporation may, by resolution, determine that the Fair Market Value of a share
of Preferred Stock shall be more or less than such amount but not less than 100%
or more than 110% of the product of the then Fair Market Value of a share of
Common Stock multiplied by the higher of the then Dividend Multiple or Vote
Multiple applicable to the Preferred Stock. In the case of property other than
securities, the "Fair Market Value" thereof shall be determined in good faith by
the Board of Directors of the Corporation based upon such appraisals or
valuation reports of such independent experts as the Board of Directors of the
Corporation shall in good faith determine to be appropriate in accordance with
good business practices and fair to the interests of the holders of Rights. Any
determination made by the Board of Directors of the Corporation as provided for
by this Section 11(b) shall be described in a statement filed by the Corporation
with the Rights Agent, shall be effective thereupon and only thereupon and shall
be binding upon the Rights Agent and, as provided by Section 34 hereof, all
holders of Rights.

                  (c) In case the Corporation shall fix a record date for the
issuance of rights, options or warrants to all holders of Common Stock entitling
them (for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Common Stock or securities convertible into Common
Stock at a price per share (or having a conversion price per share, if a
security convertible into Common Stock) less than the then current per share
Fair Market Value of the Common Stock on such record date, the Exercise Price to
be in effect after such record date shall be determined by multiplying the

                                       18
<PAGE>

Exercise Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
on such record date plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current Fair Market Value
and the denominator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible). In case such
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Corporation, whose
determination shall be described in a statement filed with the Rights Agent.
Shares of Common Stock owned by or held for the account of the Corporation 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
Exercise Price shall be adjusted to be the Exercise Price which would then be in
effect if such record date had not been fixed.

                  (d) In case the Corporation shall fix a record date for the
making of a distribution to all holders of the Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the continuing or surviving corporation) of evidences of
indebtedness of the Corporation or any of its Subsidiaries, cash (other than a
regular quarterly cash dividend not in excess of 150% of the previous regular
quarterly cash dividend), other assets (other than a dividend payable in shares
of Common Stock) or options, rights or warrants to subscribe for shares of the
Corporation or any Subsidiary (excluding those referred to in Section 11(c)
hereof), the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the Fair Market Value
of the shares of Common Stock on such record date, less the fair market value
(as determined in good faith by the Board of Directors of the Corporation, whose
determination shall be described in a statement filed with the Rights Agent) of
the portion of the assets or evidences of indebtedness or options, rights or
warrants so to be distributed in respect of one share of Common Stock, and the
denominator of which shall be such current Fair Market Value of the shares of
Common Stock. Such adjustment shall be made successively whenever such a record
date is fixed, and, in the event that such distribution is not so made
notwithstanding the setting of a record date therefor, the Exercise Price shall
again be adjusted to be the Exercise Price which would then be in effect if such
record date had not been fixed.

                  (e) Unless the Corporation shall have exercised its election
as provided in Section 11(f), upon each adjustment of the Exercise Price as a
result of the calculations made in Section 11(c) or (d), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Exercise Price, that number of one
one-hundredths of a share of Preferred Stock obtained by (i) multiplying (x) the

                                       19
<PAGE>

number of one one-hundredths of a share of Preferred Stock that could be
purchased upon exercise of a Right immediately prior to the adjustment pursuant
to this Section 11(e) by (y) the Exercise Price in effect immediately prior to
such adjustment of the Exercise Price and (ii) dividing the product so obtained
by the Exercise Price in effect immediately after such adjustment of the
Exercise Price.

                  (f) The Corporation may elect, on or after the date of any
adjustment of the Exercise Price pursuant to Section 11(c) or 11(d), to adjust
the number of Rights in substitution for any adjustment pursuant to Section
11(e) in the number of one one-hundredths of a share of Preferred Stock
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-hundredths of a share of Preferred Stock for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights obtained by dividing the Exercise Price in effect immediately prior to
adjustment of the Exercise Price by the Exercise Price in effect immediately
after adjustment of the Exercise Price. The Corporation 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 Exercise
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 the Right Certificates have been issued, upon each adjustment
of the number of Rights pursuant to this Section 11(f), the Corporation 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, if any, to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Corporation,
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 Corporation, 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.

                  (g) All calculations under this Section 11 shall be made to
the nearest cent or to the nearest one one-hundredth of a share, as the case may
be.

                  (h) Irrespective of any adjustment or change in the Exercise
Price or the number of shares of Preferred Stock issuable upon the exercise of
the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Exercise Price and the number of shares to be issued
upon exercise of the Rights as in the initial Right Certificates issued
hereunder but, nevertheless, shall represent the Rights as so adjusted.

                  (i) Before taking any action that would cause an adjustment
reducing the purchase price per whole share of Preferred Stock upon exercise of
the Rights below the then par value, if any, of the shares of Preferred Stock,

                                       20
<PAGE>

the Corporation shall use its best efforts to take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Corporation
may validly and legally issue fully paid and non-assessable shares of such
Preferred Stock at such adjusted purchase price per share.

                  (j) Anything in this Section 11 to the contrary
notwithstanding, in the event of any reclassification of stock of the
Corporation or any recapitalization, reorganization or partial liquidation of
the Corporation or similar transaction, the Corporation shall be entitled to
make such further adjustments in the number of shares of Preferred Stock which
may be acquired upon exercise of the Rights, and such adjustments in the
Exercise Price therefor, in addition to those adjustments expressly required by
the other paragraphs of this Section 11, as the Board of Directors of the
Corporation shall determine to be necessary or appropriate in order for the
holders of the Rights in such event to be treated equitably and in accordance
with the purpose and intent of this Agreement or in order that any such event
shall not, but for such adjustment, in the opinion of counsel to the
Corporation, result in the stockholders of the Corporation being subject to any
United States federal income tax liability by reason thereof.

                  (k) 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 Corporation other than the
Preferred Stock, thereafter the Exercise Price and the number of such other
shares so receivable upon exercise of a Right shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Preferred Stock contained in Sections
11(a), 11(c), 11(e), 11(f) and 11(j) hereof, as applicable, and the provisions
of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall
apply on like terms to any such other shares.

                  Section 12. Certification of Adjusted Exercise Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11, 13, 23(c)
or 27 hereof, the Corporation shall (a) promptly prepare a certificate setting
forth such adjustment, and a brief statement of the facts giving rise to such
adjustment, (b) promptly file with the Rights Agent and with each transfer agent
for the Preferred Stock a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Right Certificate in accordance with Section 25.
Notwithstanding the foregoing sentence, the failure of the Corporation to make
such certification or give such notice shall not affect the validity of or the
force or effect of the requirement for such adjustment. Any adjustment to be
made pursuant to Section 11, 13, 23(c) or 27 hereof shall be effective as of the
date of the event giving rise to such adjustment. 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.

                                       21
<PAGE>

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

                  (a) In the event that, at any time after the time that any
Person becomes an Acquiring Person, (x) the Corporation shall, directly or
indirectly, consolidate with, or merge with and into, any other Person or
Persons (other than an Exempt Person) and the Corporation shall not be the
surviving or continuing corporation of such consolidation or merger, or (y) any
Person or Persons (other than an Exempt Person) shall, directly or indirectly,
consolidate with, or merge with and into, the Corporation, and the Corporation
shall be the continuing or surviving corporation of such consolidation or merger
and, in connection with such consolidation or merger, all or part of the
outstanding shares of Common Stock shall be changed or converted into or
exchanged for stock or other securities of any other Person (other than an
Exempt Person) or of the Corporation or cash or any other property, or (z) the
Corporation or one or more of its Subsidiaries shall, directly or indirectly,
sell or otherwise transfer to any other Person (other than an Exempt Person) in
one or more transactions, assets or earning power aggregating more than 50% of
the assets or earning power of the Corporation and its Subsidiaries (taken as a
whole), then, on the first occurrence of any such event, proper provision shall
be made so that: (i) each holder of record of a Right, except as provided in
Section 7(e) hereof, shall thereafter have the right to receive, upon the
exercise thereof at a price equal to the then current Exercise Price multiplied
by the number of one one-hundredths of a share of Preferred Stock for which a
Right is then exercisable, in accordance with the terms of this Agreement and in
lieu of shares of Preferred Stock, such number of shares of validly issued,
fully paid, non-assessable and freely tradeable Common Stock of the Principal
Party (as defined in Section 13(b) hereof), not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as shall equal
the result obtained by (1) multiplying the then current Exercise Price by the
number of one one-hundredths of a share of Preferred Stock for which a Right is
then exercisable and dividing that product by (2) 50% of the then per share Fair
Market Value of the Common Stock of the Principal Party on the date of the
consummation of such consolidation, merger, sale or transfer; provided, however,
that the Exercise Price (as adjusted) and the number of shares of Common Stock
of such Principal Party so receivable upon exercise of a Right shall be subject
to further adjustment as appropriate in accordance with Section 11 hereof to
reflect any events occurring in respect of the Common Stock of such Principal
Party after the occurrence of such consolidation, merger, sale or transfer; (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 Corporation pursuant to this Agreement; (iii) the term "Corporation" for
all purposes of this Agreement shall thereafter be deemed to refer to such
Principal Party; (iv) such Principal Party shall take such steps (including, but
not limited to, the reservation of a sufficient number of shares of its Common
Stock in accordance with the provisions of Section 9 hereof applicable to the
reservation of Preferred Stock) 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 shares of Common Stock
thereafter deliverable upon the exercise of the Rights; provided, however, that,

                                       22
<PAGE>

upon the subsequent occurrence of any merger, consolidation, sale of all or
substantially all of the assets, recapitalization, reclassification of shares,
reorganization or other extraordinary transaction in respect of such Principal
Party, each holder of a Right shall thereupon be entitled to receive, upon
exercise of a Right and payment of the Exercise Price, such cash, shares,
rights, warrants and other property which such holder would have been entitled
to receive had it, at the time of such transaction, owned the shares of Common
Stock of the Principal Party purchasable upon the exercise of a Right, and such
Principal Party shall take such steps (including, but not limited to,
reservation of shares of stock) as may be necessary to permit the subsequent
exercise of the Rights in accordance with the terms hereof for such cash,
shares, rights, warrants and other property; and (v) the provisions of Section
11(a)(ii) hereof shall be of no effect following the occurrence of any event
described in clause (x), (y) or (z) above of this Section 13(a).

                  (b) "PRINCIPAL PARTY" shall mean

                           (i) in the case of any transaction described in
                  clause (x) or (y) of the first sentence of Section 13(a)
                  hereof: (A) the Person that is the issuer of the securities
                  into which shares of Common Stock of the Corporation are
                  changed or otherwise exchanged or converted in such merger or
                  consolidation, or, if there is more than one such issuer, the
                  issuer of the Common Stock of which has the greatest market
                  value or (B) if no securities are so issued, (I) the Person
                  that is the other party to the merger or consolidation and
                  that survives such merger or consolidation, or, if there is
                  more than one such Person, the Person the Common Stock of
                  which has the greatest market value or (II) if the Person that
                  is the other party to the merger or consolidation does not
                  survive the merger or consolidation, the Person that does
                  survive the merger or consolidation (including the Corporation
                  if it survives); and

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

provided, however, that in any such case, if the Common Stock of such Person is
not at such time and has not been continuously over the preceding 12-month
period registered under Section 12 of the Exchange Act, then (1) if such Person
is a direct or indirect Subsidiary of another Person the Common Stock of which
is and has been so registered, the term "Principal Party" shall refer to such
other Person, or (2) if such Person is a Subsidiary, directly or indirectly, of
more than one Person, the Common Stocks of all of which are and have been so
registered, the term "Principal Party" shall refer to whichever of such Persons

                                       23
<PAGE>

is the issuer of the Common Stock having the greatest market value of shares
outstanding, or (3) if such Person is owned, directly or indirectly, by a joint
venture formed by two or more Persons that are not owned, directly or
indirectly, by the same Person, the rules set forth in clauses (1) and (2) above
shall apply to each of the owners having an interest in the venture as if the
Person owned by the joint venture was a Subsidiary of both or all of such joint
venturers, and the Principal Party in each such case shall bear the obligations
set forth in this Section 13 in the same ratio as its interest in such Person
bears to the total of such interests.

                  (c) The Corporation shall not consummate any consolidation,
merger or sale or transfer of assets or earning power referred to in Section
13(a) unless the Principal Party shall have a sufficient number of authorized
shares of its Common Stock that have not been issued or reserved for issuance to
permit exercise in full of all Rights in accordance with this Section 13 and
unless prior thereto the Corporation and the Principal Party involved therein
shall have executed and delivered to the Rights Agent an agreement confirming
that the Principal Party shall, upon consummation of such consolidation, merger
or sale or transfer of assets or earning power, assume this Agreement in
accordance with Section 13(a) hereof and that all rights of first refusal or
preemptive rights in respect of the issuance of shares of Common Stock of the
Principal Party upon exercise of outstanding Rights have been waived and that
such transaction shall not result in a default by the Principal Party under this
Agreement, and further providing that, as soon as practicable after the date of
any consolidation, merger or sale or transfer of assets or earning power
referred to in Section 13(a) hereof, the Principal Party will:

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

                           (ii) use its best efforts to list (or continue the
                  listing of) the Rights and the securities purchasable upon
                  exercise of the Rights on a national securities exchange or to
                  meet the eligibility requirements for quotation on NASDAQ;

                           (iii) deliver to holders of the Rights historical
                  financial statements for the Principal Party which comply in
                  all respects with the requirements for registration on Form 10
                  (or any successor form) under the Exchange Act. In the event
                  that any of the transactions described in Section 13(a) hereof
                  shall occur at any time after the occurrence of a transaction
                  described in Section 11(a)(ii) hereof, the Rights which have
                  not theretofore been exercised shall, subject to the

                                       24
<PAGE>

                  provisions of Section 7(e) hereof, thereafter be exercisable
                  in the manner described in Section 13(a); and

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

                  (d) In case the Principal Party which is to be a party to a
transaction referred to in this Section 13 has a provision in any of its
authorized securities or in its Certificate of Incorporation or By-laws or other
instrument governing its affairs, which provision would have the effect of (i)
causing such Principal Party to issue, in connection with, or as a consequence
of, the consummation of a transaction referred to in this Section 13, shares of
Common Stock of such Principal Party at less than the then Fair Market Value per
share (determined pursuant to Section 11(b) hereof) or securities exercisable
for, or convertible into, Common Stock of such Principal Party at less than such
then Fair Market Value (other than to holders of Rights pursuant to this Section
13) or (ii) providing for any special tax or similar payment in connection with
the issuance to any holder of a Right of Common Stock of such Principal Party
pursuant to the provisions of this Section 13, then, in such event, the
Corporation shall not consummate any such transaction unless prior thereto the
Corporation and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing that the provision in question
of such Principal Party shall have been canceled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with, or as a consequence of, the consummation of
the proposed transaction.

