Document:

Second Standstill Agreement

Exhibit 10.1

SECOND STANDSTILL AND AMENDMENT AGREEMENT

     This SECOND STANDSTILL AND AMENDMENT AGREEMENT (this "Second Standstill Agreement"), dated as of October 15, 2002, is among SEITEL, INC. (the "Company"), a Delaware corporation, each of its Subsidiaries identified below, and each of the investors listed on the signature pages hereto (together with successors and assigns of each, a "Noteholder," and collectively, the "Noteholders").  Capitalized terms have the respective meanings ascribed thereto in Section 1 hereof.

W I T N E S S E T H:

     WHEREAS, each of the 1995 Noteholders and the Company are party to those certain separate Note Purchase Agreements dated as of December 28, 1995 (collectively, as amended, the "1995 Note Purchase Agreement"), providing for the sale by the Company and the purchase by the 1995 Noteholders of the Company's 7.17% Series B Senior Notes due December 30, 2002 (the "Series B Notes") in the aggregate original principal amount of $27,500,0d0 and the Company's 7.48% Series C Senior Notes due December 30, 2002 (the 'Series C Notes" and together with the Series B Notes, collectively, the "1995 Notes") in the aggregate original principal amount of $22,500,000; and

     WHEREAS, each of the 1999 Noteholders and the Company are party to those certain separate Note Purchase Agreements dated as of February 12, 1999 (collectively, as amended, the "1999 Note Purchase Agreement"), providing for the sale by the Company and the purchase by the 1999 Noteholders of the Company's 7.03% Series D Senior Notes due February 15, 2004 (the "Series D Notes") in the aggregate original principal amount of $20,000,000, the Company's 7.28% Series B Senior Notes due February 15, 2009 (the "Series E Notes") in the aggregate original principal amount of $75,000,000 and the Company's 7.43% Series F Senior Notes due February 15, 2009 (the "Series F Notes" and together with the Series D Notes and the Series E Notes, collectively, the "1999 Notes") in the aggregate original principal amount of $43,000,000; and

     WHEREAS, each of the 2001 Noteholders and the Company are party to those certain separate Note Purchase Agreements dated as of October 15, 2001 (collectively, the "2001 Note Purchase Agreement"), providing for the sale by the Company and the purchase by the 2001 Noteholders of the Company's 7.04% Series G Senior Notes due October 15, 2006 (the "Series G Notes") in the aggregate original principal amount of $20,000,000, the Company's 7.19% Series H Senior Notes due October 15, 2008 (the "Series H Notes") in the aggregate original principal amount of $50,000,000 and the Company's 7.34% Series I Senior Notes due October 15, 2011 (the "Series I Notes" and together with the Series G Notes and the Series H Notes, collectively, the "2001 Notes") in the aggregate original principal amount of $37,000,000; and

     WHEREAS, the 1995 Note Purchase Agreement, the 1999 Note Purchase Agreement and the 2001 Note Purchase Agreement are collectively referred to herein as the "Note Purchase Agreements;" and

     WHEREAS, the Series B Notes, the Series C Notes, the Series D Notes, the Series E Notes, the Series F Notes, the Series G Notes, the Series H Notes and the Series I Notes are collectively referred to herein as the "Notes;" and

     WHEREAS, the obligations of the Company under the Note Purchase Agreements and the Notes have been guaranteed by the Restricted Subsidiaries pursuant to the Subsidiary Guaranties; and

     WHEREAS, on the date hereof, the Company's records indicate that each Noteholder is the registered owner, in its own or its nominee's name, of one or more of the Notes; and

     WHEREAS, the Noteholders, the Company and the Subsidiary Guarantors are party to that certain Standstill and Amendment Agreement dated as of July 17, 2002 (and together with various preceding standstill, forbearance and/or amendment agreements between the Company and the Noteholders, collectively, the "Original Standstill Agreement") pursuant to which such Noteholders agreed to forbear until October 15, 2002 (the "Original Termination Date") from exercising rights and remedies they had pursuant to the Note Purchase Agreements as a result of the existence and occurrence of certain Events of Default and the Company agreed to comply with certain terms and conditions as more fully described therein; and

     WHEREAS, certain Defaults or Events of Default have occurred and continue to exist; and

     WHEREAS, the Company acknowledges and agrees that, upon the expiration of the Original Standstill Agreement, the Noteholders would have the right under the Note Purchase Agreements to accelerate the Notes immediately and otherwise exercise, or cause to be exercised, all rights and remedies available to the Noteholders under the Note Purchase Agreements and under law and in equity; and

     WHEREAS, the Company has requested that the Noteholders' (a) continue to forbear from exercising any rights and remedies in respect of any Existing Event of Default during the Standstill Period, (b) extend the Original Termination Date and (c) provide certain other accommodations to the Company as set forth herein; and

     WHEREAS, the Company has, in consideration of the accommodations referred to in the immediately foregoing clause, agreed to comply with the terms and conditions of this Second Standstill Agreement; and

     WHEREAS, the Company and each Noteholder are desirous of entering into this Second Standstill Agreement on the terms and conditions hereinafter set forth.

     NOW, THEREFORE, in consideration of the matters referred to above, the mutual covenants set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.    DEFINITIONS.

     The following terms listed below have the meanings set forth below.  Capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in the Note Purchase Agreements.

     "Canadian Counsel" has the meaning assigned to such term in Section 5(c) of this Second Standstill Agreement.

     "Canadian Subsidiaries" has the meaning assigned to such tern in Section 5(b) of this Second Standstill Agreement.

     "Company" has the meaning assigned to such term in the first paragraph of this Second Standstill Agreement.

     "Existing Event of Default" means an Event of Default listed on Exhibit A hereto.

     "Financial Advisor" means Crossroads, LLC, the financial advisor to the Noteholders' special counsel.

     "Financing Documents" means, collectively, each of the separate Note Purchase Agreements, as amended, the Notes, as amended, the Subsidiary Guaranties, and each of the other documents executed in connection with any of the foregoing, as any such documents may be amended from time to time.

     "Local Counsel" has the meaning assigned to such term in Section 5(c) of this Second Standstill Agreement.

     "1995 Note Purchase Agreement" has the meaning assigned to such term in the first "whereas" clause of this Second Standstill Agreement.

     "1995 Noteholders" means the parties listed in Schedule A hereto.

     "1995 Notes" has the meaning assigned to such term in the first "whereas" clause of this Second Standstill Agreement.

     "1999 Note Purchase Agreement" has the meaning assigned to such term in the second "whereas" clause of this Second Standstill Agreement.

     "1999 Noteholders" means the parties listed in Schedule B hereto.

     "1999 Notes" has the meaning assigned to such term in the second "whereas" clause of this Second Standstill Agreement.

     "Note Purchase Agreements" has the meaning assigned to such term in the fourth "whereas" clause of this Second Standstill Agreement.

     "Noteholder Consent" has the meaning assigned to such term in clause (vi) of the definition of "Termination Event."

     "Noteholders" has the meaning assigned to such term in paragraph of this Second Standstill Agreement.

     "Notes" has the meaning assigned to such term in the fifth clause of this Second Standstill Agreement.

     "Original Standstill Agreement" has the meaning assigned to in the eighth "whereas" clause of this Second Standstill Agreement.

     "Original Termination Date" has the meaning assigned to such term in the eighth "whereas" clause of this Second Standstill Agreement.

     "Person" means and includes an individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization or any government or any department or agency thereof.

     "Required Noteholders" means the holders of a majority of the unpaid principal amount of each of the 1995 Notes, the 1999 Notes and the 2001 Notes, respectively, then outstanding L (exclusive of Notes then owned by the Company or any of its Affiliates).  

     "Second Standstill Effective Date" has the meaning assigned to such term in Section 8 of this Second Standstill Agreement, but in all respects shall be deemed to be nunc pro tunc to October 15, 2002.

     "Seismic Advisor" has the meaning assigned to such term in Section 5(c) of this Second Standstill Agreement.

     "Senior Officer" means with respect to any Person, any member of the board of directors, the chief executive officer, the chief operating officer, the chief financial officer, the general counsel, the president and any vice president or more senior officer of such Person, whether currently or formerly serving the Company in that or any other capacity included herein.

     "Series B Notes" has the meaning assigned to such term in the first "whereas" clause of this Second Standstill Agreement.

     "Series C Notes" has the meaning assigned to such term in the first "whereas" clause of this Second Standstill Agreement.

     "Series D Notes" has the meaning assigned to such term in the second "whereas" clause of this Second Standstill Agreement.

     "Series E Notes" has the meaning assigned to such term in the second "whereas" clause of this Second Standstill Agreement.

     "Series F Notes" has the meaning assigned to such term in the second "whereas" clause of this Second Standstill Agreement.

     "Series G Notes" has the meaning assigned to such term in the third "whereas" clause of this Second Standstill Agreement.

     "Series H Notes" has the meaning assigned to such term in the third "whereas" clause of this Second Standstill Agreement.

     "Series I Notes" has the meaning assigned to such term in the third "whereas" clause of this Second Standstill Agreement.

     "Second Standstill Agreement" 'has the meaning assigned to such term in the first paragraph of this Second Standstill Agreement.

     "Standstill Period" means the period commencing on the Second Standstill Effective Date and ending on the Termination Date.

     "Steering Committee" means an ad hoc working group of Noteholders from time to time who work with the Company and its professionals and with the Noteholders and their professionals and advisors regarding the defaults.

     "Subsidiary Guarantors" means all of the Subsidiaries party to Subsidiary Guaranties.

     "Termination Date" means the earlier of 

	
  December 2, 2002; or

	
  the date of the occurrence of any Termination Event; or

	
  the date that any Termination Notice is delivered.

              
"Termination Event"  means

  
	
  the failure by the Company to perform any covenant set forth in this Second Standstill Agreement, including, without limitation, in Section 5 and Section 9;

	
  the failure of any representation or warranty in Section 6 to be true and correct;

	
  the occurrence of any Default or Event of Default other than an Existing Event of Default;

	
  on or after the Second Standstill Effective Date the Company or any Subsidiary is (A) in default (as principal or as guarantor or other surety) in payment of any principal of or premium or make-whole amount or interest on any Debt that is outstanding in an aggregate principal amount of at least
  $5,000,000 beyond any period of grace provided with respect thereto or (B) in default in the performance of or compliance with any term of any evidence of any Debt in an aggregate outstanding principal amount of at least $5,000,000 or of any mortgage, indenture or other agreement relating thereto, or any other condition exists, and, as a consequence of such default or condition such Debt has become, or has been declared, due and payable before its stated maturity or before its regularly scheduled dates or payment (excluding, in each case, Debt consisting of Winthrop Lease obligations);

	
  as a consequence of the occurrence or continuation of any event or condition, (x) the Comp any or any Subsidiary has become or is obligated on or after the Second Standstill Effective Date to purchase or repay Debt before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $5,000,000, or (y) one or more Persons have the right on or after the Second Standstill Effective Date to require the Company or any Subsidiary to purchase or repay Debt or other amounts before its regular maturity or before its regularly scheduled dates or payment in an aggregate outstanding principal amount of at least $5,000,000 (excluding, in each case, Debt consisting of Winthrop Lease obligations);

	
  a violation by the Company or a Subsidiary of any term or condition of the Noteholder Consent dated as of July 15, 2002 between the Company and certain of the Noteholders (as supplemented by .that certain Noteholder Consent dated as of August 30, 2002, that certain Noteholder Consent dated as of September 30, 2002 and as further supplemented or amended from time to time, the
  "Noteholder Consent");

	
  the expiration (without extension, renewal or replacement on substantially similar terms) or the termination of the Royal Bank of Canada facilities listed on Exhibit B hereto; or

	
  (a) except as set forth in (vii) directly above, the pre-payment or purchase of (1) any Debt in respect of the facilities listed on Exhibit B hereto, unless in the course of making such payment the Company shall prepay each outstanding Note in a principal amount equal to the ratable portion that such Note represents of all outstanding Debt of the Company (Le., if a certain percentage of a Debt was to be prepaid or purchased, then the same percentage of each Note must be similarly prepaid or purchased), or (2) any Note, unless in the course of making such payment the Company shall prepay each outstanding Note in a principal amount equal to the ratable portion that such Note represents of all outstanding Notes and (b) the pre-payment, purchase, or scheduled payment of any Debt owed directly or indirectly in respect of Senior Officers (including, without limitation, the Comerica obligations).

  

     "Termination Notice" has the meaning assigned to such term in Section 2(b) of this Second Standstill Agreement.

     "2001 Note Purchase Agreement" has the meaning assigned to such term in the third "whereas" clause of this Second Standstill Agreement.

     "2001 Noteholders" means the parties listed in Schedule C hereto.

     "Winthrop Lease" means the Lease Agreement dated October 3, 2001, from Winthrop Resources Corporation to Seitel, Inc. with respect to computer and related equipment.

2.    STANDSTILL PERIOD.

	Standstill Period.  The Noteholders agree, during the Standstill Period, to forbear from exercising any rights and remedies they may have under any or all of the Note Purchase Agreements or any of the Notes or any of the other Financing Documents solely as a result of the existence or occurrence of any Existing Event of Default.  The Company acknowledges that upon the termination of the Standstill Period, such forbearance by the Noteholders shall terminate and the Noteholders may immediately exercise, without further notice, any one or more of such rights and remedies without notice or demand in respect of any Default, Event of Default or Existing Event of Default.  The Company has indicated that during the Standstill Period it may identify asset sales or alternative financing that will enable it to meet certain of its immediate cash needs, and the Company has indicated that it will present for Noteholder approval any such proposed asset sales or financing arrangements.

	Noteholders' Termination Notice.  Notwithstanding anything contained herein to the contrary, at any time that the Noteholders holding more than fifty percent (50%) of the unpaid principal amount of Notes (without regard to Series) shall in their absolute and unfettered discretion deliver written notice (a "Termination Notice") to the Company stating that such Noteholders are terminating this Second Standstill Agreement, any and all of the Noteholders' obligations under this Second Standstill 'Agreement shall terminate in full on the 5th Business Day after sending such Termination Notice, and thereafter any Noteholder shall be 'entitled to immediately exercise, without further notice, any one or more 'rights and remedies that it may have under any of the Note Purchase Agreements, any of the Notes or any of the other Financing Documents.

3.    AMENDMENTS.
     Each of the Note Purchase Agreements and the Notes is hereby amended to effect an increase in the interest rate payable on each Note of twenty-five basis points (0.25%) per annum above the interest rate originally provided for in each such Note, and to change each reference to the interest rate applicable to any Note to such increased interest rate, in each case with respect to the period from July 17, 2002 through and including December 2, 2002.  No other action on the part of the Company (including no physical notation on any Note) shall be necessary to give effect to this amendment.

4.    NOTICE OF TERMINATION EVENT.
     The Company shall give each of the Noteholders immediate written notice of the occurrence of any Termination Event.

5.    ADDITIONAL COVENANTS OF COMPANY.

	Override of Certain Financial Covenants.  During the period from July 17, 2002 through December 2, 2002, Sections 10.3 through 10.7 of the 1995 Note Purchase Agreement and the 1999 Nose Purchase Agreement, and Sections 11.3 through 11.7 (i.e., "Debt Incurrence," "Liens," "Mergers and Consolidations," "Sale of Assets" and "Restricted Payments" and "Restricted Investments") of the 2001 Note Purchase Agreement, shall be suspended and, in lieu thereof, the Company shall, and shall cause its Subsidiaries to, comply with the provisions of Section 5(b) of this Second Standstill Agreement, provided, however, that no write-down of DDD Energy, Inc. assets or assets constituting the maritime seismic data library on the Company's, a Subsidiary's, or any consolidated, financial statements shall cause any Default or Event of Default under the Note Purchase Agreements or the Notes, or a Termination Event hereunder, during the Standstill Period.

	
  Supplemental Covenants of the Company.  During the period from July 17, 2002 through December 2, 2002, the Company shall not, and shall not permit any Subsidiary (including, without limitation, any Subsidiary organized under the laws of, or otherwise existing or domiciled in, Canada or any province or other jurisdiction therein (the "Canadian Subsidiaries")) to:

	
  make, directly or indirectly, any Restricted.  Payment (references to "Restricted Subsidiaries" in the definition of "'Restricted Payment" being deemed to be references to "Subsidiaries" except for the second reference to "Restricted Subsidiaries" in the parenthetical expression in paragraph (a) of the definition of "Restricted Payment");

	
  make, directly or indirectly, any Restricted Investment, provided that the Company and the Subsidiaries may make Restricted Investments constituting unsubordinated debt obligations of Unrestricted Subsidiaries during the period from July 17, 2002 through and including December 2, 2002, in an amount limited to (x) an aggregate amount of $5,200,000 of Restricted Investments that are made by the Company and the Restricted Subsidiaries in Seitel Solutions, Ltd. and/or Endeavor Exploration, LLC, (y) an aggregate amount of $2,500,000 of Restricted Investments that may be made by the Company in respect of the Winthrop Lease and (z) to the extent not otherwise available from the Canadian Subsidiaries, an aggregate amount of $1,000,000 of Restricted Investments that are made by the Company and the Restricted Subsidiaries in the Canadian Subsidiaries in respect of a certain lease agreement with I.B.M., provided, however, that Canadian Subsidiaries shall be permitted to make Restricted Investments in other Canadian Subsidiaries in the ordinary course of business of such entities; and provided, however, further that SEIC Business Trust shall be permitted to Effectuate a stock dividend to SEIC Partners Limited Partnership, and in turn, to SEIC, Inc. and to Seitel Canada Holdings, Inc., and that 818312 Alberta Limited shall be permitted to effectuate a stock dividend to Seitel Canada Holdings, Inc., each as deemed necessary to ensure reasonable financial savings;

______________________

1 Provided further, that as set forth in Section 10.9 of the 1995 and 1999 Note Purchase Agreements and Section 11.9 of the 2001 Note Purchase Agreement (and otherwise limited therein), the Company may continue to permit any of the Restricted Subsidiaries to enter into any transaction (with an Affiliate) in the ordinary course of business of the Company or such Restricted Subsidiary upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate.

 

	
  create, incur or assume Debt, provided that the Company and the Subsidiaries (including, without limitation, the Canadian Subsidiaries) shall not be prohibited from drawing amounts available under existing revolving credit lines and facilities and term loans (as in effect on the date hereof) identified as items (3) and (4) o a Exhibit B hereto, and including replacements therefore on substantially similar terms that are subject to the same limits, and provided that the Company and the Subsidiaries (including, without limitation, the Canadian Subsidiaries) shall not be prohibited from maintaining, incurring or renewing up to $1,000,000 in the aggregate of unsecured financing for insurance premiums;

	
  effectuate any Transfer (including, without limitation, any Transfer involving the assets of DDD Energy, Inc.) except for (A) Transfers of inventory in the ordinary course of business, (B) Transfers to Unrestricted Subsidiaries permitted pursuant to clause (ii) above, (C) Transfers to Wholly-Owned Restricted Subsidiaries in the ordinary course of business, (D) Transfers to Affiliates that constitute joint ventures of the Company or its Subsidiaries with unrelated third parties, which Transfers are made in the ordinary course of business and pursuant to preexisting contractual obligations of the Company and the Subsidiaries, in an aggregate amount for the period from July 17, 2002 through and including December 2, 2002 not to exceed $1,200,000 of capital expenditures for exploration and production activities, and $22,000,000 of capital expenditures for seismic data acquisition projects, and (E) Transfers that have been approved in advance by the Required Noteholders in writing;

	
  settle, sell, compromise and/or discount any loans made to any current or former officers, directors and/or employees of the Company or any Subsidiary;

	
  agree upon, effectuate or enter into any 'settlement agreement, compromise, release, indemnity or related agreement with any Senior Officer of the Company or any Subsidiary without first providing twenty (20) days prior written notice to the Noteholders;

	
  hire, retain, employ or agree to hire, retain or employ any new Senior Officer without first providing twenty (20) days prior written notice to the Noteholders;

	
  settle, sell, compromise and/or discount any litigation against the Company that has a claimed value of more than $100,000, including, without limitation, any shareholder or class action lawsuits without obtaining the prior written consent of the Required Noteholders; except to the extent the full amount of such settlement is covered by and paid for by insurance (not including any settlements covered by and paid for by directors and officers insurance), in which event no prior consent shall be necessary;

	
  merge or consolidate with any other Person;

	
  pay any bonuses, settlement payments, o r pay any advances on commissions, to any Senior Officer of the Company or any Subsidiary, other than such payments that are due and payable during the Standstill Period that are identified on Exhibit C hereto, or which otherwise have been approved in advance by the Required Noteholders in writing; or

	
  create, incur or assume any Lien upon any of the property or assets of the Company or any Subsidiary, whether now owned or hereafter acquired, except for those Liens permitted by Section 10.4(a) through (i) of the 1995 Note Purchase Agreement and the 1999 Note Purchase Agreement, and Section 11.4(a) through (i) of the 2001 Note Purchase Agreement.

	Advisors.  The Company agrees to the hiring or the continued employment, as the case may be, by the Noteholders and their special counsel of (i) a seismic expert and advisor (the "Seismic Advisor") to the Noteholders and their special counsel, provided that the Noteholders shall initially consult with the Company as to the scope of work the Seismic Advisor will undertake and the costs that shall likely be incurred, (ii) the Financial Advisor, (iii) local counsel in one or more applicable states to the Noteholders who can render advice and services in connection with state and local specific law and bankruptcy law (collectively, the "Local Counsel") and (iv) local Canadian counsel to the Noteholders (the "Canadian Counsel") who can render advice and services in connection with Canadian legal issues, and each such advisor shall be selected by the Noteholders in their sole discretion.  The Company further agrees to pay all reasonable fees and expenses, in accordance with Section 9 of this Second Standstill Agreement, that are incurred by the Noteholders (or their special counsel) as a result of retaining the Seismic Advisor, the Financial Advisor, Local Counsel and Canadian Counsel.  The Company shall provide the Seismic Advisor and the Financial Advisor with full onsite access to the Company's books and records and the opportunity to discuss the Company's financial' condition, performance, financial statements and other matters pertinent to the Noteholders' investment in the Company with its officers, directors, independent accountants and financial advisors in order to permit the Seismic Advisor and the Financial Advisor to fully investigate any matter that arises during their review of the financial information of the Company and its Subsidiaries.  Neither the Seismic Advisor nor the Financial Advisor shall have any duty to share its work product with, or accept instructions from, the Company or any other Person working on the Company's behalf.

	Joint Ventures.  Neither the Company nor any .Subsidiary (including, without limitation, DUD Energy, Inc.) shall enter into any joint venture or similar arrangement with any Person (including, without limitation, with Rising Star Energy, L.L,C. and/or any Affiliates thereof) without the prior written consent of the Required Noteholders, to be granted or withheld in their reasonable discretion.

	Certain Interest Payments.  The Company shall pay in cash to the Noteholders in respect of the Notes (i) ratable interest on the Notes monthly on the second of each month commencing with November 2, 2002 or the first Business Day thereafter, through the conclusion of the respective terms of the Notes as provided in the Note Purchase Agreements and (ii) at the time or times provided in Section 2(c) of the Noteholder Consent, the amount of interest due on the Notes at such time or times.  Notwithstanding the provisions in the Note Purchase Agreements, during the Standstill Period, any failure to pay interest pursuant to this section 5(e) for more than two (2) Business Days after the same becomes due and payable shall be deemed to be Event of Default.

	Additional Information.  The Company shall promptly deliver to each Noteholder (i) a copy of any report prepared by any third party for the benefit of the Company or any of its Subsidiaries other than by legal counsel for the Company in a situation in which the delivery of materials may be deemed to be a waiver of the attorney-client privilege or the solicitor-client privilege, as the case may be, provided that the Company shall endeavor to provide information by redacting privileged portions; and (ii) such data and information as any Noteholder may request, including, without limitation, data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries or relating to litigation involving the Company, its Subsidiaries or any present or former directors or Senior Officers, or relating to the ability of the Company to perform its obligations hereunder and under the Financing Documents or the ability of any Subsidiary Guarantor to perform its obligations under any Subsidiary Guaranty.

6.    REPRESENTATIONS AND WARRANTIES.
     To induce the Noteholders to enter into this Second Standstill Agreement, the Company represents and warrants, as of the Second Standstill Effective Date, as follows:
	
  the Company is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware;

	
  each of the Subsidiaries is an organization duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization;

	
  the execution and delivery of this Second Standstill Agreement is within the corporate powers of the Company and each Subsidiary Guarantor, has been duly authorized by the Company and each Subsidiary Guarantor and constitute a valid and binding obligation of the Company and each Subsidiary Guarantor, enforceable in accordance with its terms, except that such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally and except that such enforceability is subject to the availability of equitable remedies;

	
  the execution and delivery of this Second Standstill Agreement does not conflict with, result in any breach of any of the provisions of, constitute a default under, or result in the creation of any Lien upon any property of the Company or any Subsidiary Guarantor under the provisions of, any agreement, charter instrument, bylaw or other instrument to which the Company or any Subsidiary Guarantor is a party or by which the Company, any of its Subsidiaries, or any of their respective properties may be bound;

	
  each of the Notes, the Note Purchase Agreements and the other Financing Documents to which the Company and each Subsidiary Guarantor is a party, as modified by this Second Standstill Agreement, constitutes a valid and binding obligation of the Company and such Subsidiary Guarantor party thereto, enforceable in accordance with its terms, except that such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally and except that such enforceability is subject to the availability of equitable remedies;

	
  except with respect to Existing Events of Default, there are, to the best present actual knowledge of the Company, no Defaults or Events of Default in existence on the Second Standstill Effective Date (although the Company continues its investigation and diligence into certain matters that may reveal the existence of additional Defaults or Events of Default); and

	
  except as disclosed on Exhibit B hereto, neither the Company nor any Subsidiary has any Debt to any Person or group of Persons that is outstanding (including any drawn or undrawn facilities providing for the incurrence of Debt) in an aggregate principal amount with respect to such Person or group of Persons of more than $5,000,000.

7.    NONWAIVER AND NO AMENDMENT.

     TIME IS OF THE ESSENCE WITH RESPECT TO ALL COVENANTS, CONDITIONS, AGREEMENTS, AND OTHER PROVISIONS HEREIN.  Except as otherwise expressly provided for in this Second Standstill Agreement, the terms of this Second Standstill Agreement shall not operate as a waiver by any of the Noteholders of, or otherwise prejudice, the Noteholders' rights, remedies or powers under the Notes, the Note Purchase Agreements, the other Financing Documents, the Noteholder Consent or applicable law.  With respect to any Event of Default under any of the Note Purchase Agreements, as modified by this Second Standstill Agreement, other than any Existing Event of Default, any of the Noteholders may exercise the rights, remedies and powers provided in such Note Purchase Agreement and the other Financing Documents in accordance with tire terms of such documents regardless of whether such Event of Default shall exist on the date hereof or come into existence during the Standstill Period.  Except to the extent expressly provided for herein, this Second Standstill Agreement shall not operate to waive or otherwise prejudice any rights which the Noteholders may have against the Company, any party to a Subsidiary Guaranty or any other Person arising under the Note Purchase Agreements, the Notes, the other Financing Documents, the Noteholder Consent or otherwise.

     Except as expressly provided herein, no terms or provisions of the Note Purchase Agreements, the Notes, the other Financing Documents or the Original Standstill Agreement are modified or changed by this Second Standstill Agreement, and all of the terms and provisions of the Note Purchase Agreements, the Notes, the other Financing Documents and the Original Standstill Agreement shall continue in full force and effect.  The Company and the parties to the Subsidiary Guaranties hereby acknowledge and reaffirm all of their respective obligations and duties under each of the Note Purchase Agreements, the Notes and the other Financing Documents to which each is a party, as each such Financing Document is modified by this Second Standstill Agreement.

8.    SECOND STANDSTILL EFFECTIVE DATE.
     The "Second Standstill Effective Date" shall be the first date on which the Company and the Required Noteholders each shall have executed and delivered this Second Standstill Agreement and the Company shall have paid the fees and expenses to be paid on behalf of the Noteholders pursuant to Section 9 of this Second Standstill Agreement (to the extent a statement therefor has been presented to the Company on or prior to the Second Standstill Effective Date).

9.    EXPENSES AND FEES.
     Without limiting anything set forth in the Note Purchase Agreements, the Company hereby agrees to pay promptly all reasonable costs and expenses of the Noteholders (it being understood and agreed by the Company that the Noteholders shall have wide latitude on the scope and depth of legal analysis they obtain from their legal and financial advisors to evaluate, explore, and protect Noteholder interests regarding the Company and the Notes in light of existing defaults, accounting and executive officer irregularities, and related matters affecting the Company's business plan, viability, and restructuring prospects), including, without limitation, the fees and expenses of (a) Bingham McCutchen LLP, special counsel to the Noteholders, (b) the Financial Advisor, (c) the Seismic Advisor, (d) the Local Counsel and (e) the Canadian Counsel, and also including the reasonable out-of-pocket travel and other expenses of the Noteholders incurred in connection with this Second Standstill Agreement and the collection of any sum owed to any of the Noteholders by the Company and in otherwise assessing, analyzing, evaluating, protecting, asserting, defending or enforcing any rights or remedies which are or may be available to the Noteholders, including, without limitation, representatives of the Noteholders in any bankruptcy proceeding.  Any statement or invoice for fees and expenses rendered by any advisor to the Noteholders shall be sent to the Company with a copy provided to the Steering Committee and shall be payable by the Company within five (5) Business Days of receiving any statement; or invoice therefor together with a statement to the effect that such invoice or statement was approved by the Noteholders.  As between the Noteholders and their advisors, such approval will be deemed to have occurred if the Steering Committee shall not have affirmatively objected to such statement or invoice within three (3) Business Days after such statement or invoice was sent, and thus, if after such three (3) Business Days, no objection shall have been received, such advisor may submit its statement or invoice to the Company stating that the Noteholders have approved such statement or invoice.