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

                  Section 14. Fractional Rights and Fractional Shares.

                  (a) The Corporation shall not be required to issue fractions
of Rights or to distribute Right Certificates which evidence fractional Rights
(i.e., Rights to acquire less than one one-hundredth of a share of Preferred
Stock), unless such fractional Rights result from a transaction referred to in
Section 11(a)(i) or 11(f) hereof. If the Corporation shall determine not to

                                       25
<PAGE>

issue such fractional Rights, then, in lieu of such fractional Rights, there
shall be paid to the holders of record 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 Fair Market Value of a whole Right.

                  (b) The Corporation shall not be required to issue fractions
of shares of Preferred Stock (other than fractions that are integral multiples
of one one-hundredth of a share) upon exercise of the Rights or to distribute
certificates which evidence fractional shares (other than fractions that are
integral multiples of one one-hundredth of a share). In lieu of issuing
fractions of shares of Preferred Stock, the Corporation may, at its election,
issue depositary receipts evidencing fractions of shares pursuant to an
appropriate agreement between the Corporation and a depositary selected by it,
provided that such agreement shall provide that the holders of such depositary
receipts shall have all of the rights, privileges and preferences to which they
would be entitled as owners of the Preferred Stock. With respect to fractional
shares that are not integral multiples of one one-hundredth of a share, if the
Corporation does not issue such fractional shares or depositary receipts in lieu
thereof, there shall be paid to the holders of record of Right Certificates at
the time such Right Certificates are exercised as herein provided an amount in
cash equal to the same fraction of the Fair Market Value of a share of Preferred
Stock.

                  (c) The holder of a Right by the acceptance of a Right
expressly waives his right to receive any fractional Right or any fractional
shares of Preferred Stock (other than fractions which are integral multiples of
one one-hundredth of a share) upon exercise of a Right.

                  Section 15. Rights of Action. All rights of action in respect
of this Agreement, except the rights of action given to the Rights Agent in
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the holders of record of the
Common Stock), and any holder of record of any Right Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Corporation 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.

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

                                       26
<PAGE>

                           (a) prior to the Distribution Date, the Rights shall
                  be evidenced by the certificates for Common Stock (or in the
                  case of uncertificated shares of Common Stock, by the
                  book-entry account that evidences record ownership of such
                  shares) registered in the name of the holders of Common Stock
                  (together, as applicable, with the Summary of Rights), which
                  certificates for Common Stock (or book-entry account) shall
                  also constitute certificates for Rights, and not by separate
                  Right Certificates, and each Right shall be transferable only
                  simultaneously and together with the transfer of shares of
                  Common Stock;

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

                           (c) the Corporation 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 Stock
                  certificate or, in the case of uncertificated shares of Common
                  Stock, the book-entry account evidencing record ownership of
                  such shares) 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 Stock certificate made by anyone other than
                  the Corporation or the Rights Agent) for all purposes
                  whatsoever, and neither the Corporation 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 Preferred Stock or any
other securities 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 or other securityholder of the
Corporation or of a securityholder of any other Person 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
securityholder action, or to receive notice of meetings or other actions
affecting stockholders or securityholders (except as provided in Section 24
hereof), or to receive dividends or subscription rights, or otherwise, except in
any such case the rights, if any, in respect thereof provided by this Agreement,
until the Right or Rights evidenced by such Right Certificate shall have been
exercised in accordance with the provisions hereof for such stock or other
security.

                                       27
<PAGE>

                  Section 18. Concerning the Rights Agent.

                  (a) The Corporation 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
Corporation also agrees to indemnify the Rights Agent for, and to hold it
harmless against, any loss, liability, or expense, incurred without negligence,
bad faith or willful misconduct on the part of the Rights Agent, for anything
done or omitted to be done by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the cost and expenses of
defending against any claim of liability relating to the Rights or this
Agreement.

                  (b) The Rights Agent shall be protected against, 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 Preferred Stock or for other securities
of the Corporation, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
person or persons.

                  Section 19. Merger or Consolidation of, or Change in Name of,
the Rights Agent.

                  (a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust or stock transfer 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 Rights Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.

                  (b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; in case at

                                       28
<PAGE>

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; 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 Corporation and the holders
of Right Certificates by their acceptance thereof shall be bound:

                  (a) The Rights Agent may consult with legal counsel (who may
be an employee of or outside legal counsel for the Corporation or the Rights
Agent), 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 Corporation prior to taking or suffering
any action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by the Chairman of the Board, the
President or any Vice President and by the Treasurer or any Assistant Treasurer
or the Secretary or any Assistant Secretary of the Corporation and delivered to
the Rights Agent. Any such certificate shall be full authorization to the Rights
Agent for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.

                  (c) The Rights Agent shall be liable hereunder only for its
own gross negligence, bad faith or willful misconduct.

                  (d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
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 Corporation only.

                  (e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Corporation of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any adjustment required under the provisions of
Section 11 or 13 hereof or responsible for the manner, method or amount of any
such adjustment or the ascertaining of the existence of facts that would require
any such adjustment (except with respect to the exercise of Rights evidenced by
Right Certificates after receipt of a certificate describing any such
adjustment); nor shall it by any act hereunder be deemed to make any

                                       29
<PAGE>

representation or warranty as to the authorization or reservation of any shares
of Preferred Stock or other security to be delivered pursuant to the exercise of
any Right or as to whether any shares of Preferred Stock or other security will,
when issued, be validly authorized and issued, fully paid and nonassessable.

                  (f) The Corporation 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 the Agreement.

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

                  (h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Corporation or become pecuniarily interested in any
transaction in which the Corporation may be interested, or contract with or lend
money to the Corporation or otherwise act as fully and freely as though it were
not the Rights Agent under this Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Corporation 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 Corporation resulting from any
such act, default, neglect or misconduct, provided reasonable care was exercised
in the selection and continued employment thereof.

                                       30
<PAGE>

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

                  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 Corporation and to each
transfer agent of the Common Stock and the Preferred Stock by registered or
certified mail. The Corporation may remove the Rights Agent or any successor
Rights Agent (with or without cause) upon 30 days' notice in writing, mailed to
the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Common Stock and the Preferred Stock by registered or
certified mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Corporation shall appoint a successor
to the Rights Agent. If the Corporation shall fail to make such appointment
within a period of 30 days after 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 Corporation), then
the incumbent Rights Agent or the holder of record 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 Corporation or by
such a court, shall be (a) a corporation organized and doing business under the
laws of the United States or of any state thereof, in good standing, which is
authorized under such laws to exercise corporate trust or stock transfer powers
and is subject to supervision or examination in the conduct of its corporate
trust or stock transfer business by federal or state authorities and which has
at the time of its appointment as Rights Agent a combined capital and surplus of
at least $50,000,000 or (b) an Affiliate controlled by or under common control
with one or more corporations described in clause (a) of this sentence. 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 Corporation shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock and
Preferred Stock, 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. Notwithstanding the foregoing
provisions, in the event of resignation, removal or incapacity of the Rights
Agent, the Corporation shall have the authority to act as the Rights Agent until
a successor Rights Agent shall have assumed the duties of the Rights Agent
hereunder.

                                       31
<PAGE>

                  Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Corporation 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 Exercise Price per share and the number
or kind or class of shares of stock 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 Voting Stock
following the Distribution Date and prior to the Expiration Date, the
Corporation may with respect to shares of Voting Stock so issued or sold
pursuant to (i) the exercise of stock options, (ii) under any employee plan or
arrangement, (iii) upon the exercise, conversion or exchange of securities,
notes or debentures issued by the Corporation or (iv) a contractual obligation
of the Corporation, in each case existing prior to the Distribution Date, issue
Rights Certificates representing the appropriate number of Rights in connection
with such issuance or sale.

                  Section 23. Redemption.

                  (a) The Corporation may, at its option, but only by the vote
of a majority of its Board of Directors, redeem all but not less than all of the
then outstanding Rights at any time prior to the Close of Business on the tenth
day following the Stock Acquisition Date (subject to extension by the
Corporation as provided in Section 26 hereof) at a redemption price of $0.01 per
Right, subject to adjustment as provided in Section 23(c) hereof (the
"REDEMPTION PRICE"). The redemption of the Rights by the Board of Directors of
the Corporation may be made effective at such time after the Board's action to
redeem the Rights on such basis and subject to such conditions, as the Board of
Directors of the Corporation in its sole and absolute discretion may establish.
Notwithstanding anything contained in this Agreement to the contrary, the Rights
shall not be exercisable prior to the expiration of the Corporation's right of
redemption hereunder.

                  (b) Without any further action and without any notice, the
right to exercise the Rights will terminate effective at the time so designated
by action of the Board of Directors of the Corporation ordering the redemption
of the Rights and the only right thereafter of the holders of Rights shall be to
receive the Redemption Price. Within 10 days after the effective time of the
action of the Board of Directors of the Corporation ordering the redemption of
the Rights, the Corporation shall give notice of such redemption to the holders
of the then outstanding Rights by mailing such notice to all such holders at
their last addresses as they appear upon the registry books of the Rights Agent
or, prior to the Distribution Date, on the registry books of the transfer agent
for the Common Stock. Any notice which is mailed in the manner herein provided
shall be deemed given, whether or not the holder receives the notice. Each
notice of redemption will state the method by which the payment of the
Redemption Price will be made. At the option of the Board of Directors of the
Corporation, the Redemption Price may be paid in cash to each Rights holder or
by the issuance of shares (and, at the Corporation's election pursuant to
Section 14(b) hereof, cash or depositary receipts in lieu of fractions of shares
other than fractions which are integral multiples of one one-hundredth of a
share) of Preferred Stock or Common Stock having a Fair Market Value equal to
such cash payment.

                                       32
<PAGE>

                  (c) In the event the Corporation shall at any time after the
date of this Agreement but before the Distribution Date (A) pay any dividend on
Common Stock in shares of Common Stock, (B) subdivide or split the outstanding
shares of Common Stock into a greater number of shares or (C) combine or
consolidate the outstanding shares of Common Stock into a smaller number of
shares or effect a reverse split of the outstanding shares of Common Stock and
as a consequence thereof the number of Rights outstanding shall change, then,
and in each such event, the Redemption Price may, by action of the Board of
Directors of the Corporation in its discretion, be appropriately adjusted in
respect of such transaction so as to maintain the aggregate Redemption Price of
all Rights after such transaction at the same amount, insofar as practicable, as
before the transaction.

                  Section 24. Notice of Proposed Actions.

                  (a) In case the Corporation, after the Distribution Date,
shall propose (i) to effect any of the transactions referred to in Section
11(a)(i) hereof or to pay any dividend to the holders of record of its shares of
Common Stock payable in shares of capital stock of any class or to make any
other distribution to the holders of record of its Common Stock (other than a
regular periodic cash dividend at a rate not in excess of 150% of the rate of
the last cash dividend theretofore paid), or (ii) to offer to the holders of
record of its Common Stock options, warrants, or other rights to subscribe for
or to purchase shares of Common Stock (including any security convertible into
or exchangeable for Common Stock) or shares of stock of any class or any other
securities, options, warrants, convertible or exchangeable securities or other
rights, or (iii) to effect any reclassification of its Preferred Stock or Common
Stock or any recapitalization or reorganization of the Corporation, or (iv) to
effect any consolidation or merger with or into, or to effect any sale or other
transfer (or to permit one or more of its Subsidiaries to effect any sale or
other transfer), in one or more transactions, of more than 50% of the assets or
earning power of the Corporation and its Subsidiaries (taken as a whole) to, any
other Person or Persons, or (v) to effect the liquidation, dissolution or
winding up of the Corporation, then, in each such case, the Corporation shall
give to each holder of record of a Right Certificate, in accordance with Section
25 hereof, notice of such proposed action, which shall specify the record date
for the purposes of such transaction referred to in Section 11(a)(i) or such
dividend or distribution, or the date on which such reclassification,
recapitalization, reorganization, consolidation, merger, sale or transfer of
assets, liquidation, dissolution, or winding up is to take place and the record
date for determining participation therein by the holders of record of Common
Stock or Preferred Stock, if any such date is to be fixed, and such notice shall
be so given in the case of any action covered by clause (i) or (ii) above at
least 10 days prior to the record date for determining holders of record of the
Preferred Stock for purposes of such action, and in the case of any such other
action, at least 10 days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of record of Common Stock or
Preferred Stock, whichever shall be the earlier. The failure to give notice
required by this Section 24 or any defect therein shall not affect the legality
or validity of the action taken by the Corporation or the vote upon any such
action.

                                       33
<PAGE>

(b) In case the event referred to in Section 11(a)(ii) hereof shall occur, then
the Corporation shall as soon as practicable thereafter, in accordance with
Section 25 hereof, give to each holder of a Right 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 25. Notices. Notices or demands authorized by this Agreement to be given
or made by the Rights Agent or by the holder of record of any Right Certificate
or Right to or on the Corporation shall be in writing and shall be considered
given upon receipt or seven Business Days after being sent by first-class mail,
postage prepaid, in any case addressed (until another address is filed in
writing with the Rights Agent) as follows:

                           Guilford Mills, Inc.
                           4925 West Market Street
                           Greensboro, North Carolina  27407
                           Attention:  Corporate Secretary

Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Corporation or by the holder of record of
any Right Certificate or Right to or on the Rights Agent shall be in writing and
shall be considered given upon receipt or seven Business Days after being sent
by first-class mail, postage prepaid, in any case addressed (until another
address is filed in writing with the Corporation) as follows:

                           American Stock Transfer & Trust Company
                           40 Wall Street
                           New York, NY 10005
                           Attn:  Vice President, Administration

Notices or demands authorized by this Agreement to be given or made by the
Corporation or the Rights Agent to the holder of record of any Right Certificate
or Right shall be in writing and shall be considered given upon receipt or seven
Business Days after being 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 Corporation.

                  Section 26. Supplements and Amendments. For as long as the
Rights are then redeemable and except as provided in the last sentence of this
Section 26, the Corporation may, in its sole and absolute discretion, and the
Rights Agent shall if the Corporation so directs, supplement or amend any
provision of this Agreement without the approval of any holders of the Rights.
At any time when the Rights are not then redeemable and except as provided in
the last sentence of this Section 26, the Corporation may, and the Rights Agent
shall if the Corporation so directs, supplement or amend this Agreement without

                                       34
<PAGE>

the approval of any holders of Right Certificates (i) to cure any ambiguity,
(ii) to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provisions herein or (iii) to change or
supplement the provisions hereunder in any manner which the Corporation may deem
necessary or desirable, provided that no such supplement or amendment pursuant
to this clause (iii) shall materially adversely affect the interest of the
holders of Right Certificates (other than an Acquiring Person or any other
Person in whose hands Rights are null and void under the provisions of Section
7(e) hereof). Upon the delivery of a certificate from an appropriate officer of
the Corporation which states that the proposed supplement or amendment is in
compliance with the terms of this Section 26, the Rights Agent shall execute
such supplement or amendment. Notwithstanding anything contained in this
Agreement to the contrary, no supplement or amendment shall be made which
changes the Redemption Price; it being understood that an adjustment of the
Redemption Price in accordance with Section 23 shall not be considered a
supplement or amendment of this Agreement.