10.    RATIFICATION, ETC.
	
  The Company hereby adopts again, ratifies and confirms in all respects, as its own act and deed, each of the Note Purchase Agreements, the Notes and the other Financing Documents and any document or instrument delivered pursuant to or in connection with the Financing Documents and acknowledges (i) that all such instruments and documents shall continue in full force and effect and (ii) that as of the Second Standstill Effective Date, it has no knowledge of any claim or cause of action it may have against any Noteholder (or any of its respective directors, officers, employees or agents) or any offset right, counterclaim or defense of any kind against any of its obligations, indebtedness or liabilities to any Noteholder nor does it have any intention of bringing any such claim or cause of action against any Noteholder in respect of the foregoing.

	
  Each Subsidiary Guarantor hereby adopts again, ratifies and confirms, as its own act and deed, its respective Subsidiary Guaranty and the other instruments or documents delivered in connection with such Subsidiary Guaranty and purported to be executed by it and acknowledges (i) that its respective Subsidiary Guaranty and other related instruments and documents shall continue in full force and effect and (ii) that as of the Second Standstill Effective Date, it has no knowledge of any claim or cause of action it may have against any Noteholder (or any of its respective directors, officers, employees or agents) or any offset right, counterclaim or defense of any kind against any of its obligations, indebtedness or liabilities to any Noteholder nor does it have any intention of bringing any such claim or cause of action against any Noteholder in respect of the foregoing.

	
  The Company and each Subsidiary Guarantor hereby waives all suretyship defenses of whatsoever nature arising out of any Noteholder's dealings with the Company or any such Subsidiary Guarantor in respect of the Note Purchase Agreements, the Notes, the Subsidiary Guaranties or any other Financing Document or otherwise.

	
  This Second Standstill Agreement shall not, under any jurisdiction whatsoever, be deemed to be or be construed as a novation of the respective rights and obligations of the parties hereto under the Note Purchase Agreements, the Notes, or any of the Financing Documents.  All guarantees, including the Subsidiary Guaranties, existing as of the date hereof among the parties hereto (including their successors and assigns) shall remain valid and enforceable and shall continue to secure the obligations of the Company pursuant to the Note Purchase Agreements and the votes.

11.    ACKNOWLEDGEMENT OF COMPANY.
     The Company acknowledges that (a) except as expressly set forth herein, none of the Noteholders has agreed to (and none has any obligation whatsoever to discuss, negotiate or agree to) any other restructuring, modification, amendment, waiver or forbearance with respect to the Notes or the Note Purchase Agreements; (b) no understanding with respect to any other restructuring, modification, amendment, waiver or forbearance with respect to the Notes, the Note Purchase Agreements or any of the Financing Documents shall constitute a legally binding agreement or contract, or have any force or effect whatsoever, unless and until reduced to writing and signed by authorized representatives of each party hereto; (c) the execution and delivery of this Second Standstill Agreement has not established any course of dealing between the parties hereto or created any obligation or agreement of any Noteholder with respect to any future restructuring, modification, amendment, waiver or forbearance with respect to the Notes, the Note Purchase Agreements or any of the Financing Documents; and (d) the Noteholders assert that they have heretofore properly performed and satisfied in a timely manner all of their respective obligations, if any, to the Company and each Subsidiary Guarantor, and neither the Company nor any Subsidiary Guarantor refutes such assertion as of the Second Standstill Effective Date.

12.    INDEMNIFICATION.

     From and at all times after the Second Standstill Effective Date, and in addition to all of the Noteholders' other rights and remedies against the Company and the Subsidiary Guarantors, the Company and each Subsidiary Guarantor agrees to indemnify and hold harmless each of the Noteholders and each director, officer, employee, agent, investment advisor and affiliate of each such.  Noteholder against any and all claims (whether valid or not), losses, damages, liabilities, costs and expenses of any kind or nature whatsoever (including, without limitation, reasonable attorneys' fees, costs and expenses), incurred by or asserted against such Noteholder or any such director, officer, employee, agent or affiliate, from and after the date hereof, whether direct or indirect, as a result of or arising from or in any way relating to any suit, action or proceeding (including any inquiry or investigation) by any Person, whether threatened or initiated, asserting a claim for any legal or equitable remedy against any Person under any statute or regulation, including, but not limited to, any federal or state securities laws, or under any common law or equitable cause or otherwise, arising from or in connection with the negotiation, preparation, execution, performance or enforcement of this Second Standstill Agreement or the other Financing Documents or any transactions contemplated herein or therein, or any of the transactions contemplated' hereunder, whether or not such Noteholder or any such director, officer, employee, agent or affiliate is a party to any such action, proceeding, suit or the target of any such inquiry or investigation; provided, however, that no indemnified party shall have the right to be indemnified hereunder for any liability resulting from the willful misconduct, gross negligence or bad faith of such indemnified party.  All of the foregoing losses, damages, costs and expenses of any Noteholder shall be payable as and when incurred upon demand by such Noteholder and shall be additional obligations hereunder.  The obligations of the Company and the Subsidiary Guarantors and the rights of the Noteholders under this Section 12 shall survive payment of the Notes and the termination of this Second Standstill Agreement.

13.    HEADINGS.
     All headings and captions preceding the text of the several Sections of this Second Standstill Agreement are intended solely for the convenience of reference and shall not constitute a part of this Second Standstill Agreement nor shall they affect its meaning, construction or effect.

14.    ENTIRE AGREEMENT.
     This Second Standstill Agreement, the Note Purchase Agreement, the Notes and the other Financing Documents, as amended to the date hereof, embody the entire agreement and understanding between the Noteholders, the Company and the parties to the Subsidiary Guaranties and supersede all prior agreements and understandings relating to the subject matter hereof and thereof except as otherwise stated in Section 7 hereof.

15.    GOVERNING LAW.
     This Second Standstill Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York.

16.    DIRECTLY OR INDIRECTLY.
     Where any provision in this Second Standstill Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person, including actions taken by or on behalf of any partnership or limited liability company in which such Person is a general partner or managing member, as applicable.

17.    NO THIRD PARTY BENEFICIARIES.
     This Second Standstill Agreement is solely for the benefit of the Noteholders hereto and their respective successors and assigns, and the Company to the extent specifically provided herein, but is not for the benefit of any other Person or entity, including, without limitation, any guarantor of the obligations of the Company (except to the extent specifically provided herein).  No other Persons are intended to be third-party beneficiaries hereunder or to have any right, benefit, priority or interest under, or shall have any right to enforce this Second Standstill Agreement.

18.    COUNTERPARTS.
     This Second Standstill Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.  An executed copy of this Second Standstill Agreement sent by facsimile shall be effective as an original.

19.    NOTICES.
     All communications under this Second Standstill Agreement shall be made in accordance with the Note Purchase Agreements.

20.    SEVERABILITY.
     Any provision of this Second Standstill Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

(Remainder of page intentionally left blank.  Next page is signature page,]

 

    IN WITNESS WHEREOF, the parties hereto have caused this Second Standstill Agreement to be executed by their authorized officers as of the date first written above.

  
    
      
        
          SEITEL, INC.

By   /s/ Fred Zeidman

Name:      Fred E. Zeidman

Title         Chairman of the Board

MASSACHUSETTS MUTUAL LIFE

INSURANCE COMPANY

By:         David L. Babson & Company Inc. as     

              Investment Adviser

          

By  /s/ Richard B. McGauley

Name:     Richard B. McGauley

Title:        Managing Director

C.M. LIFE INSURANCE COMPANY

By:         David L. Babson and Company Inc. as

              Investment Sub-Adviser

By  /s/ Richard B. McGauley

Name:     Richard B. McGauley

Title:        Managing Director

MASSMUTUAL ASIA LIMITED

By:         David L. Babson & Company Inc. as 

              Investment Adviser

By   /s/ Richard B. McGauley

Name:     Richard B. McGauley

Title:        Managing Director

J. ROMEO & CO. AS NOMINEE FOR

MONY LIFE INSURANCE COMPANY OF AMERICA

By  /s/                          

         as partner for J. Romeo & Co.

Name:     

Title:     

J. ROMEO & CO. AS NOMINEE FOR 

 MONY LIFE INSURANCE COMPANY OF AMERICA

By  /s/                          

         as partner for J. Romeo & Co.

Name:     

Title:     

PAN-AMERICAN LIFE INSURANCE

COMPANY

By                                  

          

          

SUNAMERICA LIFE INSURANCE COMPANY

By:    AIG Global Investment Corp, 

         Investment Adviser

By                                  

Name:     

Title:     

FIRST SUNAMERICA LIFE

INSURANCE COMPANY

By                                  

Name:     

Title:     

UNITED OF OMAHA LIFE INSURANCE 

 COMPANY

By  /s/ Curtis R. Caldwell

Name:      Curtis R. Caldwell

Title:         Vice President

          

          

PRINCIPAL LIFE INSURANCE COMPANY

By:     Principal Global Investors, LLC, a 

           Delaware limited liability company, its 

           authorized signatory

By  /s/                          

Name:     

Title:     

          By  /s/                          

Name:     

Title:     

PRINCIPAL LIFE INSURANCE COMPANY, 

 ON BEHALF OF ONE OR MORE SEPARATE 

 ACCOUNTS

By:     Principal Global Investors, LLC, a 

           Delaware limited liability company, its 

           authorized signatory

By  /s/                          

Name:     

Title:     

          By  /s/                          

Name:     

Title:     

CGU LIFE INSURANCE COMPANY OF 

 AMERICA, a Delaware corporation (formerly 

 known as Commercial 

 Union Life Insurance Company of America)

By:     Principal Global Investors, LLC, 

           a Delaware limited liability company, 

           its attorney in fact 

By  /s/                          

Name:     

          

ALLSTATE LIFE INSURANCE COMPANY

          By  /s/                          

Name:     

Title:     

          By  /s/                          

Name:     

Title:     

ALLSTATE LIFE  INSURANCE COMPANY

 OF NEW YORK

By  /s/                          

Name:     

Title:     

          By  /s/                          

Name:     

Title:     

PHOENIX LIFE INSURANCE COMPANY

By  /s/ Christopher Wilkos

Name:     CHRISTOPHER M. WILKOS

Title:         Senior Vice President

RELIASTAR LIFE INSURANCE 

 COMPANY

By:         ING Investment Management,
          LLC, 

                       
          as Agent

By  /s/ James V. Wittich

Name:         James V. Wittich

Title:            Senior Vice President

RELIASTAR LIFE INSURANCE 

 COMPANY (fka Northern Life Insurance 

 Company)

          By:         ING
          Investment Management, LLC, 

                       
          as Agent

By:  /s/ James V. Wittich

Name:         James V. Wittich

Title:           Senior Vice President 

RELIASTAR LIFE INSURANCE 

 COMPANY OF NEW YORK

By:         ING Investment Management LLC, as 

             Agent

By:  /s/ James V. Wittich

Name:         James V. Wittich

Title:           Senior Vice President 

          

          

PROVIDENT LIFE AND ACCIDENT 

 INSURANCE COMPANY

THE PAUL REVERE LIFE INSURANCE 

 COMPANY

Severally By:         Provident Investment 

                               
Management, LLC

Their:     Agent

By:                                  

Name:

Title:

SECURITY CONNECTICUT LIFE 

 INSURANCE COMPANY

By:     INC Investment Management LLC, as 

           Agent

By:  /s/ James V. Wittich

Name:         James V. Wittich

Title.           Senior Vice President 

TRUSTMARK LIFE INSURANCE CO.

By  /s/ Jerry Hitpas

Name:   Jerry Hitpas

Title:      Sr. Vice President of Investments

REPUBLIC WESTERN INSURANCE 

 COMPANY

By  /s/ Kristin Spears

Name:         Kristin Spears

Title:            VP Treasury

UNITED LIFE INSURANCE COMPANY

By  /s/ John A. Rife

Name:         John A. Rife

Title:            President/CEO

THE GUARDIAN INSURANCE & 

 ANNUITY COMPANY, INC.

By  /s/ Thomas M. Donohue

Name:         Thomas M. Donohue

Title:            Managing Director

FORT DEARBORN LIFE INSURANCE 

 COMPANY

By:         Guardian Investor Services LLC

By  /s/ Thomas M. Donohue

Name:         Thomas M. Donohue

Title:            Managing Director

THE GUARDIAN LIFE INSURANCE 

 COMPANY OF AMERICA

By  /s/ Thomas M. Donohue

Name:         Thomas M. Donohue

Title:            Managing Director

BERKSHIRE LIFE INSURANCE 

 COMPANY OF AMERICA

By  /s/ Thomas M. Donohue

Name:         Thomas M. Donohue

Title:            Managing Director

NATIONWIDE LIFE INSURANCE

COMPANY 

By  /s/ Joseph P. Young

Name:         Joseph P. Young

Title:           Credit Officer 

                  
Fixed Income Securities

NATIONWIDE LIFE AND ANNUITY 

 INSURANCE COMPANY

By  /s/ Joseph P. Young

Name:         Joseph P. Young

Title:            Credit Officer 

                  
Fixed Income Securities

CONNECTICUT GENERAL LIFE 

 INSURANCE COMPANY

By:     CIGNA Investments, Inc. 

           (authorized agent)

By  /s/ Robert W. Eccles

Name:         Robert W. Eccles

Title:            Managing Director

LIFE INSURANCE COMPANY OF NORTH 

 AMERICA 

By:     CIGNA Investments, Inc. 

           (authorized agent)

By  /s/ Robert W. Eccles

Name:         Robert W. Eccles

Title:            Managing Director

LONESTAR PARTNERS, L.P.

By  /s/ Jerome L. Simon

Name:         Jerome L. Simon

Title:            Portfolio Manager

COHANZICK HIGH YIELD PARTNERS, 

 LP

By  /s/ David K. Sherman

Name:          David K. Sherman

Title:             Authorized Agent

COHANZICK CREDIT 

 OPPORTUNITIES FUND, LTD. 

By  /s/ David K. Sherman

Name:          David K. Sherman

Title:             Authorized Agent

AMERICAN INVESTORS LIFE INSURANCE 

 COMPANY

By:     AmerUs Capital Management Group, 

           Inc., its authorized
attorney-in-fact

By  /s/ Roger D. Fors

Name:         Roger D. Fors

Tit1e:          V.P. Investment Management &
Research

      

    

  

Accepted and Agreed:

SEITEL DATA CORP.

By:  /s/ Fred S. Zeidman

Name:  Fred S. Zeidman

Title: Chairman of the Board

SEITEL DATA, LTD.

By:  /s/ Fred S. Zeidman

Name:  Fred S. Zeidman

Title: Chairman of the Board

N360X, L.L.C.

By:  /s/ Fred S. Zeidman

Name:  Fred S. Zeidman

Title: Chairman of the Board

SEITEL MANAGEMENT, INC.

By:  /s/ Fred S. Zeidman

Name:  Fred S. Zeidman

Title: Chairman of the Board

SEITEL GEOPHYSICAL, INC.

DDD ENERGY, INC.

SEITEL GAS & ENERGY CORP.

SEITEL POWER CORP.

SEITEL NATURAL GAS, INC.

MATRIX GEOPHYSICAL, INC.

EXSOL, INC.

DATATEL, INC.

SEITEL OFFSHORE CORP.

SEITEL INTERNATIONAL, INC.

AFRICAN GEOPHYSICAL, INC.

GEO-BANK, INC.

ALTERNATIVE COMMUNICATION 

   ENTERPRISES, INC.

SEITEL DELAWARE, INC.

By:  /s/ Fred S. Zeidman

Name:  Fred S. Zeidman

Title: Chairman of the Board

EXHIBIT A

EXISTING EVENTS OF DEFAULT

A.    1995 Note Purchase Agreement

	The failure of the Company to comply with Section 10.2 for the period of four consecutive fiscal quarters ended on each of March 31, 2002, June 30, 2002 and September 30, 2002.

	The failure of the Company to comply with Section 10.3(a) as of June 30, 2002 and September 30, 2002 without giving effect to the Original Standstill Agreement.

	The failure of the Company to comply with Section 10.7(a) by making Restricted Payments and/or Restricted Investments through June 30, 2002 and September 30, 2002 that exceeded the permissible amount under Section 10.7(a) without giving effect to the Original Standstill Agreement.

B.    1999 Note Purchase Agreement

	The failure of the company to comply with Section 10.1 as of June 30, 2002 and September 30, 2002 without giving effect to the Original Standstill Agreement.

	The failure of the Company to comply with Section 10.2 for the period of four consecutive fiscal quarters ended on each of March 31, 2002, June 30, 2002 and September 30, 2002.

	The failure of the Company to comply with Section 10.3(a) as of June 30, 2002 and September 30, 2002 without giving effect to the Original Standstill Agreement.

	The failure of the Company to comply with Section 1117(a) by making Restricted Payments and/or Restricted Investments through March 31, 2002, June 30, 2002 and September 30, 2002 that exceeded the permissible amount under Section 10.7(a) without giving effect to the Original Standstill Agreement.

C.    2001 Note Purchase Agreement

	The failure of the Company to comply with Section 11.1 as of June 30, 2002 and September 30, 2002 without giving effect to the Original Standstill Agreement.

	The failure of the Company to comply with Section 11.2 for the period of four consecutive fiscal quarters ended on each of March 31, 2002, June 30, 2002 and September 30, 2002.

	The failure of the Company to comply to Section 11.3(a) as of June 30, 2002 and September 30, 2002 without giving effect to the Original Standstill Agreement.

	The failure of the Company to comply with Section 11.7(a) by making Restricted Payments and/or Restricted Investments through June 30, 2002 and September 30, 2002 that exceeded the permissible amount under Section 11.7(a) without giving effect to the Original Standstill Agreement.

D.    Default under facility with Heller Financial Services Inc. in the principal amount of approximately
$100004000.00.

E.    Default under guaranty to BankOne NA in the approximate amount of $540,000.00 of the obligations thereto of Paul Frame.

Note:  The covenant compliance for the 1995 Note Purchase Agreement;, the 1999 Note Purchase Agreement and the 2001 Note Purchase Agreement have been calculated based on actual results as of and for the quarter ended June 30, 2002 and estimated results as of and for the quarter ended September 30, 2002. Such results have not been adjusted to exclude any amounts related to the marine seismic impairment or the oil & gas property impairments recorded by the Company in the quarter ended June 30, 2002.

EXHIBIT B

OUTSTANDING DEBT

 

1.    Heller Financial Services Inc. in the amount of approximately $10,000,000, which obligation is secured by certain assets of the Company and/or the Subsidiaries

2.    Alliance Agreement entered into as of December 1, 1999 between GECO-PRAKLA, a Division of Schlumberger Technology Corporation, and Seitel Data, Ltd. in the amount of approximately $5,000,000 (for acquisition costs of data in connection with data shoots undertaken in 2000 and 2001)

3.    Royal Bank of Canada term loan in the outstanding principal amount of approximately (Canadian) $3,500,000, secured by certain assets of the Company and/or the Subsidiaries

4.    Royal Bank of Canada revolving loan in the outstanding principal amount as of June 30, 2002 of approximately (Canadian) $3,600,000 (with a maximum principal amount of (Canadian) $5,000,000) with Olympic Seismic Ltd., secured by certain assets of the Company and/or the Subsidiaries

5.    Lease Agreement dated October 3, 2001 from Winthrop Resources Corporation to Seitel, Inc. with respect to computer and related equipment

6.    Guaranty to Bank One NA in the approximate amount of $540,000.00 of the obligations thereto of Paul Frame (subject to litigation).

 

EXHIBIT C

CERTAIN COMPENSATION CONTRACTS

Payment not in excess of $100,000 per quarter pursuant to the existing Employment Agreement with Kevin Fiur.

Payment of amounts owed in respect of the sale of certain DDD Energy, Inc. assets pursuant to an Employment Agreement dated February 12, 2001 between Matt Ramsey and DDD Energy, Inc. and Severance Agreement dated August 16, 2002.

Payment of amounts owed in respect of the sale of certain DDD Energy, Inc. assets pursuant to an Employment Agreement dated January 1, 2002 between Lynn Conine and DDD Energy, Inc. and Severance Agreement dated August 16, 2002.

SCHEDULE A

1995 NOTEHOLDERS

Massachusetts Mutual Life Insurance Company

SunAmerica Life Insurance Company

First SunAmerica Life Insurance Company

MONY Life Insurance Company

MONY Life Insurance Company of America

United of Omaha Life Insurance Company

Pan-American Life Insurance Company

 

SCHEDULE B

1999 NOTEHOLDERS

Principal Life Insurance Company

Principal Life Insurance Company, on behalf of one or more separate accounts

CGU Life Insurance Company of America

Allstate Life Insurance Company

Allstate Life Insurance Company of New York

Provident Life and Accident Insurance Company

The Paul Revere Life Insurance Company

Massachusetts Mutual Life Insurance Company

C.M. Life Insurance Company

United of Omaha Life Insurance Company

Phoenix Life Insurance Company

Reliastar Life Insurance Company

Northern Life Insurance Company

Reliastar Life Insurance Company of New York

Security Connecticut Life Insurance Company

Trustmark Life Insurance Co.

Pan-American Life Insurance Company

Republic Western Insurance Company

Oxford Life Insurance Company

United Life Insurance Company

Lonestar Partners LP

Cohanzick High Yield Partners LP

Cohanzick Credit Opportunities Fund LP

 

SCHEDULE C

2001 NOTEHOLDERS

The Guardian Insurance & Annuity Company

Fort Dearborn Life Insurance Company

The Guardian Life Insurance Company of America

Berkshire Life Insurance Company of America

MONY Life Insurance Company

Nationwide Life Insurance Company

Nationwide Life and Annuity Insurance Company

Connecticut General Life Insurance Company

Life Insurance Company of North America

Massachusetts Mutual Life Insurance Company

C.M. Life Insurance Company

MassMutual Asia Limited

Allstate Life Insurance Company

Principal Life Insurance Company

Phoenix Life Insurance Company

American Investors Life Insurance Company<PAGE>

                                                                     EXHIBIT 4.1

                        SHAREHOLDER RIGHTS PLAN AGREEMENT

                          DATED AS OF FEBRUARY 10, 1999

                          AND AS AMENDED MARCH 5, 2002

                                     BETWEEN

                         ANGIOTECH PHARMACEUTICALS, INC.

                                       AND

                      COMPUTERSHARE TRUST COMPANY OF CANADA

                                 AS RIGHTS AGENT
<PAGE>
                                TABLE OF CONTENTS

ARTICLE I - INTERPRETATION...........................................  2

      1.1  CERTAIN DEFINITIONS.......................................  2
      1.2  CURRENCY..................................................  13
      1.3  DESCRIPTIVE HEADINGS......................................  13
      1.4  REFERENCES TO AGREEMENT...................................  13
      1.5  CALCULATION OF NUMBER AND PERCENTAGE OF BENEFICIAL
           OWNERSHIP OF OUTSTANDING VOTING SHARES....................  13
      1.6  ACTING JOINTLY OR IN CONCERT..............................  14

ARTICLE 2 - THE RIGHTS...............................................  14

      2.1  LEGEND ON CERTIFICATES....................................  14
      2.2  EXECUTION, AUTHENTICATION, DELIVERY AND DATING OF
           RIGHTS CERTIFICATES.......................................  15
      2.3  REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.......  15
      2.4  MUTILATED, DESTROYED, LOST AND STOLEN RIGHTS
           CERTIFICATES..............................................  16
      2.5  PERSONS DEEMED OWNERS OF RIGHTS...........................  16
      2.6  DELIVERY AND CANCELLATION OF CERTIFICATES.................  16
      2.7  AGREEMENT OF RIGHTS HOLDERS...............................  17
      2.8  RIGHTS CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER........  17

ARTICLE 3 - EXERCISE OF THE RIGHTS...................................  18

      3.1  INITIAL EXERCISE PRICE; EXERCISE OF RIGHTS;
           DETACHMENT OF RIGHTS......................................  18
      3.2  ADJUSTMENTS TO EXERCISE PRICE; NUMBER OF RIGHTS...........  21
      3.3  DATE ON WHICH EXERCISE IS EFFECTIVE.......................  25

ARTICLE 4 - ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN
 TRANSACTIONS........................................................  25

      4.1  FLIP-IN EVENT.............................................  25

ARTICLE 5 - THE RIGHTS AGENT.........................................  26

      5.1  GENERAL...................................................  26
      5.2  MERGER OR AMALGAMATION OR CHANGE OF NAME OF RIGHTS
           AGENT.....................................................  27
      5.3  DUTIES OF RIGHTS AGENT....................................  28
      5.4  CHANGE OF RIGHTS AGENT....................................  29

ARTICLE 6 - MISCELLANEOUS............................................  30

      6.1  REDEMPTION AND WAIVER.....................................  30
      6.2  EXPIRATION................................................  32
      6.3  ISSUANCE OF NEW RIGHTS CERTIFICATE........................  32
      6.4  FRACTIONAL RIGHTS AND FRACTIONAL SHARES...................  32
      6.5  SUPPLEMENTS AND AMENDMENTS................................  33
      6.6  RIGHTS OF ACTION..........................................  34
      6.7  NOTICE OF PROPOSED ACTIONS................................  35
      6.8  NOTICES...................................................  35
      6.9  COSTS OF ENFORCEMENT......................................  35
      6.10 SUCCESSORS................................................  36
      6.11 BENEFITS OF THIS AGREEMENT................................  36
      6.12 GOVERNING LAW.............................................  36
<PAGE>
                                     - ii -

      6.13 COUNTERPARTS.............................................. 36
      6.14 SEVERABILITY.............................................. 36
      6.15 EFFECTIVE DATE............................................ 36
      6.16 RIGHTS OF BOARD, CORPORATION AND OFFEROR.................. 37
      6.17 DETERMINATIONS AND ACTIONS BY THE BOARD OF
       DIRECTORS..................................................... 37
      6.18 TIME OF THE ESSENCE....................................... 37
      6.19 REGULATORY APPROVALS...................................... 37
<PAGE>
MEMORANDUM OF AGREEMENT made as of the 10th day of February, 1999 and as amended
the 5th day of March, 2002

BETWEEN:

      ANGIOTECH PHARMACEUTICALS, INC.
      a corporation existing under the laws of British Columbia

      (hereinafter called the "Corporation"),

                                                               OF THE FIRST PART

AND:

      COMPUTERSHARE TRUST COMPANY OF CANADA,
      being a trust company existing under the laws of Canada, as rights agent,

      (hereinafter called the "Rights Agent"),

                                                              OF THE SECOND PART

WHEREAS in order to maximize shareholder value the Board of Directors of the
Corporation has determined that it is advisable for the Corporation to adopt a
shareholder rights plan (the "Rights Plan");

AND WHEREAS in order to implement the Rights Plan the Board of Directors of the
Corporation has:

I.    authorized the issuance, effective 4:00 p.m. (Vancouver time) on
      February 10, 1999 of one right (a "Right") in respect of each Common Share
      (as hereinafter defined) of the Corporation outstanding at 4:00 p.m.
      (Vancouver time) on February 10, 1999 (the "Record Time"); and

II.   authorized the issuance of one Right in respect of each Common Share
      issued after the Record Time and prior to the earlier of the Separation
      Time (as hereinafter defined) and the Expiration Time (as hereinafter
      defined);

AND WHEREAS each Right entitles the holder thereof, after the Separation Time,
to purchase securities of the Corporation (or, in certain cases, of certain
other entities) pursuant to the terms and subject to the conditions set forth
herein;

AND WHEREAS the Corporation desires to appoint the Rights Agent to act on behalf
of the Corporation and holders of Rights, and the Rights Agent is willing so to
act, in connection with the issuance, transfer, exchange and replacement of
Rights Certificates (as hereinafter defined), the exercise of Rights and other
matters referred to herein;

NOW THEREFORE in consideration of the premises and the respective covenants and
agreements set forth herein, the parties hereby agree as follows:
<PAGE>
                                     - 2 -

                                    ARTICLE I

                                 INTERPRETATION

1.1   CERTAIN DEFINITIONS

For the purposes of this Agreement, the following terms have the meanings
indicated:

(a)   "Acquiring Person" shall mean any Person who is the Beneficial Owner of
      20% or more of the outstanding Voting Shares; provided, however, that the
      term "Acquiring Person" shall not include:

      (i)   the Corporation or any Subsidiary of the Corporation;

      (ii)  any Person who becomes the Beneficial Owner of 20% or more of the
            outstanding Voting Shares as a result of any one or any combination
            of:

            (A)   an acquisition or redemption by the Corporation or a
                  Subsidiary of the Corporation of Voting Shares, by reducing
                  the number of Voting Shares increases the percentage of
                  outstanding Voting Shares Beneficially Owned by such Person to
                  20% or more of the Voting Shares then outstanding (a "Voting
                  Share Reduction");

            (B)   an acquisition of Voting Shares made pursuant to a Permitted
                  Bid or a Competing Permitted Bid (a "Permitted Bid
                  Acquisition");

            (C)   an acquisition of Voting Shares in respect of which the Board
                  of Directors has waived the application of section 4.1
                  pursuant to the provisions of subsection 6.1 (b), (c) or (d)
                  (an "Exempt Acquisition"); or

            (D)   a Pro Rata Acquisition;

            provided, however, that if a Person shall become the Beneficial
            Owner of 20% or more of the Voting Shares then outstanding by reason
            of one or any combination of a Voting Share Reduction, a Permitted
            Bid Acquisition, an Exempt Acquisition or a Pro Rata Acquisition and
            thereafter such Person, while such Person is the Beneficial Owner of
            20% or more of the Voting Shares then outstanding, becomes the
            Beneficial Owner of any additional Voting Shares that increases its
            Beneficial Ownership of Voting Shares by more than 1% of the number
            of Voting Shares then outstanding (other than pursuant to one or any
            combination of a Voting Share Reduction, a Permitted Bid
            Acquisition, an Exempt Acquisition or a Pro Rata Acquisition) then,
            as of the date such Person becomes the Beneficial Owner of such
            additional outstanding Voting Shares, such Person shall be an
            "Acquiring Person";