                  Section 27. Exchange.

                  (a) The Board of Directors of the Corporation 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 null and void pursuant to the provisions of Section 7(e)
hereof) by exchanging for each such Right a number of shares of Common Stock
having an aggregate Fair Market Value on the date such Person became an
Acquiring Person equal to the Spread, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such number of shares of Common Stock per Right being hereinafter
referred to as the "EXCHANGE RATIO"); provided, however, if such calculation
would result in an Exchange Ratio that exceeds four shares of Common Stock per
Right, then the Exchange Ratio shall, notwithstanding, be equal to four shares
of Common Stock per Right, in each case, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof. Notwithstanding the foregoing, the Board of Directors of the Corporation
shall not be empowered to effect such exchange at any time after any Person
(other than an Exempt Person), together with all Affiliates and Associates of
such Person, becomes the Beneficial Owner of 50% or more of the Voting Stock
then outstanding. From and after the occurrence of an event specified in Section
13(a) hereof, any Rights that theretofore have not been exchanged pursuant to
this Section 27(a) shall thereafter be exercisable only in accordance with
Section 13 and may not be exchanged pursuant to this Section 27(a).

                  (b) Immediately upon the action of the Board of Directors of
the Corporation ordering the exchange of any Rights pursuant to paragraph (a) of
this Section 27 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of shares of Common Stock
equal to the number of such Rights held by such holder multiplied by the
Exchange Ratio. The Corporation shall promptly give public notice of any such
exchange; provided, however, that the failure to give, or any defect in, such

                                       35
<PAGE>

notice shall not affect the validity of such exchange. The Corporation promptly
shall mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the shares of Common Stock for Rights
will be effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be effected pro rata based
on the number of Rights (other than Rights which have become null and void
pursuant to the provisions of Section 7(e) hereof) held by each holder of
Rights.

                  (c) In the event that there shall not be sufficient shares of
Common Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 27, the
Corporation shall substitute to the extent of such insufficiency, for each share
of Common Stock that would otherwise be issuable upon exchange of a Right, a
number of shares of Preferred Stock or fractions thereof having an aggregate
Fair Market Value equal to the Fair Market Value of one share of Common Stock as
of the date any Person becomes an Acquiring Person.

                  (d) The Corporation shall not be required to issue fractions
of shares of Common Stock or to distribute certificates which evidence
fractional shares. In lieu of such fractional shares, the Corporation shall pay
to the registered holders of the Right Certificates with regard to which such
fractional shares of Common Stock would otherwise be issuable an amount in cash
equal to the same fraction of the current market value of a whole share of
Common Stock. For the purposes of this paragraph (d), the current market value
of a whole share of Common Stock shall be the closing price of a share of Common
Stock for the Trading Day immediately prior to the date of exchange pursuant to
this Section 27.

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

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

                  Section 30. Delaware Contract. 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 and enforced in accordance with the laws of such state applicable to
contracts to be made and performed entirely within such state.

                                       36
<PAGE>

                  Section 31. 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 32. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.

                  Section 33. 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 34. Determinations and Actions by the Board of
Directors. The Board of Directors of the Corporation shall have the exclusive
power and authority to administer, interpret and apply this Agreement and to
exercise the rights and powers specifically granted to the Board of Directors of
the Corporation or to the Corporation by this Agreement or by law and may take
such action as may be necessary or advisable in the administration of this
Agreement or to amend or supplement this Agreement in accordance with its terms,
including, without limitation, the right and power (i) to make all
determinations deemed necessary or advisable for the administration of this
Agreement, (ii) to decide to redeem the Rights and (iii) to decide to amend or
supplement this Agreement. All such actions, calculations, interpretations and
determinations (including any decision not to take any action) done or made by
the Board of Directors of the Corporation in good faith shall (x) be final,
conclusive and binding on the Corporation, the Rights Agent, the holders of the
Rights, as such, and all other Persons and (y) not subject any member of the
Board of Directors of the Corporation to any liability to the holders of Rights.

                                       37
<PAGE>

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

                            GUILFORD MILLS, INC.

                            By:/s/ Terrence E. Geremski
                               -------------------------------
                            Name:  Terrence E. Geremski
                            Title: Executive Vice President
                                   and Chief Financial Officer

                            AMERICAN STOCK TRANSFER &
                            TRUST COMPANY, as Rights Agent

                            By:/s/ Herbert J. Lemmer
                               -------------------------------
                            Name:  Herbert J. Lemmer
                            Title: Vice President

                                       38

<PAGE>
                                                                       EXHIBIT A
                                                                       ---------

--------------------------------------------------------------------------------
                AS PROVIDED IN THE RIGHTS AGREEMENT (AS REFERRED
                TO BELOW), RIGHTS ISSUED TO OR BENEFICIALLY OWNED
                   BY ACQUIRING PERSONS OR THEIR AFFILIATES OR
                  ASSOCIATES (AS SUCH TERMS ARE DEFINED IN THE
                  RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDER OF
                 SUCH RIGHTS SHALL BE NULL AND VOID AND MAY NOT
                   BE EXERCISED OR TRANSFERRED TO ANY PERSON.
--------------------------------------------------------------------------------

                              GUILFORD MILLS, INC.

                          SUMMARY OF RIGHTS TO PURCHASE
                  SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

                  On July 26, 2000, the Board of Directors of Guilford Mills,
Inc., a Delaware corporation (the "Corporation"), declared a dividend
distribution of one Preferred Stock Purchase Right for each outstanding share of
common stock, par value $0.02 per share (the "Common Stock"), of the
Corporation. The distribution was made payable as of August 23, 2000 to
stockholders of record on that date (the "Record Date"). Each Right, once
exercisable, entitles the registered holder to purchase from the Corporation one
one-hundredth (1/100) of a share of preferred stock of the Corporation,
designated as Series A Junior Participating Preferred Stock (the "Preferred
Stock"), at a price of $20.00 per one one-hundredth (1/100) of a share
("Exercise Price"), subject to certain adjustments. The description and terms of
the Rights are set forth in a Rights Agreement (the "Rights Agreement") by and
between the Corporation and American Stock Transfer & Trust Company, as Rights
Agent (the "Rights Agent").

                  As discussed below, initially the Rights will not be
                  ----------------------------------------------------
exercisable, certificates will not be sent to stockholders and the Rights will
------------------------------------------------------------------------------
automatically trade with the Common Stock.
------------------------------------------

                  The Rights, unless earlier redeemed by the Board of Directors,
become exercisable upon the close of business on the day (the "Distribution
Date") which is the earlier of (i) the tenth day following a public announcement
that a person or group of affiliated or associated persons, with certain
exceptions set forth below, has acquired beneficial ownership of 15% or more of
the outstanding voting stock of the Corporation (an "Acquiring Person") and (ii)
the tenth business day (or such later date as may be determined by the Board of
Directors prior to such time as any person or group of affiliated or associated
persons becomes an Acquiring Person) after the date of the commencement by any
person of a tender or exchange offer, the consummation of which would result in
such person or group of affiliated or associated persons becoming an Acquiring
Person.

                  An Acquiring Person does not include (A) the Corporation, (B)
any subsidiary of the Corporation, (C) any employee benefit plan or employee
stock plan of the Corporation or of any subsidiary of the Corporation, or any

NY2:\925953\05\J%GX05!.DOC\51040.0001
<PAGE>

trust or other entity organized, appointed, established or holding voting stock
for or pursuant to the terms of any such plan, (D) any person or group of
affiliated or associated persons whose ownership of 15% or more of the shares of
voting stock of the Corporation then outstanding results solely from (i) any
action or transaction or transactions approved by the Board of Directors before
such person or group became an Acquiring Person or (ii) a reduction in the
number of issued and outstanding shares of voting stock of the Corporation
pursuant to a transaction or transactions approved by the Board of Directors
(provided that any person or group that does not become an Acquiring Person by
reason of clause (i) or (ii) above shall become an Acquiring Person upon
acquisition of an additional 1% or more of the Corporation's voting stock unless
such acquisition of additional voting stock would not result in such person
becoming an Acquiring Person by reason of clause (i) or (ii) above), or (E) any
person who, as of July 26, 2000, together with all affiliates and associates of
such person, was the beneficial owner of 15% or more of the voting stock of the
Corporation outstanding as of such date; provided, however, that any person
described in this clause (E) shall become an Acquiring Person if (i) such
person, together with all affiliates and associates of such person, after July
26, 2000, acquires beneficial ownership of an additional 1% or more of the
voting stock (unless such acquisition is pursuant to a transaction described in
clause (D)(i) or (D)(ii) above) or (ii) such person, together with all
affiliates and associates of such person, after July 26, 2000, reduces its
beneficial ownership of the voting stock to less than 15% of the outstanding
voting stock and thereafter becomes the beneficial owner of 15% or more of the
outstanding voting stock (unless such acquisition is pursuant to a transaction
described in clause (D)(i) or (D)(ii) above).

                  Prior to the Distribution Date, the Rights will not be
exercisable, will not be represented by a separate certificate, and will not be
transferable apart from the Corporation's Common Stock, but will instead be
evidenced, with respect to any of the Common Stock certificates outstanding as
of the Record Date, by such Common Stock certificate with a copy of this Summary
of Rights attached thereto. Until the Distribution Date (or earlier redemption,
exchange or expiration of the Rights), new Common Stock certificates issued
after the Record Date will contain a legend incorporating the Rights Agreement
by reference. Until the Distribution Date (or earlier redemption, exchange or
expiration of the Rights), the surrender for transfer of any of the Common Stock
certificates outstanding as of the Record Date, with or without a copy of this
Summary of Rights attached thereto, will also constitute the transfer of the
Rights associated with the Common Stock represented by such certificate. As soon
as practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Stock as of the close of business on the Distribution Date, and such
separate certificates alone will evidence the Rights from and after the
Distribution Date.

                  The Rights are not exercisable until the Distribution Date.
The Rights will expire at the close of business on July 26, 2010, unless earlier
redeemed or exchanged by the Corporation as described below.

                  Shares of Preferred Stock purchasable upon exercise of the
Rights will be non-redeemable and, unless otherwise provided in connection with
the creation of a subsequent series of preferred stock, will be subordinate to
any other series of the Corporation's preferred stock. The Preferred Stock may
not be issued except upon exercise of Rights. Each share of Preferred Stock will
be entitled to receive when, as and if declared, a quarterly dividend in an

                                       2
<PAGE>

amount equal to the greater of $1.00 per share or 100 times the cash dividends
declared on the Corporation's Common Stock. In addition, the holders of the
Preferred Stock are entitled to receive 100 times any non-cash dividends (other
than dividends payable in equity securities) declared on the Common Stock, in
like kind. In the event of the liquidation of the Corporation, the holders of
Preferred Stock will be entitled to receive, for each share of Preferred Stock,
a payment in an amount equal to the greater of $2,000 or 100 times the payment
made per share of Common Stock. Each share of Preferred Stock will have 100
votes, voting together with the Common Stock. In the event of any merger,
consolidation or other transaction in which Common Stock is exchanged, each
share of Preferred Stock will be entitled to receive 100 times the amount
received per share of Common Stock. The rights of Preferred Stock as to
dividends, liquidation and voting are protected by anti-dilution provisions.

                  The Exercise Price of the Rights and the number of shares of
Preferred Stock issuable upon exercise of the Rights are subject to certain
adjustments from time to time in the event of a stock dividend on, or a
subdivision or combination of, the Common Stock. The Exercise Price for the
Rights also is subject to adjustment in the event of extraordinary distributions
of cash or other property to holders of Common Stock.

                  Unless the Rights are earlier redeemed, in the event that a
person or group becomes an Acquiring Person, the Rights Agreement provides that
proper provisions will be made so that each holder of record of a Right (other
than Rights beneficially owned by an Acquiring Person and certain affiliates,
associates and transferees thereof, whose Rights will thereupon become null and
void), will thereafter have the right to receive, upon payment of the Exercise
Price, that number of shares of the Preferred Stock having a fair market value
determined in accordance with the Rights Agreement at the time of the
transaction equal to approximately two times the Exercise Price (such value to
be determined with reference to the fair market value of the Corporation's
Common Stock as provided in the Rights Agreement).

                  In addition, unless the Rights are earlier redeemed or
exchanged, in the event that, after the time that a person or group becomes an
Acquiring Person, the Corporation were to be acquired in a merger or other
business combination (in which any shares of Common Stock are changed into or
exchanged for other securities or assets) or more than 50% of the assets or
earning power of the Corporation and its subsidiaries (taken as a whole) were to
be sold or transferred in one or a series of related transactions, the Rights
Agreement provides that proper provision will be made so that each holder of
record of a Right (other than Rights beneficially owned by an Acquiring Person
and certain affiliates, associates and transferees thereof, whose Rights will
thereupon become null and void) will from and after such date have the right to
receive, upon payment of the Exercise Price, that number of shares of common
stock of the acquiring company having a fair market value at the time of such
transaction determined in accordance with the Rights Agreement equal to
approximately two times the Exercise Price.

                  At any time after any person or group becomes an Acquiring
Person and prior to the acquisition by such person or group of 50% or more of
the outstanding voting stock, the Board of Directors of the Corporation may
exchange the Rights (other than Rights owned by such person or group which will
have become null and void), in whole or in part, for that number of shares of
the Corporation's Common Stock having a fair market value on the date such
person or group became an Acquiring Person equal to the excess of (i) the fair

                                       3
<PAGE>

market value of Preferred Stock issuable upon the exercise of the Rights over
(ii) the Exercise Price of the Rights, in each case subject to anti-dilution
adjustments; provided, however, that if such calculation would result in an
exchange ratio that exceeds four shares of Common Stock per Right, then the
exchange ratio shall, notwithstanding, be equal to four shares of Common Stock
per Right, subject to anti-dilution adjustments.

                  Fractions of shares of Preferred Stock (other than fractions
which are integral multiples of one one-hundredth of a share) may, at the
election of the Corporation, be evidenced by depositary receipts. The
Corporation may also issue cash in lieu of fractional shares which are not
integral multiples of one one-hundredth of a share.

                  At any time prior to the close of business on the tenth day
after there has been a public announcement that a person has become an Acquiring
Person, the Corporation may redeem the Rights in whole, but not in part, at a
price of $0.01 per Right (the "Redemption Price"). Immediately upon the
effective time of the action of the Board of Directors of the Corporation
authorizing redemption of the Rights, the right to exercise the Rights will
terminate and the only right of the holders of Rights will be to receive the
Redemption Price.

                  For as long as the Rights are then redeemable, the Corporation
may, except with respect to the Redemption Price, amend the Rights in any
manner, including an amendment to extend the time period in which the Rights may
be redeemed. At any time when the Rights are not then redeemable, the
Corporation may amend the Rights in any manner that does not materially
adversely affect the interests of holders of the Rights as such.

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

                  A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission on August [ ], 2000, as an Exhibit to the
Corporation's Current Report on Form 8-K. A copy of the Rights Agreement is
available free of charge from the Corporation. This summary description of the
Rights does not purport to be complete and is qualified in its entirety by
reference to the Rights Agreement which is incorporated in this summary
description herein by reference.

                                       4
<PAGE>

                                                                       EXHIBIT B
                                                                       ---------

                           [Form of Right Certificate]

Certificate No. W-                                                ______ Rights

         NOT EXERCISABLE AFTER JULY 26, 2010 OR EARLIER IF EXCHANGED OR
         REDEEMED. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
         CORPORATION AND UNDER CERTAIN OTHER CIRCUMSTANCES, AT $0.01 PER RIGHT
         (SUBJECT TO ADJUSTMENT), ON THE TERMS SET FORTH OR REFERRED TO IN THE
         RIGHTS AGREEMENT. AS PROVIDED IN THE RIGHTS AGREEMENT (AS REFERRED TO
         BELOW), RIGHTS ISSUED TO OR BENEFICIALLY OWNED BY ACQUIRING PERSONS OR
         THEIR AFFILIATES OR ASSOCIATES OR TRANSFEREES THEREOF (AS SUCH TERMS
         ARE DEFINED IN THE RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDER OF SUCH
         RIGHTS SHALL BE NULL AND VOID AND MAY NOT BE EXERCISED OR TRANSFERRED
         TO ANY PERSON.

                                Right Certificate

                  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 July 26, 2000 (the "Rights Agreement") by and between Guilford
Mills, Inc., a Delaware corporation (the "Corporation"), and American Stock
Transfer & Trust Company, a corporation organized under the laws of the State of
New York, as Rights Agent, or its successor in interest as Rights Agent (the
"Rights Agent"), to purchase from the Corporation 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 July 26, 2010 at the office of the Rights Agent
designated in the Rights Agreement for such purpose, one one-hundredth (1/100)
of a fully paid and nonassessable share of the Series A Junior Participating
Preferred Stock (the "Preferred Stock") of the Corporation, or other securities
or property in lieu thereof as provided by the Rights Agreement, at a purchase
price of $20.00, as the same may from time to time be adjusted in accordance
with the Rights Agreement (the "Exercise Price"), upon presentation and
surrender of this Right Certificate with the Form of Election to Purchase
attached hereto duly executed.

                  As provided in the Rights Agreement, the Exercise Price and
the number of shares of Preferred Stock 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 and, upon the happening of
certain events, securities other than shares of Preferred Stock, or other
property, may be acquired upon exercise of the Rights evidenced by this Right
Certificate, as provided in the Rights Agreement.

                  This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are 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 of the Rights

NY2:\925954\04
<PAGE>

Agent, the Corporation and the holders of record of Right Certificates. Copies
of the Rights Agreement are on file at the principal executive office of the
Corporation.

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

                  Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Corporation at its option
or under certain other circumstances at a redemption price of $0.01 per Right.

                  No fractional shares of Preferred Stock (other than fractions
which are integral multiples of one one-hundredth (1/100) of a share) are
required to be issued upon the exercise of any Right or Rights evidenced hereby,
and in lieu thereof the Corporation may cause depositary receipts to be issued
and/or a cash payment may be made, as provided in the Rights Agreement.

                  No holder of this Right Certificate, as such, shall be
entitled to vote or receive dividends or be deemed for any purpose the holder of
Preferred Stock or of any other securities of the Corporation 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 Corporation or any right to vote
for the election of directors or upon any matter submitted to stockholders at
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
<PAGE>

                  WITNESS the facsimile signature of the proper officers of the
Corporation and its corporate seal. Dated as of __________ ___, _____.

ATTEST:                                        GUILFORD MILLS, INC.

                                               By
----------------------------------------         ------------------------------
[Assistant] Secretary                            Title:

Countersigned:

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

By
  --------------------------------------
  Authorized Signature

                                       3
<PAGE>

                   [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 Certificates.)

                  FOR VALUE RECEIVED
                                    -------------------------------------------
hereby sells, assigns and transfers unto
                                        ---------------------------------------

-------------------------------------------------------------------------------
                  (Please print name and address of transferee)

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

Rights evidenced by 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 Corporation, with full power of substitution.

Dated: ____________ ___, _____

                                                 ------------------------------
                                                 Signature

Signature Guaranteed:

                                       4
<PAGE>

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

                  The undersigned hereby certifies by checking the appropriate
boxes that:
                  (1) this Right Certificate [ ] is [ ] is not being sold,
assigned or transferred by or on behalf of a Person who is or was an Acquiring
Person or an Associate or an Affiliate thereof (as such terms are defined in the
Rights Agreement); and
                  (2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Right
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate thereof (as such terms are defined in the
Rights Agreement).

Dated: __________ ___, _____                     ------------------------------
                                                 Signature

                                     NOTICE
                                     ------

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

                                       5
<PAGE>

                          FORM OF ELECTION TO PURCHASE
                          ----------------------------

                      (To be executed if registered holder
                   desires to exercise the Right Certificate.)

TO _____________________:

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

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
                                       (Signature must conform in all respects
                                       to name of holder as specified on the
                                       face of this Right Certificate)
Signature Guaranteed:

                                       6
<PAGE>
                                                                       EXHIBIT C
                                                                       ---------

                                     FORM OF

                  CERTIFICATE OF AMENDMENT TO THE DESIGNATIONS
                                       OF
                  SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
                                       OF
                              GUILFORD MILLS, INC.

                     PURSUANT TO SECTION 151 OF THE DELAWARE
                             GENERAL CORPORATION LAW

                  I, _____________________, the ____________________ of Guilford
Mills, Inc., a corporation organized and existing under the Delaware General
Corporation Law (the "CORPORATION"), in accordance with the provisions of
Section 151 of such law, DO HEREBY CERTIFY that:

                  1. No shares of the Corporation's Series A Junior
Participating Preferred Stock have been issued; and

                  2. Pursuant to the authority conferred upon the Board of
Directors of the Corporation by the Restated Certificate of Incorporation of the
Corporation, the Board of Directors on July 26, 2000 adopted the following
resolution amending the Certificate of Designations of Series A Junior
Participating Preferred Stock filed with the Secretary of State of the State of
Delaware on September 12, 1990 (such designation having been included in the
Restated Certificate of Incorporation):

                  RESOLVED, that pursuant to Section 151(g) of the Delaware
General Corporation Law and the authority vested in the Board of Directors of
the Corporation in accordance with the provisions of ARTICLE FOURTH of the
Restated Certificate of Incorporation of the Corporation, the series of shares
of Preferred Stock of the Corporation designated as Series A Junior
Participating Preferred Stock be, and hereby is, amended, and the powers,
designations, preferences and relative, participating, optional or other special

NY2:\907497\04
<PAGE>

rights of the shares of such series, and the qualifications, limitations or
restrictions thereof, be, and hereby are, as follows:

                  Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" (the
"SERIES A PREFERRED STOCK") and the number of shares constituting such series
shall be 400,000.

                  Section 2. Dividends and Distributions.

                  (A) Subject to the provisions for adjustment hereinafter set
forth, and subject to the rights of the holders of any shares of any series of
Preferred Stock of the Corporation ranking prior and superior to the Series A
Preferred Stock with respect to dividends, the holders of shares of Series A
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors of the Corporation out of funds legally available for the
purpose, (i) cash dividends in an amount per share (rounded to the nearest cent)
equal to 100 times the aggregate per share amount of all cash dividends declared
or paid on the Common Stock, $0.02 par value per share, of the Corporation (the
"COMMON STOCK") and (ii) a preferential cash dividend (the "PREFERENTIAL
DIVIDENDS"), if any, in preference to the holders of Common Stock, on the first
business day of February, May, August and November, of each year (each a
"QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, payable in an amount (except in the case of the first
Quarterly Dividend Payment Date if the date of the first issuance of Series A
Preferred Stock is a date other than a Quarterly Dividend Payment Date, in which
case such payment shall be a prorated portion of such amount) equal to $1.00 per
share of Series A Preferred Stock less the per share amount of all cash
dividends declared on the Series A Preferred Stock pursuant to clause (i) of
this sentence since the immediately preceding Quarterly Dividend Payment Date
or, with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred Stock. In the
event the Corporation shall, at any time after the issuance of any share or
fraction of a share of Series A Preferred Stock, make any distribution on the
shares of Common Stock, whether by way of a dividend or a reclassification of
stock, a recapitalization, reorganization or partial liquidation of the
Corporation or otherwise, which is payable in cash or any debt security, debt
instrument, real or personal property or any other property (other than cash
dividends subject to the immediately preceding sentence, a distribution of
shares of Common Stock or other capital stock of the Corporation or a
distribution of options, rights or warrants to acquire any such share, including
any debt security convertible into or exchangeable for any such share, at a
price less than the Fair Market Value (as hereinafter defined) of such share of
Common Stock), then, and in each such event, the Corporation shall
simultaneously pay on each then outstanding share of Series A Preferred Stock a
distribution, in like kind, of 100 times such distribution paid on a share of
Common Stock (subject to the provisions for adjustment hereinafter set forth).
The dividends and distributions on the Series A Preferred Stock to which holders
thereof are entitled pursuant to clause (i) of the first sentence of this
paragraph and pursuant to the second sentence of this paragraph are hereinafter
referred to as "DIVIDENDS" and the multiple of such cash and non-cash dividends

                                       2
<PAGE>

on the Common Stock applicable to the determination of the Dividends, which
shall be 100 initially but shall be adjusted from time to time as hereinafter
provided, is hereinafter referred to as the "DIVIDEND MULTIPLE". In the event
the Corporation shall at any time after August 23, 2000 (the "EFFECTIVE DATE")
declare or pay any dividend or make any distribution on Common Stock payable in
shares of Common Stock, or effect a subdivision or split or a combination,
consolidation or reverse split of the outstanding shares of Common Stock into a
greater or lesser number of shares of Common Stock, then in each such case the
Dividend Multiple thereafter applicable to the determination of the amount of
Dividends which holders of shares of Series A Preferred Stock shall be entitled
to receive shall be the Dividend Multiple applicable immediately prior to such
event multiplied by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.

                  (B) The Corporation shall declare each Dividend at the same
time it declares any cash or non-cash dividend or distribution on the Common
Stock in respect of which a Dividend is required to be paid. No cash or non-cash
dividend or distribution on the Common Stock in respect of which a Dividend is
required to be paid shall be paid or set aside for payment on the Common Stock
unless a Dividend in respect of such dividend or distribution on the Common
Stock shall be simultaneously paid or set aside for payment (as the case may
be), on the Series A Preferred Stock.

                  (C) Preferential Dividends shall begin to accrue on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issuance of any shares of Series A
Preferred Stock. Accrued but unpaid Preferential Dividends shall cumulate but
shall not bear interest. Preferential Dividends paid on the shares of Series A
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.

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

                  (A) Subject to the provisions for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the holders of the Common
Stock. The number of votes which a holder of Series A Preferred Stock is
entitled to cast, as the same may be adjusted from time to time as hereinafter
provided, is hereinafter referred to as the "VOTE MULTIPLE". In the event the
Corporation shall at any time after the Effective Date declare or pay any
dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or split or a combination, consolidation or reverse split of the
outstanding shares of Common Stock into a greater or lesser number of shares of
Common Stock, then in each such case the Vote Multiple thereafter applicable to
the determination of the number of votes per share to which holders of shares of
Series A Preferred Stock shall be entitled after such event shall be the Vote
Multiple immediately prior to such event multiplied by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after

                                       3
<PAGE>

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 the Restated
Certificate of Incorporation or by law, the holders of shares of Series A
Preferred Stock and the holders of shares of Common Stock shall vote together as
one class on all matters submitted to a vote of stockholders of the Corporation.

                  (C) In the event that the Preferential Dividends accrued on
the Series A Preferred Stock for four or more quarterly dividend periods,
whether consecutive or not, shall not have been declared and paid or irrevocably
set aside for payment, the holders of record of Preferred Stock of the
Corporation of all series (including the Series A Preferred Stock), other than
any series in respect of which such right is expressly withheld by the Restated
Certificate of Incorporation or the authorizing resolutions included in any
certificate of designations therefor, shall have the right, at the next meeting
of stockholders called for the election of directors, to elect two members to
the Board of Directors of the Corporation, which directors shall be in addition
to the number required prior to such event, to serve until the next annual
meeting and until their successors are elected and qualified or their earlier
resignation, removal or incapacity or until such earlier time as all accrued and
unpaid Preferential Dividends upon the outstanding shares of Series A Preferred
Stock shall have been paid (or irrevocably set aside for payment) in full. The
holders of shares of Series A Preferred Stock shall continue to have the right
to elect directors as provided by the immediately preceding sentence until all
accrued and unpaid Preferential Dividends upon the outstanding shares of Series
A Preferred Stock shall have been paid (or set aside for payment) in full. Such
directors may be removed and replaced by such stockholders, and vacancies in
such directorships may be filled only by such stockholders (or by the remaining
director elected by such stockholders, if there be one) in the manner permitted
by law; provided, however, that any such action by stockholders shall be taken
at a meeting of stockholders and shall not be taken by written consent thereto.

                  (D) Except as otherwise required by the Restated Certificate
of Incorporation or by law or set forth herein, holders of Series A Preferred
Stock shall have no other 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 the taking of any corporate action.

                  Section 4. Certain Restrictions.