      (iii) for the period of 10 days after the Disqualification Date (as
            hereinafter defined), any Person who becomes the Beneficial Owner of
            20% or more of the outstanding Voting Shares as a result of such
            Person becoming disqualified from relying on
<PAGE>
                                     - 3 -

            clause 1.1(d)(viii) hereof because such Person makes or announces an
            intention to make a Take-over Bid alone or by acting jointly or in
            concert with any other Person and, for this purpose,
            "Disqualification Date" means the first date of public announcement
            that such Person is making or intends to make a Take-over Bid;

      (iv)  an underwriter or member of a banking or selling group acting in
            such capacity that becomes the Beneficial Owner of 20% or more of
            the Voting Shares of the Corporation in connection with a
            distribution of securities of the Corporation; or

      (v)   a Person (a "Grandfathered Person") who is the Beneficial Owner of
            more than 20% of the outstanding Voting Shares determined as of the
            Record Time; provided, however, that this exemption shall not be,
            and shall cease to be, applicable to a Grandfathered Person in the
            event that such Grandfathered Person shall, after the Record Time,
            become the Beneficial Owner of additional Voting Shares that
            increases its Beneficial Ownership of Voting Shares by more than 1%
            of the number of Voting Shares then outstanding (other than through
            one or any combination of a Voting Share Reduction, a Permitted Bid
            Acquisition, an Exempt Acquisition or a Pro Rata Acquisition);

(b)   "Affiliate", when used to indicate a relationship with a specified Person,
      means a Person who directly, or indirectly through one or more
      intermediaries, controls, or is controlled by, or is under common control
      with, such specified Person;

(c)   "Associate" means, when used to indicate a relationship with a specified
      Person, a spouse of that Person, any Person of the same or opposite sex
      with whom that Person is living in a conjugal relationship outside
      marriage, a child of that Person or a relative of that Person if the
      relative has the same residence as that Person;

(d)   a Person shall be deemed the "Beneficial Owner" of, and to have
      "Beneficial Ownership" of, and to "Beneficially Own":

      (i)   any securities as to which such Person or any of such Person's
            Affiliates or Associates is the owner at law or in equity;

      (ii)  any securities as to which such Person or any of such Person's
            Affiliates or Associates has the right to acquire (whether such
            right is exercisable immediately or within a period of 60 days
            thereafter or upon the occurrence of a contingency) pursuant to any
            agreement, arrangement, pledge or understanding, whether or not in
            writing, (other than customary agreements with and between
            underwriters or banking group or selling group members with respect
            to an offering of securities and other than pledges of securities)
            or upon the exercise of any conversion right, exchange right, share
            purchase right (other than a Right), warrant or option;

      (iii) any securities which are Beneficially Owned within the meaning of
            the foregoing provisions of this subsection 1.1(d) by any other
            Person with whom such Person is acting jointly or in concert;
<PAGE>
                                     - 4 -

      provided, however, that a Person shall not be deemed the "Beneficial
      Owner" of, or to have "Beneficial Ownership" of, or to "Beneficially Own",
      any security where:

      (iv)  such security has been deposited or tendered pursuant to a Permitted
            Lock-Up Agreement, or is otherwise deposited or tendered, to any
            Take-over Bid made by such Person, made by any of such Person's
            Affiliates or Associates or made by any Person acting jointly or in
            concert with such Person until such deposited security has been
            taken up or paid for, whichever shall occur first;

      (v)   such Person holds such security, provided that:

            (A)   the ordinary business of such Person (an "Investment Manager")
                  includes the management of investment funds for others (which
                  others, for greater certainty, may include or be limited to
                  one or more employee benefit plans or pension plans) and such
                  security is held by the Investment Manager in the ordinary
                  course of such business in the performance of such Investment
                  Manager's duties for the account of any other Person or
                  Persons (a "Client");

            (B)   such Person (a "Trust Company") is licensed to carry on the
                  business of a trust company under applicable laws and, as
                  such, acts as trustee or administrator or in a similar
                  capacity in relation to the estates of deceased or incompetent
                  Persons ("Estate Accounts") or in relation to other accounts
                  ("Other Accounts") and holds such security in the ordinary
                  course of such duties for the estate of any such deceased or
                  incompetent Person or for such Other Accounts; or

            (C)   such Person (an "Administrator") is the administrator or the
                  trustee of one or more pension funds or plans (each a "Plan")
                  or is a Plan registered under applicable laws and holds such
                  security in the ordinary course of such duties for such Plans;

            provided that the Investment Manager, Trust Company, Administrator,
            or Plan, as the case may be, is not then making and has not
            announced a current intention to make a Take-over Bid (other than an
            Offer to Acquire Voting Shares or other securities of the
            Corporation by means of a distribution by the Corporation or
            ordinary market transactions (including prearranged trades) executed
            through the facilities of a stock exchange or organized
            over-the-counter market) alone or acting jointly or in concert with
            any other Person;

      (vi)  such Person, any of such Person's Affiliates or Associates or any
            Person acting jointly or in concert with such Person is:

            (A)   a Client of the same Investment Manager as another Person on
                  whose account the Investment Manager holds such security;
<PAGE>
                                     - 5 -

            (B)   an Estate Account or an Other Account of the same Trust
                  Company as another Person on whose account the Trust Company
                  holds such security; or

            (C)   a Plan which has the same Administrator as another such
                  pension plan or fund on whose account the Administrator holds
                  such security;

      (vii) such Person holds such security, provided that the Person is a Plan
            or Person established by statute for purposes that include, and the
            ordinary business or activity of such Person includes, the
            management of investment funds for employee benefit plans, pension
            plans, insurance plans or various public bodies and, in any such
            case, such Person holds such securities for the purposes of its
            activities as such a Person, and further provided that such Person:

            (A)   does not Beneficially Own more than 30% of the Voting Shares;
                  and

            (B)   is not then making a Take-over Bid or has not then announced a
                  current intention to make a Take-over Bid, alone or acting
                  jointly or in concert with another Person, other than an Offer
                  to Acquire Voting Shares or other securities by such Person by
                  means of a distribution by the Corporation or by means of
                  ordinary market transactions (including prearranged trades)
                  executed through the facilities of a stock exchange or
                  organized over-the-counter market;

      (viii) such Person is:

            (A)   a Client of an Investment Manager and such security is owned
                  at law or in equity by the Investment Manager;

            (B)   an account of a Trust Company and such security is owned at
                  law or in equity by the Trust Company; or

            (C)   a pension fund or plan and such security is owned at law or in
                  equity by the Administrator thereof; or

      (ix)  where such Person is the registered holder of securities as a result
            of carrying on the business of or acting as a nominee of a
            securities depository;

(e)   "Board of Directors" shall mean the board of directors of the Corporation
      or, if duly constituted and whenever duly empowered, the executive
      committee of the board of directors of the Corporation;

(f)   "Business Day" shall mean any day other than a Saturday, a Sunday or a day
      on which banking institutions in Vancouver are authorized or obligated by
      law to close;

(g)   "close of business" on any given date shall mean the time on such date
      (or, if such date is not a Business Day, the time on the next succeeding
      Business Day) at which the offices of the transfer agent for the Common
      Shares (or, after the Separation Time, the offices of the
<PAGE>
                                     - 6 -

      Rights Agent) are closed to the public in the city in which such transfer
      agent or Rights Agent has an office for the purposes of this Agreement;

(h)   "Common Share" shall mean a common share of the Corporation and any other
      share of the Corporation into which such share is subdivided,
      consolidated, reclassified or changed;

(i)   "common shares", when used with reference to any Person other than the
      Corporation, shall mean the class or classes of shares (or similar equity
      interest) with the greatest per share (or similar interest) voting power
      entitled to vote generally in the election of all directors of such other
      Person;

(j)   "Company Act" shall mean the Company Act, R.S.B.C. 1996, C. 62, as
      amended, and the regulations made thereunder, and any comparable or
      successor laws or regulations thereto;

(k)   "Competing Permitted Bid" means a Take-over Bid that:

      (i)   is made after a Permitted Bid has been made and prior to the expiry
            of the Permitted Bid;

      (ii)  satisfies all components of the definition of a Permitted Bid other
            than the requirements set out in clause (ii) of the definition of a
            Permitted Bid; and

      (iii) contains, and the take-up and payment for securities tendered or
            deposited is subject to, an irrevocable and unqualified condition
            that no Voting Shares will be taken up or paid for pursuant to the
            Take-over Bid prior to the close of business on a date that is no
            earlier than the later of: (i) the 60th day after the date on which
            the earliest Permitted Bid which preceded the Competing Permitted
            Bid was made; and (ii) 21 days after the date of the Take-over Bid
            constituting the Competing Permitted Bid; and only if at the date
            that the Voting Shares are to be taken up more than 50% of the
            Voting Shares held by Independent Shareholders shall have been
            deposited or tendered pursuant to the Competing Permitted Bid and
            not withdrawn;

(l)   "controlled": a corporation is "controlled" by another Person if:

      (i)   securities entitled to vote in the election of directors carrying
            more than 50% of the votes for the election of the directors are
            held, directly or indirectly, by or for the benefit of the other
            Person; and

      (ii)  the votes carried by such securities are entitled, if exercised, to
            elect a majority of the board of directors of such corporation;

      and "controls", "controlling" and "under common control with" shall be
      interpreted accordingly;
<PAGE>
                                     - 7 -

(m)   "dividends paid in the ordinary course" shall mean cash dividends paid at
      regular intervals in any financial year of the Corporation to the extent
      that such cash dividends do not exceed, in the aggregate, the greatest of:

      (i)   200% of the aggregate amount of cash dividends declared payable by
            the Corporation on its Common Shares in its immediately preceding
            financial year;

      (ii)  300% of the arithmetic average of the aggregate amounts of cash
            dividends declared payable by the Corporation on its Common Shares
            in its three immediately preceding financial years; and

      (iii) 100% of the aggregate consolidated net income of the Corporation,
            before extraordinary items, for its immediately preceding financial
            year;

(n)   "Election to Exercise" shall have the meaning ascribed thereto in clause
      3.1(d)(ii);

(o)   "Exempt Acquisition" shall have the meaning ascribed thereto in subclause
      1.1(a)(ii)(C);

(p)   "Exercise Price" shall mean, as of any date, the price at which a holder
      of a Right may purchase the securities issuable upon exercise of such
      Right. Until adjustment thereof in accordance with the terms hereof, the
      Exercise Price for each Right shall be $100.00;

(q)   "Expiration Time" shall mean the earlier of:

      (i)   the Termination Time; and

      (ii)  the close of the annual general meeting of shareholders of the
            Corporation occurring after the third anniversary of the date of
            this Agreement or the date of any amendment to this Agreement,
            whichever is later;

(r)   "Flip-in Event" shall mean a transaction in or pursuant to which any
      Person shall become an Acquiring Person;

(s)   "Grandfathered Person" shall have the meaning ascribed thereto in clause
      1.1(a)(v);

(t)   "Independent Shareholders" shall mean holders of Voting Shares other than:
      (i) an Acquiring Person; (ii) any Offeror (other than a Person who at the
      relevant time is deemed not to Beneficially Own such Voting Shares by
      reason of subclauses 1.1(d)(v) or (vii)); (iii) any Associate or Affiliate
      of such Acquiring Person or Offeror; (iv) any Person acting jointly or in
      concert with such Acquiring Person or Offeror; and (v) any employee
      benefit plan, stock purchase plan, deferred profit sharing plan and any
      other similar plan or trust for the benefit of employees of the
      Corporation or a Subsidiary of the Corporation, unless the beneficiaries
      of the plan or trust direct the manner in which the Voting Shares are to
      be voted or direct whether the Voting Shares are to be tendered to a
      Take-over Bid;

(u)   "Market Price" per share of any securities on any date of determination
      shall mean the average of the daily closing prices per share of such
      securities (determined as described
<PAGE>
                                     - 8 -

      below) on each of the 20 consecutive Trading Days through and including
      the Trading Day immediately preceding such date; provided, however, that
      if an event of a type analogous to any of the events described in section
      3.2 shall have caused the closing price in respect of any Trading Day
      ("Adjustment Trading Day") used to determine the Market Price not to be
      fully comparable with the closing price on such date of determination then
      "Market Price" shall mean the average of the daily closing prices per
      share of such securities (determined as described below) for that number
      of consecutive Trading Days through and including the Trading Day which is
      the third Trading Day immediately prior to that Adjustment Trading Day or,
      if the date of determination is not a Trading Day, on the immediately
      preceding Trading Day. The closing price per share of any securities on
      any date shall be:

      (i)   the closing board lot sale price or, in case no such sale takes
            place on such date, the average of the closing bid and asked prices,
            for each share of such securities as reported by the principal stock
            exchange in Canada on which such securities are listed and posted
            for trading;

      (ii)  if for any reason neither of such prices is available on such day or
            the securities are not listed and posted for trading on any stock
            exchange in Canada, the last closing board lot sale price or, if
            such price is not available, the average of the closing bid and
            asked prices, each such security as reported in the principal
            consolidated transaction reporting system with respect to securities
            listed or admitted to trading on the principal national securities
            exchange in the United States on which such securities are listed or
            admitted to trading;

      (iii) if for any reason none of such prices is available on such day or
            the securities are not listed and posted for trading on a stock
            exchange in Canada or a national securities exchange in the United
            States, the last quoted price, or if not so quoted, the average of
            the high bid and low asked prices for each share of such securities
            in the over-the-counter market, as reported by The Canadian Dealing
            Network Inc. or such other compatible system then in use; or

      (iv)  if on any such date the securities are not quoted by any such
            organization, the average of the closing bid and asked prices as
            furnished by a professional market maker making a market in the
            securities;

      provided, however, that if on any such date the securities are not traded
      on any exchange or in the over-the-counter-market and the price referred
      to in clause (iv) above is not available, the closing price per share of
      such securities on such date shall mean the fair value per share of such
      securities on such date as determined by a nationally or internationally
      recognized investment dealer or investment banker with respect to the fair
      value per share of such securities;

(v)   "Offer to Acquire" shall include:

      (i)   an offer to purchase, or a solicitation of an offer to sell Voting
            Shares; and
<PAGE>
                                     - 9 -

      (ii)  an acceptance of an offer to sell Voting Shares, whether or not such
            offer to sell has been solicited,

      or any combination thereof, and the Person accepting an offer to sell
      shall be deemed to be making an offer to acquire to the Person who made
      the offer to sell;

(w)   "Offeror" shall mean a Person who has announced a current intention to
      make or who is making a Take-over Bid;

(x)   "Offeror's Securities" shall mean Voting Shares of the Corporation
      Beneficially Owned by an Offeror;

(y)   "Permitted Bid" means a Take-over Bid which is made by means of a
      take-over bid circular and which also complies with the following
      additional provisions:

      (i)   the Take-over Bid is made to all holders of Voting Shares as
            registered on the books of the Corporation, other than the Offeror;