                  (A) Whenever Preferential Dividends or Dividends are in
arrears or the Corporation shall be in default of payment thereof, thereafter
and until all accrued and unpaid Preferential Dividends and Dividends, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid or set irrevocably aside for payment in full, and in addition to any
and all other rights which any holder of shares of Series A Preferred Stock may
have in such circumstances, the Corporation shall not:

                                       4
<PAGE>

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

                           (ii) declare or pay dividends on or make any other
                  distributions on any shares of stock ranking on a parity as to
                  dividends with the Series A Preferred Stock, unless dividends
                  are paid ratably on the Series A 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 if the full dividends accrued
                  thereon were to be paid;

                           (iii) except as permitted by subparagraph (iv) of
                  this Section 4(A), redeem or purchase or otherwise acquire for
                  consideration shares of any stock ranking on a parity (either
                  as to dividends or upon liquidation, dissolution or winding
                  up) with the Series A Preferred Stock, provided that the
                  Corporation may at any time redeem, purchase or otherwise
                  acquire shares of any such parity stock in exchange for shares
                  of any stock of the Corporation ranking junior (both as to
                  dividends and upon liquidation, dissolution or winding up) to
                  the Series A Preferred Stock; or

                           (iv) purchase or otherwise acquire for consideration
                  any shares of Series A Preferred Stock, or any shares of stock
                  ranking on a parity with the Series A Preferred Stock (either
                  as to dividends or upon liquidation, dissolution or winding
                  up), except in accordance with a purchase offer made to all
                  holders of such shares upon such terms as the Board of
                  Directors of the Corporation, after consideration of the
                  respective annual dividend rates and other relative rights and
                  preferences of the respective series and classes, shall
                  determine in good faith will result in fair and equitable
                  treatment among the respective series or classes.

                  (B) The Corporation shall not permit any Subsidiary (as
hereinafter defined) of the Corporation to purchase or otherwise acquire for
consideration any shares of stock of the Corporation unless the Corporation
could, under paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner. A "SUBSIDIARY" of the Corporation shall
mean any corporation or other entity of which securities or other ownership
interests having ordinary voting power sufficient to elect a majority of the
board of directors of such corporation or other entity or other persons
performing similar functions are beneficially owned, directly or indirectly, by
the Corporation or by any corporation or other entity that is otherwise
controlled by the Corporation.

                  (C) The Corporation shall not issue any shares of Series A
Preferred Stock except upon exercise of Rights issued pursuant to that certain
Rights Agreement dated as of July 26, 2000, by and between the Corporation and
American Stock Transfer & Trust Company, as Rights Agent, as it may be amended
from time to time, a copy of which is on file with the Secretary of the

                                       5
<PAGE>

Corporation at its principal executive office and shall be made available to
stockholders of record without charge upon written request therefor addressed to
said Secretary. Notwithstanding the foregoing sentence, nothing contained in the
provisions of this Certificate of Designations shall prohibit or restrict the
Corporation from issuing for any purpose any series of Preferred Stock with
rights and privileges similar to, different from, or greater than, those of the
Series A Preferred Stock.

                  Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares upon their retirement and cancellation shall become
authorized but unissued shares of Preferred Stock, without designation as to
series, and such shares may be reissued as part of a new series of Preferred
Stock to be created by resolution or resolutions of the Board of Directors of
the Corporation.

                  Section 6. Liquidation, Dissolution or Winding Up. Upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (i) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock unless the holders of shares of
Series A Preferred Stock shall have received for each share of Series A
Preferred Stock, subject to adjustment as hereinafter provided, (A) $2,000 plus
an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment or, (B) if greater than the
amount specified in clause (i)(A) of this sentence, an amount equal to 100 times
the aggregate amount to be distributed per share to holders of Common Stock, as
the same may be adjusted as hereinafter provided and (ii) to the holders of
stock ranking on a parity upon liquidation, dissolution or winding up with the
Series A Preferred Stock, unless simultaneously therewith distributions are made
ratably on the Series A Preferred Stock and all other shares of such parity
stock in proportion to the total amounts to which the holders of shares of
Series A Preferred Stock are entitled under clause (i)(A) of this sentence and
to which the holders of such parity shares are entitled, in each case upon such
liquidation, dissolution or winding up. The amount to which holders of Series A
Preferred Stock may be entitled upon liquidation, dissolution or winding up of
the Corporation pursuant to clause (i)(B) of the foregoing sentence is
hereinafter referred to as the "PARTICIPATING LIQUIDATION AMOUNT" and the
multiple of the amount to be distributed to holders of shares of Common Stock
upon the liquidation, dissolution or winding up of the Corporation applicable
pursuant to said clause to the determination of the Participating Liquidation
Amount, as said multiple may be adjusted from time to time as hereinafter
provided, is hereinafter referred to as the "LIQUIDATION MULTIPLE". In the event
the Corporation shall at any time after the Effective Date declare or pay any
dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or split or a combination, consolidation or reverse split of the
outstanding shares of Common Stock into a greater or lesser number of shares of
Common Stock, then, in each such case, the Liquidation Multiple thereafter
applicable to the determination of the Participating Liquidation Amount to which
holders of Series A Preferred Stock shall be entitled after such event shall be

                                       6
<PAGE>

the Liquidation Multiple applicable immediately prior to such event multiplied
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. Certain Reclassifications and Other Events.

                  (A) In the event that holders of shares of Common Stock
receive after the Effective Date in respect of their shares of Common Stock any
share of capital stock of the Corporation (other than any share of Common
Stock), whether by way of reclassification, recapitalization, reorganization,
dividend or other distribution or otherwise (a "TRANSACTION"), then, and in each
such event, the dividend rights, voting rights and rights upon the liquidation,
dissolution or winding up of the Corporation of the shares of Series A Preferred
Stock shall be adjusted so that after such event the holders of Series A
Preferred Stock shall be entitled, in respect of each share of Series A
Preferred Stock held, in addition to such rights in respect thereof to which
such holder was entitled immediately prior to such adjustment, to (i) such
additional dividends as equal the Dividend Multiple in effect immediately prior
to such Transaction multiplied by the additional dividends which the holder of a
share of Common Stock shall be entitled to receive by virtue of the receipt in
the Transaction of such capital stock, (ii) such additional voting rights as
equal the Vote Multiple in effect immediately prior to such Transaction
multiplied by the additional voting rights which the holder of a share of Common
Stock shall be entitled to receive by virtue of the receipt in the Transaction
of such capital stock and (iii) such additional distributions upon liquidation,
dissolution or winding up of the Corporation as equal the Liquidation Multiple
in effect immediately prior to such Transaction multiplied by the additional
amount which the holder of a share of Common Stock shall be entitled to receive
upon liquidation, dissolution or winding up of the Corporation by virtue of the
receipt in the Transaction of such capital stock, as the case may be, all as
provided by the terms of such capital stock.

                  (B) In the event that holders of shares of Common Stock
receive after the Effective Date in respect of their shares of Common Stock any
right or warrant to purchase Common Stock (including as such a right, for all
purposes of this paragraph, any security convertible into or exchangeable for
Common Stock) at a purchase price per share less than the Fair Market Value of a
share of Common Stock on the date of issuance of such right or warrant, then and
in each such event the dividend rights, voting rights and rights upon the
liquidation, dissolution or winding up of the Corporation of the shares of
Series A Preferred Stock shall each be adjusted so that after such event the
Dividend Multiple, the Vote Multiple and the Liquidation Multiple shall each be
the product of the Dividend Multiple, the Vote Multiple and the Liquidation
Multiple, as the case may be, in effect immediately prior to such event
multiplied by a fraction the numerator of which shall be the number of shares of
Common Stock outstanding immediately before such issuance of rights or warrants
plus the maximum number of shares of Common Stock which could be acquired upon
exercise in full of all such rights or warrants and the denominator of which
shall be the number of shares of Common Stock outstanding immediately before
such issuance of rights or warrants plus the number of shares of Common Stock
which could be purchased, at the Fair Market Value of the Common Stock at the

                                       7
<PAGE>

time of such issuance, by the maximum aggregate consideration payable upon
exercise in full of all such rights or warrants.

                  (C) In the event that holders of shares of Common Stock
receive after the Effective Date in respect of their shares of Common Stock any
right or warrant to purchase capital stock of the Corporation (other than shares
of Common Stock), including as such a right, for all purposes of this paragraph,
any security convertible into or exchangeable for capital stock of the
Corporation (other than Common Stock), at a purchase price per share less than
the Fair Market Value of such shares of capital stock on the date of issuance of
such right or warrant, then and in each such event the dividend rights, voting
rights and rights upon liquidation, dissolution or winding up of the Corporation
of the shares of Series A Preferred Stock shall each be adjusted so that after
such event each holder of a share of Series A Preferred Stock shall be entitled,
in respect of each share of Series A Preferred Stock held, in addition to such
rights in respect thereof to which such holder was entitled immediately prior to
such event, to receive (i) such additional dividends as equal the Dividend
Multiple in effect immediately prior to such event multiplied, first, by the
additional dividends to which the holder of a share of Common Stock shall be
entitled upon exercise of such right or warrant by virtue of the capital stock
which could be acquired upon such exercise and multiplied again by the Discount
Fraction (as hereinafter defined) and (ii) such additional voting rights as
equal the Vote Multiple in effect immediately prior to such event multiplied,
first, by the additional voting rights to which the holder of a share of Common
Stock shall be entitled upon exercise of such right or warrant by virtue of the
capital stock which could be acquired upon such exercise and multiplied again by
the Discount Fraction and (iii) such additional distributions upon liquidation,
dissolution or winding up of the Corporation as equal the Liquidation Multiple
in effect immediately prior to such event multiplied, first, by the additional
amount which the holder of a share of Common Stock shall be entitled to receive
upon liquidation, dissolution or winding up of the Corporation upon exercise of
such right or warrant by virtue of the capital stock which could be acquired
upon such exercise and multiplied again by the Discount Fraction. For purposes
of this paragraph, the "DISCOUNT FRACTION" shall be a fraction the numerator of
which shall be the difference between the Fair Market Value of a share of the
capital stock subject to a right or warrant distributed to holders of shares of
Common Stock as contemplated by this paragraph immediately after the
distribution thereof and the purchase price per share for such share of capital
stock pursuant to such right or warrant and the denominator of which shall be
the Fair Market Value of a share of such capital stock immediately after the
distribution of such right or warrant.

                  (D) For purposes of this Certificate of Designations, the
"FAIR MARKET VALUE" of a share of capital stock of the Corporation (including a
share of Common Stock) on any date shall be deemed to be the average of the
daily closing prices per share thereof of such stock over the 30 consecutive
Trading Days (as such term is hereinafter defined) immediately prior to such
date; provided, however, that, in the event that the Fair Market Value of any
such share of capital stock is to be determined as of a date that is within 30
Trading Days after (i) the ex-dividend date for a dividend or distribution on
stock payable in shares of such stock or securities convertible into shares of
such stock, or (ii) the effective date of any subdivision, split, combination,
consolidation, reverse stock split or reclassification of such stock, then, and

                                       8
<PAGE>

in each such case, the Fair Market Value shall be appropriately adjusted by the
Board of Directors of the Corporation to take into account such dividend,
distribution, subdivision, split, combination, consolidation, reverse stock
split or reclassification. 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 applicable transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange); or, if
the shares are not listed or admitted to trading on the New York Stock Exchange,
as reported in the applicable transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
shares are listed or admitted to trading; or, if the shares are not listed or
admitted to trading on any national securities exchange, the last quoted price
(or, if not so quoted, the average of the high bid and low asked prices) in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ") or such other quotation
reporting system then in use; or if no bids for such shares are so quoted, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the shares selected by the Board of Directors of
the Corporation. The term "TRADING DAY" shall mean a day on which the principal
national securities exchange on which the shares are listed or admitted to
trading is open for the transaction of business or, if the shares are not listed
or admitted to trading on any national securities exchange, on which the New
York Stock Exchange or such other national securities exchange as may be
selected by the Board of Directors of the Corporation is open. If the shares are
not publicly held or not so listed or traded on any day within the period of 30
Trading Days applicable to the determination of Fair Market Value thereof as
aforesaid, "FAIR MARKET VALUE" shall mean the fair market value thereof per
share as determined in good faith by the Board of Directors of the Corporation.
In either case referred to in the foregoing sentence, the determination of Fair
Market Value shall be described in a statement filed with the Secretary of the
Corporation.

                  Section 8. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each
outstanding share of Series A Preferred Stock shall at the same time be
similarly exchanged for or changed into the aggregate amount of stock,
securities, cash and/or other property (payable in like kind), as the case may
be, for which or into which each share of Common Stock is changed or exchanged
multiplied by the highest of the Vote Multiple, the Dividend Multiple or the
Liquidation Multiple in effect immediately prior to such event.

                  Section 9. Effective Time of Adjustments.

                  (A) Adjustments to the Series A Preferred Stock required by
the provisions hereof shall be effective as of the time at which the event
requiring such adjustments occurs.

                                       9
<PAGE>

                  (B) The Corporation shall give prompt written notice to each
holder of a share of Series A Preferred Stock of the effect of any adjustment to
the voting rights, dividend rights or rights upon liquidation, dissolution or
winding up of the Corporation of such shares required by the provisions of this
Certificate of Designations. Notwithstanding the foregoing sentence, the failure
of the Corporation to give such notice shall not affect the validity of or the
force or effect of or the requirement for such adjustment.

                  Section 10. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable at the option of the Corporation or any holder
thereof. Notwithstanding the foregoing sentence of this Section, the Corporation
may acquire shares of Series A Preferred Stock in any other manner permitted by
law and the provisions hereof and the Restated Certificate of Incorporation of
the Corporation.

                  Section 11. Ranking. Unless otherwise provided in the Restated
Certificate of Incorporation of the Corporation, or a certificate of
designations relating to a subsequent series of preferred stock of the
Corporation, the Series A Preferred Stock shall rank junior to all other series
of the Corporation's preferred stock as to the payment of dividends and the
distribution of assets on liquidation, dissolution or winding up and senior to
the Common Stock.

                  Section 12. Amendment. The provisions hereof and the Restated
Certificate of Incorporation of the Corporation shall not be amended in any
manner which would adversely affect the rights, privileges or powers of the
Series A Preferred Stock without, in addition to any other vote of stockholders
required by law, the affirmative vote of the holders of two-thirds or more of
the outstanding shares of Series A Preferred Stock, voting together as a single
class.

                  Section 13. Fractional Shares. Shares representing Series A
Preferred Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and have the benefit of
all other rights of holders of shares of Series A Preferred Stock. Any reference
in this Certificate of Designations to shares of Series A Preferred Stock shall
be deemed also to refer to fractions of shares of Series A Preferred Stock.

                                       10
<PAGE>

                  IN WITNESS WHEREOF, I have executed and subscribed this
Certificate of Amendment to the Designations and do affirm the foregoing as true
under the penalties of perjury this ______ day of August, 2000.

                                      -----------------------------------
                                      Name:
                                      Title:

ATTEST:

-----------------------------------
Name:
Title:

                                       11FIRST AMENDMENT TO LOAN AGREEMENT

	THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "Amendment") is
made as of the 12th day of May, 2000, by and between ASSOCIATED ESTATES
REALTY CORPORATION, an Ohio corporation having an address at 5025 Swetland
Court, Cleveland, Ohio  44143 ("Borrower") and NATIONAL CITY BANK, a national
banking association having an address at 1900 East Ninth Street, Cleveland, Ohio
44114 (the "Bank").