      (ii)  the Take-over Bid contains, and the take-up and payment for
            securities tendered or deposited thereunder is subject to, an
            irrevocable and unqualified condition that no Voting Shares shall be
            taken up or paid for pursuant to the Take-over Bid prior to the
            close of business on the date which is not less than 60 days after
            the date of the Take-over Bid and only if at such date more than 50%
            of the Voting Shares held by Independent Shareholders shall have
            been deposited or tendered pursuant to the Take-over Bid and not
            withdrawn;

      (iii) the Take-over Bid contains an irrevocable and unqualified provision
            that, unless the Take-over Bid is withdrawn, Voting Shares may be
            deposited pursuant to such Take-over Bid at any time during the
            period of time between the date of the Take-over Bid and the date on
            which Voting Shares may be taken up and paid for and that any Voting
            Shares deposited pursuant to the Take-over Bid may be withdrawn
            until taken up and paid for; and

      (iv)  the Take-over Bid contains an irrevocable and unqualified provision
            that if, on the date on which Voting Shares may be taken up and paid
            for, more than 50% of the Voting Shares held by Independent
            Shareholders shall have been deposited pursuant to the Take-over Bid
            and not withdrawn, the Offeror will make a public announcement of
            that fact and the Take-over Bid will remain open for deposits of
            Voting Shares for not less than 10 Business Days from the date of
            such public announcement;

(z)   "Permitted Bid Acquisition" shall have the meaning ascribed thereto in
      subclause 1.1(a)(ii)(B);

(aa)  "Permitted Lock-Up Agreement" means an agreement between a Person and one
      or more holders of Voting Shares (each, a "Locked-up Person")(the terms of
      which are publicly disclosed and reduced to writing and a copy of which is
      made available to the public including the Corporation, not later than the
      date the Lock-up Bid (as defined below) or,
<PAGE>
                                     - 10 -

      if the Lock-up Bid has been made prior to the date on which such agreement
      is entered into, not later than the date of such agreement) pursuant to
      which each such Locked-up Person agrees to deposit or tender Voting Shares
      to a Take-over Bid (the "Lock-up Bid") made or to be made by the Person,
      any of such Person's Affiliates or Associates or any Person acting jointly
      or in concert with such Person provided that:

      (i)   the agreement:

            (A)   permits any Locked-up Person to terminate its obligation to
                  deposit or tender to or not to withdraw Voting Shares from the
                  Lock-up Bid in order to tender or deposit the Voting Shares to
                  another Take-over Bid or support another transaction where the
                  price or value per Voting Share offered under such other
                  Take-over Bid or transaction is higher than the price or value
                  per Voting Share offered under the Lock-up Bid; or

            (B)   permits any Locked-up Person to terminate its obligation to
                  deposit or tender to or not to withdraw Voting Shares from the
                  Lock-up Bid in order to tender or deposit the Voting Shares to
                  another Take-over Bid or support another transaction if:

                  (i)   the price or value per Voting Share offered under the
                        other Take-over Bid or transaction exceeds by as much or
                        more than a specified amount (the "Specified Amount")
                        the price or value per Voting Share offered under the
                        Lock-up Bid, provided that such Specified Amount is not
                        greater than 7% of the price or value per Voting Share
                        offered under the Lock-up Bid; or

                  (ii)  the number of Voting Shares to be purchased under the
                        other Take-over Bid or transaction exceeds by as much as
                        or more than a specified number (the "Specified Number")
                        the number of Voting Shares that the Offeror has offered
                        to purchase under the Lock-up Bid at a price or value
                        per Voting Share that is not less than the price or
                        value per Voting Share offered under the Lock-up Bid,
                        provided that the Specified Number is not greater than
                        7% of the number of Voting Shares offered under the
                        Lock-up Bid;

            and, for greater clarity, the agreement may contain a right of first
            refusal or require a period of delay to give such Person an
            opportunity to match a higher price in another Take-over Bid or
            other similar limitation on a Locked-up Person's right to withdraw
            Voting Shares from the agreement, so long as the limitation does not
            preclude the exercise by the Locked-up Person of the right to
            withdraw Voting Shares during the period of the other Take-over Bid
            or transaction; and

      (ii)  no "break-up" fees, "top-up" fees, penalties, expenses or other
            amounts that exceed in the aggregate the greater of:
<PAGE>
                                     - 11 -

            (A)   the cash equivalent of 2 1/2% of the price or value payable
                  under the Lock-up Bid to a Locked-up Person; and

            (B)   50% of the amount by which the price or value payable under
                  another Take-over Bid or transaction to a Locked-up Person
                  exceeds the price or value of the consideration that such
                  Locked-up Person would have received under the Lock-up Bid,

      shall be payable by a Locked-up Person pursuant to the agreement in the
      event a Locked-up Person fails to deposit or tender Voting Shares to the
      Lock-up Bid, withdraws Voting Shares previously tendered thereto or
      supports another transaction.

(ab)  "Person" shall include any individual, body corporate, firm, partnership,
      association, trust, trustee, executor, administrator, legal personal
      representative, group, unincorporated organization, syndicate, government
      or governmental agency or instrumentality or other entity;

(ac)  "Pro Rata Acquisition" shall mean:

      (i)   the acquisition of Voting Shares as a result of a stock dividend, a
            stock split or other event pursuant to which a Person receives or
            acquires Voting Shares on the same pro rata basis as all other
            holders of the same class of Voting Shares;

      (ii)  the acquisition of Voting Shares pursuant to any regular dividend
            reinvestment plan or other plan made available by the Corporation to
            holders of all of its Voting Shares;

      (iii) the receipt and/or exercise of rights issued by the Corporation to
            all the holders of a class of Voting Shares to subscribe for or
            purchase Voting Shares, provided that such rights are acquired
            directly from the Corporation and not from any other Person; or

      (iv)  the acquisition of Voting Shares pursuant to a distribution by the
            Corporation of Voting Shares, or securities convertible into or
            exchangeable for Voting Shares (and the conversion or exchange of
            such convertible securities) made pursuant to a prospectus or by way
            of private placement by the Corporation, provided such Person does
            not thereby acquire a greater percentage of Voting Shares or
            securities convertible into or exchangeable for Voting Shares so
            offered than the Person's percentage of Voting Shares Beneficially
            Owned immediately prior to such acquisition;

(ad)  "Record Time" shall mean 4:00 p.m. (Vancouver time) on February 10, 1999;

(ae)  "Right" shall have the meaning ascribed thereto in the recitals hereto;

(af)  "Rights Agent" shall mean such trust company as designated by directors
      from time to time;
<PAGE>
                                     - 12 -

(ag)  "Rights Certificates" shall mean the certificates representing the Rights
      after the Separation Time, which shall be in the form attached hereto as
      Exhibit A;

(ah)  "Rights Register" and "Rights Registrar "shall have the respective
      meanings ascribed thereto in subsection 2.3(a);

(ai)  "Securities Act (British Columbia)" shall mean the Securities Act,
      R.S.B.C. 1996, c. 418, as amended, and the rules and regulations
      thereunder, and any comparable or successor laws or regulations thereto;

(aj)  "Separation Time" shall mean the close of business on the eighth Trading
      Day after the earlier of:

      (i)   the Stock Acquisition Date; and

      (ii)  the date of the commencement of, or first public announcement
            (provided such announcement is made after the Record Time) of, the
            intent of any Person (other than the Corporation or any Subsidiary
            of the Corporation) to commence a Take-over Bid (other than a
            Permitted Bid or a Competing Permitted Bid);

      or such later time as may be determined by the Board of Directors;
      provided that if the foregoing results in the Separation Time being prior
      to the Record Time, the Separation Time shall be the Record Time and
      provided further that, if any Take-over Bid referred to in clause (ii) of
      this subsection 1.1(ai) expires, or is cancelled, terminated or otherwise
      withdrawn prior to the Separation Time, such Take-over Bid shall be
      deemed, for the purposes of this subsection 1.1(ai), never to have been
      made;

(ak)  "Stock Acquisition Date" shall mean the date of the first public
      announcement (which, for purposes of this definition, shall include,
      without limitation, the filing of a report pursuant to the Securities Act
      (British Columbia)) by the Corporation or an Acquiring Person of facts
      indicating that a Person has become an Acquiring Person;

(al)  "Subsidiary" of a Person shall have the meaning ascribed thereto in the
      Securities Act (British Columbia);

(am)  "Take-over Bid" shall mean an Offer to Acquire Voting Shares or other
      securities of the Corporation if, assuming that the Voting Shares or other
      securities of the Corporation subject to the Offer to Acquire are acquired
      at the date of such Offer to Acquire by the Person making such Offer to
      Acquire, the Voting Shares Beneficially Owned by the Person making the
      Offer to Acquire would constitute in the aggregate 20% or more of the
      Voting Shares then outstanding;

(an)  "Termination Time" shall mean the time at which the right to exercise
      Rights shall terminate pursuant to subsections 6.1(f), 6.1(g) or section
      6.15;

(ao)  "Trading Day", when used with respect to any securities, shall mean a day
      on which the principal Canadian securities exchange on which such
      securities are listed or admitted to
<PAGE>
                                     - 13 -

      trading is open for the transaction of business or, if the securities are
      not listed or admitted to trading on any Canadian securities exchange, a
      Business Day; and

(ap)  "Voting Share" shall mean any share in the capital of the Corporation to
      which is attached a right to vote for the election of all directors
      generally.

1.2   CURRENCY

All sums of money which are referred to in this Agreement are expressed in
lawful money of Canada, unless otherwise specified.

1.3   DESCRIPTIVE HEADINGS

Descriptive headings appear herein for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.

1.4   REFERENCES TO AGREEMENT

References to "this Agreement", "hereto", "herein", "hereby", "hereunder",
"hereof" and similar expressions refer to this Agreement and not to any
particular Article, section, subsection, clause, subclause, subdivision or other
portion hereof and include any and every instrument supplemental or ancillary
hereto.

1.5   CALCULATION OF NUMBER AND PERCENTAGE OF BENEFICIAL OWNERSHIP OF
      OUTSTANDING VOTING SHARES

(a)   For the purposes of this Agreement, in determining the percentage of the
      outstanding Voting Shares of the Corporation with respect to which a
      Person is or is deemed to be the Beneficial Owner, all unissued Voting
      Shares of the Corporation of which such Person is deemed to be the
      Beneficial Owner shall be deemed to be outstanding.

(b)   The percentage of outstanding Voting Shares of the Corporation
      Beneficially Owned by any Person shall, for the purposes of this
      Agreement, be and be deemed to be the product determined by the formula:

                                                100   x     A
                                                            -
      where                                                 B

      A = the number of votes for the election of all directors generally
      attaching to the outstanding Voting Shares of the Corporation Beneficially
      Owned by such Person; and

      B = the number of votes for the election of all directors generally
      attaching to all outstanding Voting Shares of the Corporation.

The percentage of outstanding Voting Shares represented by any particular group
of Voting Shares acquired or held by any Person shall be determined in like
manner mutatis mutandis.
<PAGE>
                                     - 14 -

1.6   ACTING JOINTLY OR IN CONCERT

For the purposes of this Agreement, a Person is acting jointly or in concert
with another Person if such Person has any agreement, arrangement or
understanding (whether formal or informal and whether or not in writing) with
such other Person for the purpose of acquiring or Offering to Acquire any Voting
Shares (other than customary agreements with and between underwriters and
banking group or selling group members with respect to an offering of securities
and other than pledges or hypothecs of securities in the ordinary course of
business).

                                    ARTICLE 2

                                   THE RIGHTS

2.1   LEGEND ON CERTIFICATES

Certificates for Common Shares issued after the Record Time but prior to the
earlier of the Separation Time and the Expiration Time shall evidence, in
addition to the Common Shares, one Right for each Common Share evidenced thereby
and shall have impressed on, printed on, written on or otherwise affixed to them
the following legend:

      UNTIL THE SEPARATION TIME (AS DEFINED IN THE RIGHTS AGREEMENT REFERRED TO
      BELOW), THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
      CERTAIN RIGHTS AS SET FORTH IN A SHAREHOLDER RIGHTS PLAN AGREEMENT, DATED
      AS OF THE 10TH DAY OF FEBRUARY, 1999, AS AMENDED (THE "RIGHTS AGREEMENT"),
      BETWEEN ANGIOTECH PHARMACEUTICALS, INC. (THE "CORPORATION") AND
      COMPUTERSHARE TRUST COMPANY OF CANADA, AS RIGHTS AGENT, THE TERMS OF WHICH
      ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH MAY BE
      INSPECTED DURING NORMAL BUSINESS HOURS AT THE PRINCIPAL EXECUTIVE OFFICES
      OF THE CORPORATION. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE
      RIGHTS AGREEMENT, SUCH RIGHTS MAY BE TERMINATED, MAY EXPIRE, MAY BECOME
      VOID (IF, IN CERTAIN CASES, THEY ARE "BENEFICIALLY OWNED" BY AN "ACQUIRING
      PERSON", AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT, WHETHER
      CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR ANY SUBSEQUENT HOLDER) OR
      MAY BE EVIDENCED BY SEPARATE CERTIFICATES AND MAY NO LONGER BE EVIDENCED
      BY THIS CERTIFICATE. THE CORPORATION WILL MAIL OR ARRANGE FOR THE MAILING
      OF A COPY OF THE RIGHTS AGREEMENT TO THE HOLDER OF THIS CERTIFICATE
      WITHOUT CHARGE AS SOON AS IS PRACTICABLE AFTER THE RECEIPT OF A WRITTEN
      REQUEST THEREFOR.

Certificates representing Common Shares that are issued and outstanding at the
Record Time shall evidence one Right for each Common Share evidenced thereby,
notwithstanding the absence of the foregoing legend until the earlier of the
Separation Time and the Expiration Time.
<PAGE>
                                     - 15 -

2.2   EXECUTION, AUTHENTICATION, DELIVERY AND DATING OF RIGHTS CERTIFICATES

(a)   The Rights Certificates shall be executed on behalf of the Corporation by
      any of the Chairman of the Board, the President or any Vice-President
      (including any Senior Vice-President), together with any other of such
      persons or together with any one of the Secretary, the Treasurer, any
      Assistant Secretary or any Assistant Treasurer. The signature of any of
      the officers of the Corporation on the Rights Certificates may be manual
      or facsimile. Rights Certificates bearing the manual or facsimile
      signatures of individuals who were at any time the proper officers of the
      Corporation shall bind the Corporation, notwithstanding that such
      individuals or any of them have ceased to hold such offices prior to the
      countersignature and delivery of such Rights Certificates.

(b)   Promptly after the Corporation learns of the Separation Time the
      Corporation will notify the Rights Agent of such Separation Time and will
      deliver Rights Certificates executed by the Corporation to the Rights
      Agent for countersignature, and the Rights Agent shall manually
      countersign and deliver such Rights Certificates to the holders of the
      Rights pursuant to subsection 3.1(c). No Rights Certificate shall be valid
      for any purpose until countersigned by the Rights Agent as aforesaid.

(c)   Each Rights Certificate shall be dated the date of the countersignature
      thereof.

2.3   REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE

(a)   After the Separation Time, the Corporation will cause to be kept a
      register (the "Rights Register") in which, subject to such reasonable
      regulations as it may prescribe, the Corporation will provide for the
      registration and transfer of Rights. The Rights Agent is hereby appointed
      the "Rights Registrar" for the purpose of maintaining the Rights Register
      for the Corporation and registering Rights and transfers of Rights as
      herein provided. In the event that the Rights Agent shall cease to be the
      Rights Registrar, the Rights Agent will have the right to examine the
      Rights Registrar at all reasonable times. After the Separation Time and
      prior to the Expiration Time, upon surrender for registration of transfer
      or exchange of any Rights Certificate, and subject to the provisions of
      subsection (c) of this section 2.3, the Corporation will execute, and the
      Rights Agent will manually countersign and deliver, in the name of the
      holder or the designated transferee or transferees, as required pursuant
      to the holder's instructions, one or more new Rights Certificates
      evidencing the same aggregate number of Rights as did the Rights
      Certificates so surrendered.

(b)   All Rights issued upon any registration of transfer or exchange of Rights
      Certificates shall be valid obligations of Corporation, and such Rights
      shall be entitled to the same benefits under this Agreement as the Rights
      surrendered upon such registration of transfer or exchange.

(c)   Every Rights Certificate surrendered for registration of transfer or
      exchange shall be duly endorsed, or be accompanied by a written instrument
      of transfer in form satisfactory to the Corporation or the Rights Agent,
      as the case may be, duly executed by the holder thereof or such holder's
      attorney duly authorized in writing. As a condition to the
<PAGE>
                                     - 16 -

      issuance of any new Rights Certificate under this section 2.3, the
      Corporation may require the payment of a sum sufficient to cover any tax
      or other governmental charge that may be imposed in relation thereto and
      any other expenses (including the fees and expenses of the Rights Agent)
      in connection therewith.

2.4   MUTILATED, DESTROYED, LOST AND STOLEN RIGHTS CERTIFICATES

(a)   If any mutilated Rights Certificate is surrendered to the Rights Agent
      prior to the Expiration Time, the Corporation shall execute and the Rights
      Agent shall manually countersign and deliver in exchange therefor a new
      Rights Certificate evidencing the same number of Rights as the Rights
      Certificate so surrendered.

(b)   If there shall be delivered to the Corporation and the Rights Agent prior
      to the Expiration Time: (i) evidence to their satisfaction of the
      destruction, loss or theft of any Rights Certificate; and (ii) such
      security or indemnity as may be required by them to save each of them and
      any of their agents harmless, then, in the absence of notice to the
      Corporation or the Rights Agent that such Rights Certificate has been
      acquired by a bona fide purchaser, the Corporation shall execute and upon
      its request the Rights Agent shall countersign and deliver, in lieu of any
      such destroyed, lost or stolen Rights Certificate, a new Rights
      Certificate evidencing the same number of Rights as did the Rights
      Certificate so destroyed, lost or stolen.

(c)   As a condition to the issuance of any new Rights Certificate under this
      section 2.4, the Corporation may require the payment of a sum sufficient
      to cover any tax or other governmental charge that may be imposed in
      relation thereto and any other expenses (including the fees and expenses
      of the Rights Agent) in connection therewith.

(d)   Every new Rights Certificate issued pursuant to this section 2.4 in lieu
      of any destroyed, lost or stolen Rights Certificate shall evidence the
      contractual obligation of the Corporation, whether or not the destroyed,
      lost or stolen Rights Certificate shall be at any time enforceable by
      anyone, and shall be entitled to all the benefits of this Agreement
      equally and proportionately with any and all other Rights duly issued by
      the Corporation.

2.5   PERSONS DEEMED OWNERS OF RIGHTS

The Corporation, the Rights Agent and any agent of the Corporation or the Rights
Agent may deem and treat the Person in whose name such Rights Certificate (or,
prior to the Separation Time, the associated Common Share certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby for
all purposes whatsoever. As used in this Agreement, unless the context otherwise
requires, the term "holder" of any Rights shall mean the registered holder of
such Rights (or, prior to the Separation Time, the associated Common Shares).

2.6   DELIVERY AND CANCELLATION OF CERTIFICATES

All Rights Certificates surrendered upon exercise or for redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Rights Agent, be delivered to the Rights Agent and, in any case, shall
be promptly cancelled by the Rights Agent. The Corporation may at any time
deliver to the Rights Agent for cancellation any Rights Certificates
<PAGE>
                                     - 17 -

previously countersigned and delivered hereunder which the Corporation may have
acquired in any manner whatsoever, and all Rights Certificates so delivered
shall be promptly cancelled by the Rights Agent. No Rights Certificate shall be
countersigned in lieu of or in exchange for any Rights Certificates cancelled as
provided for in this section 2.6, except as expressly permitted by this
Agreement. The Rights Agent shall destroy all cancelled Rights Certificates and
deliver a certificate of destruction to the Corporation.

2.7   AGREEMENT OF RIGHTS HOLDERS

Every holder of Rights by accepting the same consents and agrees with the
Corporation and the Rights Agent and with every other holder of Rights:

(a)   to be bound by and subject to the provisions of this Agreement, as amended
      from time to time in accordance with the terms hereof, in respect of the
      Rights held;

(b)   that prior to the Separation Time, each Right will be transferable only
      together with, and will be transferred by a transfer of, the associated
      Common Share certificate representing such Right;

(c)   that after the Separation Time, the Rights Certificates will be
      transferable only upon registration of the transfer on the Rights Register
      as provided herein;

(d)   that prior to due presentment of a Rights Certificate (or, prior to the
      Separation Time, the associated Common Share certificate) for registration
      of transfer, the Corporation, the Rights Agent and any agent of the
      Corporation or the Rights Agent may deem and treat the Person in whose
      name the Rights Certificate (or, prior to the Separation Time, the
      associated Common Share certificate) is registered as the absolute owner
      thereof and of the Rights evidenced thereby (notwithstanding any notations
      of ownership or writing on such Rights Certificate or the associated
      Common Share 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;

(e)   that such holder of Rights has waived his right to receive any fractional
      Rights or any fractional Common Shares upon exercise of a Right (except as
      provided herein); and

(f)   that without the approval of any holder of Rights and upon the sole
      authority of the Board of Directors acting in good faith, this Agreement
      may be supplemented or amended from time to time pursuant to and as
      provided herein.

2.8   RIGHTS CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER

No holder, as such, of any Right or Rights Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose whatsoever the holder of
any Common Share which may at any time be issuable on the exercise of such
Right, nor shall anything contained herein or in any Rights Certificate be
construed or deemed to confer upon the holder of any Right or Rights
Certificate, as such, any of the rights, titles, benefits or privileges of a
shareholder of the Corporation or any right to vote at any meeting of
shareholders of the Corporation whether for the election of directors or
otherwise or upon any matter submitted to holders of any Common
<PAGE>
                                     - 18 -

Shares at any meeting thereof, or to give or withhold consent to any action of
the Corporation, or to receive notice of any meeting or other action affecting
any shareholder of the Corporation except as expressly provided herein, or to
receive dividends, distributions or subscription rights, or otherwise, until the
Right or Rights evidenced by any Rights Certificate shall have been duly
exercised in accordance with the terms and provisions hereof.

                                    ARTICLE 3

                             EXERCISE OF THE RIGHTS

3.1   INITIAL EXERCISE PRICE; EXERCISE OF RIGHTS; DETACHMENT OF RIGHTS

(a)   Subject to adjustment as herein set forth, from and after the Separation
      Time and prior to the Expiration Time, each Right will entitle the holder
      thereof to purchase one Common Share for the Exercise Price (which
      Exercise Price and number of Common Shares are subject to adjustment as
      set forth below).

(b)   Until the Separation Time:

      (i)   the Rights shall not be exercisable and no Right may be exercised;
            and

      (ii)  each Right will be evidenced by the certificate for the associated
            Common Share registered in the name of the holder thereof (which
            certificate shall also be deemed to be a Rights Certificate) and
            will be transferable only together with, and will be transferred by
            a transfer of, such associated Common Share.

(c)   From and after the Separation Time and prior to the Expiration Time:

      (i)   the Rights shall be exercisable; and

      (ii)  the registration and transfer of the Rights shall be separate from
            and independent of Common Shares.

      Promptly following the Separation Time, the Rights Agent will mail to each
      holder of record of Common Shares as of the Separation Time, the Rights
      Agent will mail to the holders so converting (other than an Acquiring
      Person and other than, in respect of any Rights Beneficially Owned by such
      Acquiring Person which are not held of record by such Acquiring Person,
      the holder of Record of such Rights (a "Nominee") ), at such holder's
      address as shown by the records of the Corporation (and the Corporation
      hereby agrees to furnish copies of such records to the Rights Agent for
      this purpose):

      (iii) a Rights Certificate representing the number of Rights held by such
            holder at the Separation Time in substantially the form of Exhibit A
            hereto, appropriately completed and having such marks of
            identification or designation and such legends, summaries or
            endorsements printed thereon as the Corporation may deem appropriate
            and as are not inconsistent with the provisions of this Agreement,
            or as may be required to comply with any law, rule, regulation or
            judicial or administrative order or with any rule or regulation made
            pursuant
<PAGE>
                                     - 19 -

            thereto or with any rule or regulation of any stock exchange or
            quotation system on which the Rights may from time to time be listed
            or traded, or to conform to usage; and

      (iv)  a disclosure statement describing the Rights;

      provided that a Nominee shall be sent the materials provided for in
      clauses (iii) and (iv) only in respect of all Common Shares held of record
      by it which are not Beneficially Owned by an Acquiring Person. In order
      for the Corporation to determine whether any person is holding Common
      Shares which are Beneficially Owned by another Person, the Corporation may
      require such first mentioned person to furnish it with such information
      and documentation as the Corporation considers advisable.

(d)   Rights may be exercised in whole or in part on any Business Day after the
      Separation Time and prior to the Expiration Time by submitting to the
      Rights Agent:

      (i)   the Rights Certificate evidencing such Rights;

      (ii)  an election to exercise such Rights (an "Election to Exercise")
            substantially in the form attached to the Rights Certificate duly
            completed and executed by the holder or his executors or
            administrators or other personal representatives or his or their
            legal attorney duly appointed by an instrument in writing in form
            and executed in a manner satisfactory to the Rights Agent; and

      (iii) payment in cash, or by certified cheque, banker's draft or money
            order payable to the order of the Corporation, of a sum equal to the
            applicable Exercise Price multiplied by the number of Rights being
            exercised and a sum sufficient to cover any transfer tax or charge
            which may be payable in respect of any transfer involved in the
            transfer or delivery of Rights Certificates or the issuance or
            delivery of certificates for the relevant Common Shares in a name
            other than that of the holder of the Rights being exercised.

(e)   Upon receipt of the Rights Certificate which is accompanied by a completed
      Election to Exercise that does not indicate that such Right is null and
      void as provided by subsection 4.1(b) and payment as set forth in
      subsection 3.1(d), the Rights Agent (unless otherwise instructed by the
      Corporation in the event that the Corporation is of the opinion that the
      Rights cannot be exercised in accordance with this Agreement) will
      thereupon promptly:

      (i)   requisition from a transfer agent for the relevant Common Shares,
            certificates representing the number of such Common Shares to be
            purchased (the Corporation hereby irrevocably authorizing its
            transfer agents to comply with all such requisitions);

      (ii)  when appropriate, requisition from the Corporation the amount of
            cash to be paid in lieu of issuing fractional Common Shares;
<PAGE>
                                     - 20 -

      (iii) after receipt of such Common Share certificate, deliver the same to
            or to the order of the registered holder of such Rights Certificate,
            registered in such name or names as may be designated by such
            holder;

      (iv)  when appropriate, after receipt, deliver such cash referred to in
            clause (ii) above to or to the order of the registered holder of the
            Rights Certificate; and

      (v)   tender to the Corporation all payments received on exercise of the
            Rights.

(f)   In case the holder of any Rights shall exercise less than all the Rights
      evidenced by such holder's Rights Certificate, a new Rights Certificate
      evidencing the Rights remaining unexercised will be issued by the Rights
      Agent to such holder or to such holder's duly authorized assigns.

(g)   The Corporation covenants and agrees that it will:

      (i)   take all such action as may be necessary and within its power to
            ensure that all Common Shares delivered upon exercise of Rights
            shall, at the time of delivery of the certificates representing such
            Common Shares (subject to payment of the Exercise Price), be duly
            and validly authorized, issued and delivered as fully paid and
            non-assessable;

      (ii)  take all such action as may be necessary and within its power to
            comply with any applicable requirements of the Company Act, the
            Securities Act (British Columbia) and the Securities Acts or
            comparable legislation of each of the other provinces of Canada and
            any other applicable law, rule or regulation, in connection with the
            issuance and delivery of the Rights Certificate's and the issuance
            of any Common Shares upon exercise of Rights;

      (iii) use reasonable efforts to cause all Common Shares issued upon
            exercise of Rights to be listed on the principal exchanges on which
            the Common Shares were traded immediately prior to the Stock
            Acquisition Date;

      (iv)  cause to be reserved and kept available out of its authorized and
            unissued Common Shares the number of Common Shares that, as provided
            in this Agreement, will from time to time be sufficient to permit
            the exercise in full of all outstanding Rights; and

      (v)   pay when due and payable any and all federal and provincial transfer
            taxes (for greater certainty, not including any income taxes of the
            holder or exercising holder or any liability of the Corporation to
            withhold tax) which may be payable in respect of the original
            issuance or delivery of the Rights Certificates, provided that the
            Corporation shall not be required to pay any transfer tax or charge
            which may be payable in respect of any transfer involved in the
            transfer or delivery of Rights Certificates or the issuance or
            delivery of certificates for Common Shares in a name other than that
            of the holder of the Rights being transferred or exercised.
<PAGE>
                                     - 21 -

3.2   ADJUSTMENTS TO EXERCISE PRICE; NUMBER OF RIGHTS

The Exercise Price, the number of Common Shares or other securities subject to
purchase upon the exercise of each Right and the number of Rights outstanding
are subject to adjustment from time to time as provided in this section 3.2.

(a)   In the event the Corporation shall at any time after the Record Time and
      prior to the Expiration Time:

      (i)   declare or pay a dividend on the Common Shares payable in Common
            Shares (or other securities exchangeable for or convertible into or
            giving a right to acquire Common Shares) other than pursuant to any
            dividend reinvestment program;

      (ii)  subdivide or change the outstanding Common Shares into a greater
            number of Common Shares;

      (iii) combine or change the outstanding Common Shares into a smaller
            number of Common Shares; or

      (iv)  issue any Common Shares (or other securities exchangeable for or
            convertible into or giving a right to acquire Common Shares) in
            respect of, in lieu of or in exchange for existing Common Shares,

      the Exercise Price in effect at the time of the record date for such
      dividend or of the effective date of such subdivision, combination or
      other change, and the number of Common Shares or other securities, as the
      case may be, issuable on such date, shall be proportionately adjusted so
      that the holder of any Right exercised after such time shall be entitled
      to receive, upon payment of the applicable Exercise Price then in effect,
      the aggregate number of Common Shares or other securities, as the case may
      be, which, if such Right had been exercised immediately prior to such date
      and at a time when the share transfer books of the Corporation were open,
      such holder would have been entitled to receive as a result of such
      dividend, subdivision, combination or reclassification. If an event occurs
      which would require an adjustment under both this section 3.2 and section
      4.1, the adjustment provided for in this section 3.2 shall be in addition
      to, and shall be made prior to, any adjustment required pursuant to
      section 4.1.