RECITALS

	A.	Borrower and the Bank are parties to a Loan Agreement, dated
November 15, 1999 (the "Loan Agreement"), pursuant to which the Bank agreed to
make funds, in the principal amount not to exceed Twelve Million Dollars ($12,000,000)
available to Borrower upon and subject to the terms and conditions set forth therein.

	B.	Borrower's obligations under the Loan Agreement are (i) evidenced by
Borrower's promissory note in favor of the Bank (the "Note"), dated November 15,
1999, in a principal amount not to exceed Twelve Million Dollars ($12,000,000); and (ii)
secured by certain mortgages, assignments or rents and leases and other documents,
instruments and agreements executed and delivered by Borrower in favor of the Bank
in accordance with the requirements of the Loan Agreement (all of which are
collectively referred to as the "Security Instruments"; the Note, the Loan Agreement and
the Security Instruments are collectively referred to as the "Existing Loan Documents").

	C.	Borrower has requested that the Bank amend the Loan Agreement in
order to provide, among other things, for an increase in the maximum amount of the
borrowings available thereunder to Twenty Million Dollars ($20,000,000), and the Bank
has agreed to do so on the terms and subject to the conditions set forth herein.

	NOW, THEREFORE, for Ten Dollars ($10.00) and other valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, Borrower and the Bank
agree as follows:

	1.	Certain Defined Terms.  Capitalized terms which are used but are not
defined herein shall have the meanings ascribed to such terms in the Loan Agreement.

	2.	Specific Amendments to the Loan Agreement.  Borrower and the Bank
agree that the Loan Agreement shall be amended, effective as of the date hereof (the
"Effective Date") in the following specific respects:

		(a)	Section 1 of the Loan Agreement is amended by deleting therefrom
the definition of the term "Note", and by substituting the following therefor:

		"Note" means that certain Substitute Promissory Note, executed and
delivered by Borrower in favor of the Bank, evidencing Borrower's indebtedness to the
Bank in the principal amount not to exceed Twenty Million Dollars ($20,000,000), as the
same may hereafter be modified or amended, together with any and all notes issued in
substitution or replacement therefor."

		(b)	Section 2 of the Loan Agreement is amended by deleting therefrom
the phrase "the aggregate principal amount of which shall not, under any
circumstances, exceed Twelve Million Dollars ($12,000,000)" and by substituting the
following phrase therefor:

			"the aggregate principal amount of which shall not, under any
circumstances, exceed Twenty Million Dollars ($20,000,000)".

	3.	Conditions to Amendment.  The amendment to the Loan Agreement
contemplated by this Amendment is subject to the satisfaction of all of the following
conditions precedent:

		(a)	Absence of Default.  No Event of Default or event which, with the
passage of time or the giving of notice, or both, might mature into an Event of Default,
shall have occurred and be continuing under the Loan Agreement or any other Loan
Document.

		(b)	Warranties.  The representations and warranties of Borrower under
the Loan Agreement shall be true and correct in all material respects on and as of the
Effective Date.

		(c)	Organizational Matters.  Borrower shall have delivered to the Bank
evidenced reasonably satisfactory to the Bank of (i) the continued existence and good
standing of Borrower in the jurisdiction of its organization and in each other jurisdiction
in which the failure to retain such status would have a material adverse effect on
Borrower; and (ii) that all corporate action necessary in connection with Borrower's
execution and delivery of this Amendment and of the Amendatory Loan Documents
(hereinafter defined), or with Borrower's performance of its obligations hereunder and
thereunder, has been taken and is in full force and effect.

		(d)	Amendatory Loan Documents.  Borrower shall have (i) executed
and delivered the Substitute Promissory Note in the form attached hereto as Exhibit A
and made a part hereof by this reference; (ii) executed and delivered an Amendment to
each existing Mortgage in the form attached hereto as Exhibit B and made a part hereof
by this reference (the "Mortgage Amendments"); and (iii) executed and delivered
Assignments of Loan Documents in the forms attached hereto as Exhibits C-1, C-2 and
C-3 and made a part hereof by this reference (the "Collateral Assignments"; this
Amendment, the Substitute Promissory Note, the Mortgage Amendment and the
Collateral Assignments are collectively referred to as the "Amendatory Loan
Documents").

		(e)	Recording Certain Amendatory Loan Documents.  Each Mortgage
Amendment and each Collateral Assignment shall be filed for record in the appropriate
real property records, and Borrower shall (at its sole cost and expense) cause the Title
Company to (i) endorse each existing Title Policy insuring a Mortgage to reflect, on
terms acceptable to the Bank, the effect of the respective Mortgage Amendment upon
the Mortgage insured by such Title Policy, and (ii) endorse each loan policy of title
insurance issued in favor of Borrower and insuring any of the instruments included as
Collateral Loan Documents (as that term is defined in the respective Collateral
Assignments) so as to assign each such loan policy of title insurance to the Bank on
terms and conditions reasonably acceptable to the Bank.

		(f)	Other Actions.  The Borrower shall take such other actions and
deliver to the Bank such other documents, certificates and instruments as the Bank
may reasonably request to carry out the intent of this Amendment.  

		(g)	Legality of Transactions.  It shall not be unlawful (i) for the Bank to
perform any of its obligations hereunder, or (ii) for the Borrower to perform any of its
obligations hereunder or under any other Loan Document.

		(h)	Proceedings and Documents.  All corporate, governmental and
other proceedings in connection with the transactions contemplated hereby and by the
other Loan Documents, and all documents and instruments incidental thereto, shall be
completed and in full force and effect, and the Bank shall have received such original or
certified copies of such instruments as the Bank may reasonably require.

	4.	Ratification.  Borrower warrants and represents to the Bank that (a)
immediately prior to the Effective Date, the Loan Agreement and each other Loan
Document is in full force and effect and has not been modified, amended or
supplemented; and (b) there are no offsets or defenses to any of Borrower's obligations
under the Loan Agreement or the other Loan Documents, and no counterclaims which
might affect any such obligations.  Borrower hereby ratifies and affirms the Loan
Agreement (as the same is amended hereby).

	5.	Miscellaneous.  

		(a)	Expenses; Indemnity.  The Borrower agrees to pay all out-of-pocket expenses of the Bank in connection with the preparation, execution and delivery
of this Amendment or with the closing of the transactions described herein.

		(b)	Severability.  Any provision of this Amendment or any of the other
Loan Documents which is determined by a court of competent jurisdiction to be invalid
or unenforceable shall be ineffective to the extent of determination without invalidating
the remaining portions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.

		(c)	Successors.  This instrument shall be binding upon and inure tot he
benefit of Borrower and the Bank and their respective successors and assigns.
Borrower shall not assign its rights or delegate its duties hereunder without the prior
written consent of the Bank.

		(d)	Counterparts.  This instrument may be executed in any number of
counterparts, and signature pages from any counterpart may be attached to any other.
All such counterparts shall together constitute a single agreement.  In making proof of
this Amendment, it shall not be necessary to produce or account for more than one
counterpart hereof signed by each of the parties hereto.

	IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date first above
written.

					NATIONAL CITY BANK

					By:  /s/ K.M. Goetz	

					

					Printed Name: K.M. Goetz

					Title: Executive Vice President

					ASSOCIATED ESTATES REALTY CORPORATION

					Printed Name: Jeffrey I. Friedman	

			

					Title: Chief Executive Officer	

EXHIBIT A

SUBSTITUTE PROMISSORY NOTE

$20,000,000.00	May ___, 2000

	Cleveland, Ohio

	THIS PROMISSORY NOTE ("Note") is made as of the date hereof by ASSOCIATED ESTATES
REALTY CORPORATION (the "Borrower") to the order of NATIONAL CITY BANK (hereinafter, together
with its permitted successors and assigns, called the "Bank").

	This Note has been executed and delivered pursuant to a certain First Amendment to Loan
Agreement dated of even date herewith, by and between Borrower and the Bank (as so amended, the
"Loan Agreement"), and is subject to the terms and conditions of the Loan Agreement, including without
limitation those which pertain to the Bank's right to accelerate the maturity of the indebtedness
evidenced hereby upon the terms provided therein.  All capitalized terms used herein and not otherwise
defined shall have the meanings assigned to them in the Loan Agreement.

	Borrower, for value received, promises to pay to the order of the Bank, at 1900 East Ninth
Street, Cleveland, Ohio 44114, in accordance with the Loan Agreement, the principal sum of TWENTY
MILLION DOLLARS ($20,000,000) or so much thereof as is advanced by the Bank pursuant to the terms
and provisions of the Loan Agreement, together with interest on the unpaid principal amount thereof at
the rates and on the dates set forth in the Loan Agreement.  All interest under this Note shall be
computed on the basis of the actual number of days elapsed over a year consisting of three hundred
sixty (360) days.  Principal and all remaining accrued interest shall be due and payable on or before
October 31, 2000, or as otherwise provided in the Loan Agreement.

	The indebtedness evidenced by this Note may be prepaid in whole or in part as set forth in the
Loan Agreement.

	If any payment of principal or interest is not paid within five (5) days after the same shall first
become due and payable, the Bank may charge and collect from Borrower a Late Charge.  The Bank
may charge interest on the Late Charge at the Default Interest Rate until such time as the required
payment of principal and interest is paid hereunder.

	If this Note is accelerated pursuant to the Loan Agreement or if an Event of Default with respect
to any monetary payment under the Loan Agreement shall have occurred, and during the period in which
such Event of Default is continuing, the outstanding principal and all accrued interest shall bear interest
at the Default Interest Rate as set forth in the Loan Agreement.

	The Borrower, for itself and for all indorsers hereof or any other party which may become liable
hereunder (collectively, the "Obligors"):  (i) waives presentment, demand, notice of demand, protest,
notice of protest and notice of nonpayment and any other notice required to be given by law in
connection with the delivery, acceptance, performance, default or enforcement of this Note, or of any
indorsement or guaranty of this Note; and (ii) consents to any and all delays, extensions, renewals or
other modifications of this Note or waivers of any term hereof or release or discharge by the Bank of any
of Obligors or the failure to act on the part of the Bank or any indulgence shown by Bank from time to
time and in one or more instances (without notice to or further assent from any of Obligors) and agrees
that no such action, failure to act or failure to exercise any right or remedy, on the part of the Bank shall
in any way affect or impair the obligations of any Obligors or be construed as a waiver by the Bank of, or
otherwise affect, any of the Bank's rights under this Note, or under any indorsement or guaranty of this
Note.  The Borrower and all indorsers further agree to reimburse the Bank for all advances, charges,
costs and expenses, including reasonable attorney's fees, incurred or paid in exercising any right, power
or remedy conferred by this Note, or in the enforcement thereof.

	Notwithstanding anything herein to the contrary, the obligations of Borrower under this Note, the
Loan Agreement or any other Loan Documents shall be subject to the limitation that payments of interest
shall not be required to the extent that receipt of any such payment by the Bank would be contrary to the
provisions of law limiting the maximum rate of interest that may be charged or collected by the Bank.
Without limiting the generality of the foregoing, all calculations of the rate of interest contracted for,
charged or received under this Note which are made for the purposes of determining whether such rate
of interest exceeds the maximum rate of interest permitted by applicable law shall be made, to the extent
permitted by applicable law, by amortizing, prorating, allocating and spreading, in equal parts during the
period of the full stated term of this Note, all interest at any time contracted for, charged or received in
connection with the indebtedness evidenced by this Note, and then to the extent that any excess
remains, all such excess shall be automatically credited against and in reduction of the principal
balance, and all portion of said excess which exceeds the principal balance shall be paid by the Bank to
Borrower, it being the intent of the parties hereto that under no circumstances shall Borrower be required
to pay any interest in excess of the highest rate permissible under applicable law.

	This Substitute Promissory Note is issued in substitution for, and replaces, a Promissory Note
from Borrower to the Bank, dated as of November ___, 1999, evidencing an indebtedness in the
principal amount not to exceed Twelve Million Dollars ($12,000,000).  This Note is not a novation of the
instrument for which it is issued in substitution, but represents instead a modification of such instrument
reflecting revisions thereto which have been agreed to by Borrower and the Bank.

	The provisions of this Note shall be governed by and interpreted in accordance with the laws of
the State of Ohio.

	AS A SPECIFICALLY BARGAINED INDUCEMENT FOR THE BANK TO EXTEND CREDIT TO
BORROWER, AND AFTER HAVING THE OPPORTUNITY TO CONSULT COUNSEL, BORROWER
HEREBY EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR
PROCEEDINGS RELATED TO THIS NOTE OR ARISING IN ANY WAY FROM ANY INDEBTEDNESS
OR OTHER TRANSACTIONS INVOLVING BANK AND THE UNDERSIGNED.  TIME IS OF THE
ESSENCE IN THE PERFORMANCE OF THE OBLIGATIONS OF THIS NOTE.

	IN WITNESS WHEREOF, the undersigned has executed this Promissory Note as of the day and
year set forth above.

					ASSOCIATED ESTATES REALTY CORPORATION

					By: /s/ Jeffrey I. Friedman	

						Jeffrey I. Friedman, Chief Executive Officer

EXHIBIT B

Winchester II

FIRST AMENDMENT TO OPEN-END MORTGAGE AND

SECURITY AGREEMENT AND TO ASSIGNMENT OF

LEASES, RENTS, CONTRACTS, INCOME AND PROCEEDS

	THIS FIRST AMENDMENT TO OPEN-END AND SECURITY AGREEMENT AND TO
ASSIGNMENT OF LEASES, RENTS, CONTRACTS, INCOME AND PROCEEDS (this "First
Amendment") is made as of the _____ day of ____________, 2000, by and between NATIONAL CITY
BANK, a national banking association having an address at National City Center, 1900 East Ninth
Street, Cleveland, Ohio  44114 (the "Bank") and ASSOCIATED ESTATES REALTY CORPORATION, an
Ohio corporation having an address at 5025 Swetland Court, Cleveland, Ohio  44143 (the "Borrower").

RECITALS

	A.	The Bank is the owner and holder of (i) that certain Open-End Mortgage and Security
Agreement (the "Mortgage"), dated November 15, 1999, executed and delivered by Borrower and
encumbering certain improved real property known as "Winchester II", located in Willoughby Hills, Lake
County, Ohio, and more particularly described at Exhibit A to the Mortgage (the "Mortgaged Property"),
recorded as Instrument No. 990052768 in the real property records of Lake County, Ohio; and (b) that
certain Assignment of Leases, Rents, Contracts, Income and Proceeds, also dated November 15, 1999
(the "Assignment"), executed and delivered by Borrower in favor of the Bank and recorded as Instrument
No. 990052769 in the real property records of Lake County, Ohio.

	B.	The Mortgage and the Assignment were executed and delivered by Borrower pursuant
to a Loan Agreement, also dated November 15, 1999, by and between Borrower and the Bank (the
"Loan Agreement"), as security for the payment and performance of Borrower's obligations under the
Loan Agreement and for Borrower's payment to the Bank of the indebtedness evidenced by a
promissory note (the "Note") from Borrower to the Bank, dated November 15, 1999, in the principal
amount not to exceed Twelve Million Dollars ($12,000,000).

	C.	Pursuant to a First Amendment to Loan Agreement (the "Amendment Agreement"),
dated of even date herewith, Borrower and the Bank have modified and amended the Loan Agreement
to provide, among other things, for the increase in the maximum amount of the credit facility available to
Borrower thereunder, and Borrower has executed and delivered to the Bank Borrower's Substitute
Promissory Note, dated of even date herewith (the "Substitute Note"), evidencing Borrower's
indebtedness to the Bank in the principal amount not to exceed Twenty Million Dollars ($20,000,000).

	D.	The Bank has required, as a condition to its agreement to enter into the Amendment
Agreement, that Borrower amend the Mortgage and the Assignment for the purpose of causing the same
to secure the entire amount of the credit facility available to Borrower under the Loan Agreement as the
same is modified by the Amendment Agreement (as so modified, the Loan Agreement is referred to as
the "Amended Loan Agreement").

	NOW, THEREFORE, for Ten Dollars ($10.00) and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and for the purpose of inducing the Bank to enter into the
Amendment Agreement, Borrower and the Bank agree as follows:

	1.	Certain Defined Terms.  Capitalized terms which are used but not defined in this First
Amendment shall have the meanings ascribed to such terms in the Mortgage.

	2.	Specific Amendments to the Mortgage and the Assignment.  Borrower and the Bank
agree that the Mortgage and the Assignment are, effective as of the date of this First Amendment,
amended as follows:

		(a)	The title to the Mortgage, appearing on the cover page and the initial page of the
Mortgage, is changed to read as follows:

		"OPEN END MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF RENTS
AND LEASES (MAXIMUM PRINCIPAL INDEBTEDNESS NOT TO EXCEED
$20,000,000)"

		(b)	All references in the Mortgage or the Assignment to the "Note" shall be deemed
to refer to the Substitute Note, as the same may be modified or amended.

		(c)	All references in the Mortgage or the Assignment to the "Loan Agreement" shall
be deemed to refer to the Amended Loan Agreement, as the same may be modified or amended.

		(d)	All references in the Mortgage or the Assignment to the "Loan Documents" shall
be deemed to refer to the Substitute Note, the Amended Loan Agreement and all other documents,
instruments and agreement evidencing or securing the indebtedness evidenced by the Substitute Note
or arising under the Amended Loan Agreement.

		(e)	All references in the Mortgage or the Assignment to the maximum principal
amount of the indebtedness secured by the Mortgage or the Assignment (including but not limited to the
reference set forth in Section 24 of the Mortgage) are hereby changed from Twelve Million Dollars
($12,000,000) to Twenty Million Dollars ($20,000,000).  Without limiting the generality of the foregoing,
Borrower and the Bank agree that the Mortgage, as amended hereby, secures the unpaid balance of the
loan proceeds which may be advanced after this instrument is delivered for recording; the making of
such advances is obligatory on the part of the Bank subject to the terms and conditions set forth in the
Amended Loan Agreement.  The maximum amount of the unpaid balance of all loan advances (in the
aggregate and exclusive of interest thereon and of advances made pursuant to the terms of the
Mortgage for the payment of taxes, insurance premiums and for protection of the Mortgaged Property)
which may be outstanding at any time is $20,000,000.

	(f)	All references in the Mortgage or the Assignment to the "Obligations" shall be deemed to
refer, collectively, to all of the following:  (i) the payment in full of the indebtedness evidenced by the
Substitute Note; and (ii) the performance of all of Borrower's obligations under the Amended Loan
Agreement and under and pursuant to all documents, instruments and agreements evidencing or
securing the indebtedness evidenced by the Substitute Note or arising under the Amended Loan
Agreement.

	3.	Ratification.  Borrower represents and warrants to the Bank that as of the date of this
First Amendment, the Mortgage and the Assignment remain in full force and effect and have not been
modified, amended or supplemented.  Borrower hereby ratifies and affirms each of the Mortgage and the
Assignment, as the same are modified by this First Amendment, and agrees that as so amended the
Mortgage and the Assignment constitute Borrower's valid and binding obligations.

	IN WITNESS WHEREOF, Borrower and the Bank have caused this First Amendment to be
executed by their respective duly authorized officers as of the date first set forth above.

Signed and acknowledged			ASSOCIATED ESTATES REALTY

in the presence of:					CORPORATION

						By:  /s/ Jeffrey I. Friedman	

Printed Name:				

						Name:  Jeffrey I. Friedman	

					

Printed Name:					Title: Chief Executive Officer	

						NATIONAL CITY BANK

						By:						

Printed Name:					

						Name:  Gary L. Wimer

					

Printed Name:					Title:  Senior Vice-President

STATE OF OHIO			)

					)  SS:

COUNTY OF CUYAHOGA		)

	BEFORE ME, a Notary Public in and for said State and County, personally appeared Jeffrey I.
Friedman, the Chief Executive Officer of ASSOCIATED ESTATES REALTY CORPORATION, an Ohio
corporation, who acknowledged that he executed the foregoing instrument and that the same is his free
act and deed, individually and in the foregoing capacity, and the free act and deed of ASSOCIATED
ESTATES REALTY CORPORATION.

	IN TESTIMONY WHEREOF, I have hereunto set my hand and seal at Cleveland, Ohio, this ___
day of May, 2000.

					______________________________________

						Notary Public

					My commission:_______________________

STATE OF OHIO			)

					)  SS:

COUNTY OF CUYAHOGA		)

	BEFORE ME, a Notary Public in and for said State and County, personally appeared Gary L.
Wimer, a Senior Vice President of NATIONAL CITY BANK, a national banking association, who
acknowledged that he executed the foregoing instrument and that the same is his free act and deed,
individually and in the foregoing capacity, and the free act and deed of NATIONAL CITY BANK.

	IN TESTIMONY WHEREOF, I have hereunto set my hand and seal at Cleveland, Ohio, this ___
day of May, 2000.

					______________________________________

						Notary Public

					My commission:_______________________

This instrument prepared by:

William K. Smith

Frantz Ward LLP

55 Public Square, 19th Floor

Cleveland, Ohio  44113-1999

EXHIBIT B

Portage Towers

FIRST AMENDMENT TO OPEN-END MORTGAGE AND

SECURITY AGREEMENT AND TO ASSIGNMENT OF

LEASES, RENTS, CONTRACTS, INCOME AND PROCEEDS

	THIS FIRST AMENDMENT TO OPEN-END AND SECURITY AGREEMENT AND TO
ASSIGNMENT OF LEASES, RENTS, CONTRACTS, INCOME AND PROCEEDS (this "First
Amendment") is made as of the _____ day of ____________, 2000, by and between NATIONAL CITY
BANK, a national banking association having an address at National City Center, 1900 East Ninth
Street, Cleveland, Ohio  44114 (the "Bank") and ASSOCIATED ESTATES REALTY CORPORATION, an
Ohio corporation having an address at 5025 Swetland Court, Cleveland, Ohio  44143 (the "Borrower").

RECITALS

	A.	The Bank is the owner and holder of (i) that certain Open-End Mortgage and Security
Agreement (the "Mortgage"), dated November 15, 1999, executed and delivered by Borrower and
encumbering certain improved real property known as "Portage Towers", located in Cuyahoga Falls,
Summit County, Ohio, and more particularly described at Exhibit A to the Mortgage (the "Mortgaged
Property"), recorded as Instrument No. 54364309 in the real property records of Summit County, Ohio;
and (b) that certain Assignment of Leases, Rents, Contracts, Income and Proceeds, also dated
November 15, 1999 (the "Assignment"), executed and delivered by Borrower in favor of the Bank and
recorded as Instrument No. 54364310 in the real property records of Summit County, Ohio.

	B.	The Mortgage and the Assignment were executed and delivered by Borrower pursuant
to a Loan Agreement, also dated November 15, 1999, by and between Borrower and the Bank (the
"Loan Agreement"), as security for the payment and performance of Borrower's obligations under the
Loan Agreement and for Borrower's payment to the Bank of the indebtedness evidenced by a
promissory note (the "Note") from Borrower to the Bank, dated November 15, 1999, in the principal
amount not to exceed Twelve Million Dollars ($12,000,000).

	C.	Pursuant to a First Amendment to Loan Agreement (the "Amendment Agreement"),
dated of even date herewith, Borrower and the Bank have modified and amended the Loan Agreement
to provide, among other things, for the increase in the maximum amount of the credit facility available to
Borrower thereunder, and Borrower has executed and delivered to the Bank Borrower's Substitute
Promissory Note, dated of even date herewith (the "Substitute Note"), evidencing Borrower's
indebtedness to the Bank in the principal amount not to exceed Twenty Million Dollars ($20,000,000).

	D.	The Bank has required, as a condition to its agreement to enter into the Amendment
Agreement, that Borrower amend the Mortgage and the Assignment for the purpose of causing the same
to secure the entire amount of the credit facility available to Borrower under the Loan Agreement as the
same is modified by the Amendment Agreement (as so modified, the Loan Agreement is referred to as
the "Amended Loan Agreement").

	NOW, THEREFORE, for Ten Dollars ($10.00) and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and for the purpose of inducing the Bank to enter into the
Amendment Agreement, Borrower and the Bank agree as follows:

	1.	Certain Defined Terms.  Capitalized terms which are used but not defined in this First
Amendment shall have the meanings ascribed to such terms in the Mortgage.

	2.	Specific Amendments to the Mortgage and the Assignment.  Borrower and the Bank
agree that the Mortgage and the Assignment are, effective as of the date of this First Amendment,
amended as follows:

		(a)	The title to the Mortgage, appearing on the cover page and the initial page of the
Mortgage, is changed to read as follows:

		"OPEN END MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF RENTS
AND LEASES (MAXIMUM PRINCIPAL INDEBTEDNESS NOT TO EXCEED
$20,000,000)"

		(b)	All references in the Mortgage or the Assignment to the "Note" shall be deemed
to refer to the Substitute Note, as the same may be modified or amended.

		(c)	All references in the Mortgage or the Assignment to the "Loan Agreement" shall
be deemed to refer to the Amended Loan Agreement, as the same may be modified or amended.

		(d)	All references in the Mortgage or the Assignment to the "Loan Documents" shall
be deemed to refer to the Substitute Note, the Amended Loan Agreement and all other documents,
instruments and agreement evidencing or securing the indebtedness evidenced by the Substitute Note
or arising under the Amended Loan Agreement.

		(e)	All references in the Mortgage or the Assignment to the maximum principal
amount of the indebtedness secured by the Mortgage or the Assignment (including but not limited to the
reference set forth in Section 24 of the Mortgage) are hereby changed from Twelve Million Dollars
($12,000,000) to Twenty Million Dollars ($20,000,000).  Without limiting the generality of the foregoing,
Borrower and the Bank agree that the Mortgage, as amended hereby, secures the unpaid balance of the
loan proceeds which may be advanced after this instrument is delivered for recording; the making of
such advances is obligatory on the part of the Bank subject to the terms and conditions set forth in the
Amended Loan Agreement.  The maximum amount of the unpaid balance of all loan advances (in the
aggregate and exclusive of interest thereon and of advances made pursuant to the terms of the
Mortgage for the payment of taxes, insurance premiums and for protection of the Mortgaged Property)
which may be outstanding at any time is $20,000,000.

	(f)	All references in the Mortgage or the Assignment to the "Obligations" shall be deemed to
refer, collectively, to all of the following:  (i) the payment in full of the indebtedness evidenced by the
Substitute Note; and (ii) the performance of all of Borrower's obligations under the Amended Loan
Agreement and under and pursuant to all documents, instruments and agreements evidencing or
securing the indebtedness evidenced by the Substitute Note or arising under the Amended Loan
Agreement.

	3.	Ratification.  Borrower represents and warrants to the Bank that as of the date of this
First Amendment, the Mortgage and the Assignment remain in full force and effect and have not been
modified, amended or supplemented.  Borrower hereby ratifies and affirms each of the Mortgage and the
Assignment, as the same are modified by this First Amendment, and agrees that as so amended the
Mortgage and the Assignment constitute Borrower's valid and binding obligations.

	IN WITNESS WHEREOF, Borrower and the Bank have caused this First Amendment to be
executed by their respective duly authorized officers as of the date first set forth above.

Signed and acknowledged				ASSOCIATED ESTATES REALTY

in the presence of:					CORPORATION

				  			By: /s/ Jeffrey I. Friedman	

Printed Name:			  	

							Name: Jeffrey I. Friedman	

				  

Printed Name:			  			Title: Chief Executive Officer	

							NATIONAL CITY BANK

				  			By:	

Printed Name:			  	

							Name: Gary L. Wimer

				  

Printed Name:			  			Title: Senior Vice President

STATE OF OHIO			)

					)  SS:

COUNTY OF CUYAHOGA		)

	BEFORE ME, a Notary Public in and for said State and County, personally appeared Jeffrey I.
Friedman, the Chief Executive Officer of ASSOCIATED ESTATES REALTY CORPORATION, an Ohio
corporation, who acknowledged that he executed the foregoing instrument and that the same is his free
act and deed, individually and in the foregoing capacity, and the free act and deed of ASSOCIATED
ESTATES REALTY CORPORATION.

	IN TESTIMONY WHEREOF, I have hereunto set my hand and seal at Cleveland, Ohio, this ___
day of May, 2000.

					______________________________________

						Notary Public

					My commission:_______________________

STATE OF OHIO			)

					)  SS:

COUNTY OF CUYAHOGA		)

	BEFORE ME, a Notary Public in and for said State and County, personally appeared Gary L.
Wimer, a Senior Vice President of NATIONAL CITY BANK, a national banking association, who
acknowledged that he executed the foregoing instrument and that the same is his free act and deed,
individually and in the foregoing capacity, and the free act and deed of NATIONAL CITY BANK.

	IN TESTIMONY WHEREOF, I have hereunto set my hand and seal at Cleveland, Ohio, this ___
day of May, 2000.

					______________________________________

						Notary Public

					My commission:_______________________

This instrument prepared by:

William K. Smith

Frantz Ward LLP

55 Public Square, 19th Floor

Cleveland, Ohio  44113-1999

EXHIBIT C

ASSIGNMENT OF LOAN DOCUMENTS

	THIS ASSIGNMENT OF LOAN DOCUMENTS is made as of 12th day of May, 2000, by and
between ASSOCIATED ESTATES REALTY CORPORATION, an Ohio corporation having an address
at 5025 Swetland Court, Cleveland, Ohio  44143 ("Assignor"), and NATIONAL CITY BANK, a national
banking association having an address at 1900 East Ninth Street, Cleveland, Ohio 44114 (the "Bank").

RECITALS

	A.	Assignor is the owner and holder of certain promissory notes and other loan documents
more particularly described on Schedule 1, attached hereto and made a part hereof by this reference
(collectively, the "Collateral Loan Documents"). 

	B.	Assignor is justly indebted to the Bank pursuant to an Amended and Restated
Promissory Note, dated of even date herewith, in a principal amount not to exceed Twenty Million
Dollars ($20,000,000); such Amended and Restated Promissory Note which, together with all
modifications and amendments thereto and all notes to be issued in substitution or replacement
therefore, is referred to herein as the "Note."

	C.	Assignor's obligation for the payment of the principal of, and interest upon, the
indebtedness evidenced by the Note, together with Assignor's obligations for the performance of its
duties and undertakings hereunder, under that certain Loan Agreement by and between Assignor and
the Bank originally dated November ___, 1999, and amended by a First Amendment to Loan
Agreement, by and between Assignor and the Bank (as so amended, the "Loan Agreement") and under
any other document or instrument further evidencing or securing the indebtedness evidenced by the
Note (the Note, the Loan Agreement and all such other documents and instruments are collectively
referred to as the "Transaction Documents") are referred to as the "Obligations."

	NOW THEREFORE, for and in consideration of Ten Dollars and other valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and for the purpose of inducing the Bank
to make the loan evidenced by the Note, Assignor agrees as follows:

	1.	Assignment.  As security for the full and timely payment and performance of all of the
Obligations, Assignor hereby assigns all of its right, title, interest and estate in, to and under the
Collateral Loan Documents, including without limitation its right to receive all payments due or to
become due in respect of any and all indebtedness evidenced or secured by the Collateral Loan
Documents, to Assignee. 

	2.	Present and Absolute Assignment.  The parties intend that this Assignment shall be a
present, absolute and unconditional assignment and shall, immediately upon execution, give the Bank
the present and perfected right to enforce the Collateral Loan Documents, to collect all sums which shall
become due or payable thereunder and to apply the sums so collected 

in payment of the principal and interest and all other sums payable in respect of the Obligations.
However, the Bank hereby grants to Assignor a limited and conditional license to collect, subject to the
provisions set forth below, sums payable under the Collateral Loan Documents as they become due and
to enforce the Collateral Loan Documents, so long as there is no Default  (as hereinafter defined).  For
the purposes of this Assignment, "Default" shall mean (a) the occurrence of any Event of Default under
and as defined in the Note or any other Transaction Document which shall remain uncured after the
expiration of the period of notice or grace applicable thereto under such instrument, or (b) any failure by
Assignor to observe or perform any of its covenants or other obligations under this Agreement which
shall remain uncured for a period of thirty (30) days or longer after Assignor's receipt of written notice of
such failure from the Bank, or any breach by Assignor of any of its warranties or representations under
this Assignment..

	3.	Further Assurances.  Assignor will from time to time at the request of the Bank execute
any and all instruments reasonably requested by the Bank in order to effectuate this Assignment and to
accomplish any of the purposes that are necessary or appropriate in connection with this Assignment,
including, without, limitation, specific assignments of any Collateral Loan Document.

	4.	Rights upon Default.  Immediately and automatically upon the occurrence of any
Default, and for so long as any Default shall remain uncured, this Assignment shall constitute Assignor's
direction to and full authority to each obligor under any Collateral Loan Document to pay all sums being
or becoming due or payable thereunder to the Bank without proof of the Default relied upon.  Assignor
hereby irrevocably authorizes each such obligor to rely upon and comply with any notice or demand by
the Bank for the payment to the Bank of any sums due or to become due under any Collateral Loan
Document.

	5.	Representations and Warranties.  Assignor warrants and represents to the Bank that:
(a) Assignor has furnished true and complete copies of each of the Collateral Loan Documents to the
Bank; (b) each of the Collateral Loan Documents is in full force and effect, has not been modified,
amended or supplemented, and (to Assignor's knowledge) constitutes the valid and binding obligation of
the obligor which is party thereto; (c) Assignor has not waived any obligation or undertaking required to
be performed by any obligor under any of the Collateral Loan Documents; (d) there is no breach, default
or event of default by any obligor in the observance or performance of any of its obligations under any
Collateral Loan Document, and to Assignor's actual knowledge without inquiry or investigation, no fact or
circumstance which,  with the provision of notice or the passage of time, or both,  would constitute a
breach, default or event of default under any Collateral Loan Document; and (e) Assignor is the owner
and holder of each Collateral Loan Document, free of any right, claim, lien, charge or security interest,
and has the full right to assign the Collateral Loan Documents to the Bank as provided herein.

	6.	Covenants and Agreements.  Assignor covenants and agrees that:

		(a) 	Assignor shall not, without the prior written approval of the Bank, amend,
supplement or modify any Collateral Loan Document.

		(b) 	Assignor shall not discount any sum accruing under any Collateral Loan
Document nor grant any concession in the form of a waiver, release, reduction, discount or other
alteration of sums due or to become due thereunder, or in the form of a waiver of any material
performance obligation of any Obligor under any Collateral Loan Document.

		(c) 	Assignor shall observe and perform all of its obligations under the Collateral
Loan Documents, and shall cause each obligor under the Collateral Loan Documents to observe,
perform and comply with its obligations under the Collateral Loan Documents, in each case as and when
required by the terms of the Collateral Loan Documents.

		(d)	Assignor shall not execute any further assignment of any Collateral Loan
Document or any interest therein or suffer or permit any such assignment to occur by operation of law.

		(e)	Assignor shall provide the Bank with true and complete copies of any and all
notices and other written communications which may be sent or received by Assignor under any of the
Collateral Loan Documents, concurrently with its transmission or receipt thereof.

	7.	Grants to the Bank.  Assignor hereby grants to the Bank the following rights:

		(a) 	The Bank shall be deemed to be the creditor of each obligor under the Collateral
Loan Documents in respect of any assignments for the benefit of creditors and any bankruptcy,
arrangement, reorganization, insolvency, dissolution, receivership or other debtor-relief proceeding
affecting such obligor (without obligation on the part of the Bank, however, to file timely claims in such
proceedings or otherwise pursue creditor's rights therein).

		(b) 	The Bank may, after the occurrence and during the pendency of any Default,
assign Assignor's right, title and interest in the Collateral Loan Documents to any party acquiring the
Bank's rights hereunder through foreclosure or otherwise.  Any subsequent assignee shall have all the
rights and powers herein provided to the Bank.

		(c) 	The Bank may, upon any failure of Assignor to perform any of its agreements
hereunder beyond any applicable grace period, take any action as it may deem necessary or appropriate
to protect its security, including, but not limited to, appearing in any action or proceeding in any way
affecting or pertaining to any of the Collateral Loan Documents, and Assignor agrees to pay, on demand,
all reasonable costs and expenses (including without limitation reasonable attorney's fees) incurred by
the Bank in connection therewith, together with interest thereon at the Default Rate set forth in the Note.

		(d) 	Upon and at all times during the continuance of any Default, the Bank shall have
the following rights (none of which shall be construed to be the Bank's obligations): 

			(i)	The Bank shall have the right to apply any sums it recovers pursuant to
the terms and provisions of this Assignment to the outstanding balance then owing under the
Obligations.

			(ii)  	The Bank shall have the authority to collect any of the indebtedness
evidenced or secured by the Collateral Loan Documents and to apply the same against the Obligations
in such order and manner as the Bank may, in its discretion, deem to be appropriate, and otherwise to
enforce the Collateral Loan Documents, free of any right or claim of Assignor, and to that end Assignor
hereby appoints the Bank as Assignor's attorney-in-fact, such authority being coupled with an
irrevocable interest, to sign the name of Assignor and to bind Assignor on all papers and documents
relating to any Collateral Loan Documents.

All of the foregoing rights and remedies of the Bank are cumulative, and the Bank shall also have, upon
the occurrence and during the continuance of any such Default, all other rights and remedies provided
under this Assignment under any other Transaction Document, at law or in equity.

	8.	Rights of the Bank.  The Bank may take or release other security, may release any party
primarily or secondarily liable for any Obligations, may grant extensions, renewals or indulgences with
respect to such Obligations, may amend, modify, or cancel all or any of the terms of the Obligations, and
may apply any other security therefor held by the Bank to the satisfaction of such Obligations without
prejudice to any of the Bank's rights hereunder.  The rights of the Bank to collect the Obligations and to
enforce any other security therefor may be exercised prior to, simultaneously with, or subsequent to any
action by the Bank hereunder.  The failure of the Bank to avail itself of any of the terms, covenants and
conditions hereof shall not be construed or deemed to be a waiver of any rights or remedies hereunder.
The Bank shall have the full right, power and authority to enforce this Assignment or any of the terms,
covenants or conditions hereof, at any time or times that the Bank shall deem fit.

	9.	Application of Funds.  Any and all sums paid to and received by the Bank under or by
reason of the Bank's enforcement of any rights or remedies in respect of any Collateral Loan Document,
shall be held without allowance of interest, and shall be applied as soon as practicable by it against the
Obligations, in such order or sequence as the Bank may deem appropriate pursuant to the terms of the
Loan Agreement.

	10.	No Modifications.  No amendment, modification, abridgement, cancellation, or discharge
of this Assignment or any term or provision hereof shall be valid without the written consent of Assignor
and the Bank.

	11.	Performance; Release.  Upon payment to the Bank of the full amount of the Obligations
and upon full compliance by Assignor of all of the terms hereof and of the other Transaction Documents
to which Assignor is party, this Assignment shall be void and of no further effect.

	12.	Binding Effect; Gender.  The terms, conditions and covenants of this Assignment shall
be binding upon and shall inure to the benefit of the parties hereto and their respective successors and
assigns.  Whenever used herein, the singular number shall include the plural, and use of any gender
shall include all genders.

	13.	Notices.  Except for any notice required under applicable law to be given in another
manner, any notice, demand, request or other communication to be given by any party hereunder shall
be in writing and shall be deemed to have been properly given and be effective upon receipt (i) if hand-delivered or if sent by telecopy; (ii) if delivered by overnight courier service or (iii) if mailed by United
States registered or certified mail, postage prepaid, return receipt requested, addressed to the party to
receive the same at its address set forth below or at such other address or to such additional addresses
as a party may have so furnished the others.  All notices required hereunder shall be in writing and shall
be deemed properly served if delivered in person or if sent by registered or certified mail with postage
prepaid and return receipt requested or by overnight courier service to the following addresses (or to
such other addresses as either party may subsequently designate):

	If to the Bank:	NATIONAL CITY BANK,

			National City Center

			1900 East Ninth Street

			Cleveland, Ohio  44114

			Locator No. 2079

			Attn:  	 Gary L. Wimer, Senior Vice President

				  Real Estate Industries Division

				  Telecopier:  (216) 575-3160

	If to Assignor:	ASSOCIATED ESTATES REALTY CORPORATION

			5025 Swetland Court

			Cleveland, Ohio  44143

			Attn:  Jeffrey I. Friedman, President

	With a copy 

	concurrently to:	ASSOCIATED ESTATES REALTY CORPORATION

			5025 Swetland Court

			Cleveland, Ohio  44143

			Attn:  Martin A. Fishman, General Counsel

	14.	Severability.  If any provision hereof is determined to be illegal or unenforceable for any
reason, the remaining provisions hereof shall not be affected thereby.

	15.	Acknowledgement and Agreement.  By its acceptance of this Assignment, the Bank
acknowledges that Assignor contemplates that it may, pursuant to the enforcement of some or all of the
Collateral Loan Documents, acquire title to certain real property (the "Affected Property") currently
subject to and encumbered by certain of the Collateral Loan Documents and more particularly defined
on Exhibit B, attached hereto and made a part hereof by this reference. Without limiting the generality of
the foregoing, the Bank agrees by its acceptance hereof that Assignor may acquire fee simple title to the
Affected Property if it elects or is compelled to do so under the Option and Put Agreement more
particularly described on Schedule 1, without regard to whether, at the time of that acquisition, there may
exist an Event of Default hereunder or under any of the other Transaction Documents.  Assignor
covenants and agrees that in the event that it (or its designee or assignee) shall acquire fee simple title
to the Affected Property (whether by enforcement of any of the Collateral Loan Documents, pursuant to
the exercise by any party, including Assignor, of any right or option under the aforementioned Option
and Put Agreement or otherwise) prior to the payment in full of the indebtedness evidenced by the Note
and the satisfaction of all of the Obligations, Assignor shall, concurrently with such acquisition, grant to
the Bank a valid, subsisting and paramount first mortgage lien and security interest in and to the
Affected Property.  Such lien and security interest shall be effected pursuant to documentation which
shall be acceptable in form and content to Assignor and the Bank, shall secure the unpaid balance of the
Obligations, and shall be insured under an ALTA Form B (amended 10/17/70) loan policy of title
insurance naming the Bank as insured, in the amount of the then-unpaid principal balance of the
indebtedness evidenced by the Note.  Assignor shall provide the Bank with prior written notice of its
election to acquire the Affected Property as contemplated in this Section 15; in the event that Assignor's
acquisition shall arise in connection with the exercise of any right or option under the Option and Put
Agreement, Assignor shall provide the Bank with true and complete copies of all election notices or other
written communications sent or received by Assignor under the Option and Put Agreement.

	16.  	Governing Law.  This Assignment shall be governed by and construed in accordance
with the laws of the State of Ohio.

	IN WITNESS WHEREOF, Assignor has caused this Assignment to be executed as of the date
first written above.

Signed and acknowledged		ASSOCIATED ESTATES REALTY

in the presence of:			CORPORATION

__________________________	By: /s/ Jeffrey I. Friedman	

Print Name: ________________		Name: Jeffrey I. Friedman	             

					Title: Chief Executive Officer

_________________________	 

Print Name:		            

STATE OF OHIO			)

					)  SS.

COUNTY OF CUYAHOGA		)

	Before me, a Notary Public in and for said County and State, personally appeared Jeffrey I.
Friedman, the President of ASSOCIATED ESTATES REALTY CORPORATION, an Ohio corporation,
who acknowledged that he did sign the foregoing instrument and that the same is his free act and deed,
in the foregoing capacity, and the free act and deed of Associated Estates Realty Corporation.

	IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at Cleveland, Ohio,
this _____ day of May, 2000.

								

	__________________________		 Notary Public

							My Commission: ________________

This instrument prepared by:

William K. Smith, Esq.

Frantz Ward  LLP

55 Public Square

19th Floor

Cleveland, Ohio  44113-1999

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