(b)   In case the Corporation shall at any time after the Record Time and prior
      to the Expiration Time fix a record date for the issuance of rights,
      options or warrants to all holders of Common Shares entitling them to
      subscribe for or purchase (for a period expiring within 45 calendar days
      after such record date) Common Shares (or shares having the same rights,
      privileges and preferences as Common Shares ("equivalent common shares"))
      or securities convertible into Common Shares or equivalent common shares
      at a price per Common Share or per equivalent common share (or having a
      conversion price per share, if a security convertible into Common Shares
      or equivalent common shares) less than 90% of the Market Price per Common
      Share on such record date, the Exercise Price in respect of the Rights to
      be in effect after such record date shall be determined by multiplying the
      Exercise Price in respect of the Rights in effect immediately prior to
      such record date by a fraction: (i) the numerator of which shall be
<PAGE>
                                     - 22 -

      the number of Common Shares outstanding on such record date, plus the
      number of Common Shares that the aggregate offering price of the total
      number of Common Shares and/or equivalent common shares so to be offered
      (and/or the aggregate initial conversion price of the convertible
      securities so to be offered) would purchase at such Market Price per
      Common Share; and (ii) the denominator of which shall be the number of
      Common Shares outstanding on such record date, plus the number of
      additional Common Shares and/or equivalent common shares to be offered for
      subscription or purchase (or into which the convertible securities so to
      be offered are initially convertible). In case such subscription price may
      be paid by delivery of consideration, part or all of which may be in a
      form other than cash, the value of such consideration shall be as
      determined in good faith by the Board of Directors, whose determination
      shall be described in a statement filed with the Rights Agent and shall be
      binding on the Rights Agent and the holders of the Rights. Such adjustment
      shall be made successively whenever such a record date is fixed and, in
      the event that such rights or warrants are not so issued, the Exercise
      Price in respect of the Rights shall be re-adjusted to be the Exercise
      Price which would then be in effect if such record date had not been
      fixed.

(c)   For purposes of this Agreement, the granting of the right to purchase
      Common Shares (whether from treasury or otherwise) pursuant to a dividend
      reinvestment plan or any employee benefit, stock option or similar plans
      shall be deemed not to constitute an issue of rights, options or warrants
      by the Corporation; provided, however, that, in all such cases, the right
      to purchase Common Shares is at a price per share of not less than 90% of
      the current market price per share (determined as provided in such plans)
      of the Common Shares.

(d)   In case the Corporation shall at any time after the Record Time and prior
      to the Expiration Time fix a record date for a distribution to all holders
      of Common Shares (including any such distribution made in connection with
      a merger in which the Corporation is the continuing corporation) of
      evidences of indebtedness or assets, including cash (other than a dividend
      paid in the ordinary course or a dividend paid in Common Shares, but
      including any dividend payable in securities other than Common Shares), or
      subscription rights or warrants entitling them to subscribe for or
      purchase Common Shares (excluding those referred to in subsection 3.2(b))
      at a price per Common Share that is less than 90% of the Market Price per
      Common Share on such record date, the Exercise Price in respect of the
      Rights to be in effect after such record date shall be determined by
      multiplying the Exercise Price in respect of the Rights in effect
      immediately prior to such record date by a fraction: (i) the numerator of
      which shall be the Market Price per Common Share on such record date, less
      the fair market value (as determined in good faith by the Board of
      Directors, whose determination shall be described in a statement filed
      with the Rights Agent and shall be binding on the Rights Agent and the
      holders of the Rights) of the portion of the cash, assets or evidences of
      indebtedness so to be distributed or of such subscription rights or
      warrants applicable to a Common Share; and (ii) the denominator of which
      shall be such Market Price per Common Share. Such adjustments shall be
      made successively whenever such a record date is fixed and, in the event
      that such distribution is not so made, the Exercise Price in respect of
      the Rights shall be adjusted to be the Exercise Price in respect of the
      Rights which would have been in effect if such record date had not been
      fixed.
<PAGE>
                                     - 23 -

(e)   Notwithstanding anything herein to the contrary, no adjustment in an
      Exercise Price shall be required unless such adjustment would require an
      increase or decrease of at least 1% in such Exercise Price; provided,
      however, that any adjustments which by reason of this subsection 3.2(e)
      are not required to be made shall be carried forward and taken into
      account in any subsequent adjustment. All calculations under this section
      3.2 shall be made to the nearest cent or to the nearest ten-thousandth of
      a Common Share or other share, as the case may be. Notwithstanding the
      first sentence of this subsection 3.2(e), any adjustment required by this
      section 3.2 shall be made no later than the earlier of: (i) three years
      from the date of the transaction which mandates such adjustment; and (ii)
      the Expiration Time.

(f)   If as a result of an adjustment made pursuant to section 4.1 or 4.2, the
      holder of any Right thereafter exercised shall become entitled to receive
      any shares other than Common Shares, thereafter the number of such other
      shares so receivable upon exercise of any Right and the applicable
      Exercise Price thereof shall be subject to adjustment from time to time in
      a manner and on terms as nearly equivalent as is practicable to the
      provisions with respect to the Common Shares contained in this section
      3.2, and the provisions of this Agreement with respect to the Common
      Shares shall apply on like terms to any such other shares.

(g)   All Rights originally issued by the Corporation subsequent to any
      adjustment made to an Exercise Price hereunder shall evidence the right to
      purchase, at the adjusted Exercise Price, the respective number of Common
      Shares, as the case may be, purchasable from time to time hereunder upon
      exercise of the Rights, all subject to further adjustment as provided
      herein.

(h)   Unless the Corporation shall have exercised its election as provided in
      subsection 3.2(i), upon each adjustment of an Exercise Price as a result
      of the calculations made in subsections 3.2(b) and (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 Common Shares, as the case may be (calculated to the
      nearest one ten-thousandth), obtained by:

      (i)   multiplying:

            (A)   the number of such Common Shares which would have been
                  issuable upon the exercise of a Right immediately prior to
                  this adjustment; by

            (B)   the relevant Exercise Price in effect immediately prior to
                  such adjustment of the relevant Exercise Price; and

      (ii)  dividing the product so obtained by the relevant Exercise Price in
            effect immediately after such adjustment of the relevant Exercise
            Price.

(i)   The Corporation may elect on or after the date of any adjustment of an
      Exercise Price to adjust the number of Rights, in lieu of any adjustment
      in the number of Common Shares purchasable upon the exercise of a Right.
      Each of the Rights outstanding after the adjustment in the number of
      Rights shall be exercisable for the number of Common
<PAGE>
                                     - 24 -

      Shares for which such a Right was exercisable immediately prior to such
      adjustment. Each Right held of record prior to such adjustment of the
      number of Rights shall become that number of Rights (calculated to the
      nearest one ten-thousandth) obtained by dividing the relevant Exercise
      Price in effect immediately prior to adjustment of the relevant Exercise
      Price by the relevant Exercise Price in effect immediately after
      adjustment of the relevant 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 relevant Exercise Price is adjusted or any day thereafter,
      but, if the Rights Certificates have been issued, shall be at least 10
      days later than the date of the public announcement. If Rights
      Certificates have been issued, upon each adjustment of the number of
      Rights pursuant to this subsection 3.2(i), the Corporation shall, as
      promptly as is practicable, cause to be distributed to holders of record
      of Rights Certificates on such record date, Rights Certificates
      evidencing, subject to section 6.4, the additional Rights 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 Rights Certificates held
      by such holders prior to the date of adjustment, and upon surrender
      thereof, if required by the Corporation, new Rights Certificates
      evidencing all the Rights to which such holders shall be entitled after
      such adjustment. Rights Certificates to be so distributed shall be issued,
      executed and countersigned in the manner provided for herein and may bear,
      at the option of the Corporation, the relevant adjusted Exercise Price and
      shall be registered in the names of holders of record of Rights
      Certificates on the record date specified in the public announcement.

(j)   Irrespective of any adjustment or change in an Exercise Price or the
      number of Common Shares issuable upon the exercise of the Rights, the
      Rights Certificates theretofore and thereafter issued may continue to
      express the relevant Exercise Price per Common Share and the number of
      Common Shares which were expressed in the initial Rights Certificates
      issued hereunder.

(k)   In any case in which this section 3.2 shall require that an adjustment in
      an Exercise Price be made effective as of a record date for a specified
      event, the Corporation may elect to defer, until the occurrence of such
      event, the issuance to the holder of any Right exercised after such record
      date of the number of Common Shares and other securities of the
      Corporation, if any, issuable upon such exercise over and above the number
      of Common Shares and other securities of the Corporation, if any, issuable
      upon such exercise on the basis of the relevant Exercise Price in effect
      prior to such adjustment; provided, however, that the Corporation shall
      deliver to such holder a due bill or other appropriate instrument
      evidencing such holder's right to receive such additional Common Shares
      (fractional or otherwise) or other securities upon the occurrence of the
      event requiring such adjustment.

(l)   Notwithstanding anything in this section 3.2 to the contrary, the
      Corporation shall be entitled to make such reductions in each Exercise
      Price, in addition to those adjustments expressly required by this section
      3.2, as and to the extent that in its good faith judgment the Board of
      Directors shall determine to be advisable in order that any: (i)
      consolidation or subdivision of Common Shares; (ii) issuance wholly for
      cash of any Common Share or
<PAGE>
                                     - 25 -

      securities that by their terms are convertible into or exchangeable for
      Common Shares; (iii) stock dividends; or (iv) issuance of rights, options
      or warrants referred to in this section 3.2, hereafter made by the
      Corporation to holders of its Common Shares, shall not be taxable to such
      shareholders.

(m)   The Corporation covenants and agrees that, after the Separation Time, it
      will not, except as permitted by section 6.1 or 6.5, take (or permit any
      Subsidiary of the Corporation to take) any action if at the time such
      action is taken it is reasonably foreseeable that such action will
      diminish substantially or otherwise eliminate the benefits intended to be
      afforded by the Rights.

3.3   DATE ON WHICH EXERCISE IS EFFECTIVE

Each Person in whose name any certificate for Common Shares is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of the Common Share represented thereby on, and such certificate shall be
dated, the date upon which the Rights Certificate evidencing such Rights was
duly surrendered (together with a duly completed Election to Exercise) and
payment of the relevant Exercise Price for such Rights (and any applicable
transfer taxes and other governmental charges payable by the exercising holder
hereunder) was made; provided, however, that if the date of such surrender and
payment is a date upon which the relevant Common Share transfer books of the
Corporation are closed, such Person shall be deemed to have become the holder of
record of such Common Shares on, and such certificate shall be dated, the next
succeeding Business Day on which the relevant Common Share transfer books of the
Corporation are open.

                                    ARTICLE 4

                          ADJUSTMENTS TO THE RIGHTS IN

                        THE EVENT OF CERTAIN TRANSACTIONS

4.1   FLIP-IN EVENT

(a)   Subject to subsection 4.1(b) and subsections 6.1(b), (c) and (d), in the
      event that prior to the Expiration Time a Flip-in Event shall occur, each
      Right shall constitute, effective on and after the later of its date of
      issue and the close of business on the eighth Trading Day following the
      Stock Acquisition Date, the right to purchase from the Corporation, upon
      payment of the relevant Exercise Price and otherwise exercising such Right
      in accordance with the terms hereof, that number of Common Shares being
      the lesser of

      (i)   that number of Common Shares having an aggregate Market Price on the
            date of consummation or occurrence of such Flip-in Event equal to
            twice the relevant Exercise Price for an amount in cash equal to the
            relevant Exercise Price (such right to be appropriately adjusted in
            a manner analogous to the applicable adjustments provided for in
            section 3.2 upon each occurrence after the Stock Acquisition Date of
            any event analogous to any of the events described in section 3.2);
            and
<PAGE>
                                     - 26 -

      (ii)  that proportionate number of Common Shares issuable upon exercise of
            all the Rights which, when added to the total number of allotted
            Common Shares, equal the number of authorized Common Shares at that
            time.

(b)   Notwithstanding anything in this Agreement to the contrary, upon the
      occurrence of any Flip-in Event, any Rights that are or were Beneficially
      Owned on or after the earlier of the Separation Time and the Stock
      Acquisition Date by: (i) an Acquiring Person (or any Affiliate or
      Associate of an Acquiring Person or any Person acting jointly or in
      concert with an Acquiring Person or any Affiliate or Associate of an
      Acquiring Person); or (ii) a transferee or other successor in title,
      directly or indirectly, (a "Transferee") of Rights held by an Acquiring
      Person (or any Affiliate or Associate of an Acquiring Person or any Person
      acting jointly or in concert with an Acquiring Person or any Affiliate or
      Associate of an Acquiring Person) who becomes a Transferee concurrently
      with or Subsequent to the Acquiring Person becoming an Acquiring Person in
      a transfer that the Board of Directors has determined is part of a plan,
      arrangement or scheme of an Acquiring Person (or any Affiliate or
      Associate of an Acquiring Person or any Person acting jointly or in
      concert with an Acquiring Person or any Affiliate or Associate of an
      Acquiring Person), that has the purpose or effect of avoiding clause
      4.1(b)(i) shall become null and void without any further action, and any
      holder of such Rights (including any Transferee) shall not have any right
      whatsoever to exercise such Rights under any provision of this Agreement
      and shall not have thereafter any other rights whatsoever with respect to
      such Rights, whether under any provision of this Agreement or otherwise.

(c)   In the event that there shall not be sufficient Common Shares authorized
      for issuance to permit the exercise in full of the Rights in accordance
      with clause 4.1(a)(i), the Corporation shall take all such reasonable
      action it considers prudent to authorize additional Common Shares for
      issuance upon the exercise of the Rights, subject to the ability of the
      Corporation to give notice of a shareholders meeting within the time
      periods specified by legislation and by regulatory authorities.

(d)   From and after the Separation Time, the Corporation shall do all such acts
      and things as shall be necessary and within its power to ensure compliance
      with the provisions of this section 4.1, including without limitation, all
      such acts and things as may be required to satisfy the requirements of the
      Company Act and the Securities Act (British Columbia) or comparable
      legislation of any other applicable jurisdiction in respect of the issue
      of Common Shares upon the exercise of Rights in accordance with this
      Agreement.

                                    ARTICLE 5

                                THE RIGHTS AGENT

5.1   GENERAL

(a)   The Corporation hereby appoints the Rights Agent to act as agent for the
      Corporation and the holders of Rights in accordance with the terms and
      conditions hereof, and the Rights Agent hereby accepts such appointment.
      The Corporation may from time to time appoint one or more Co-Rights Agents
      as it may deem necessary or desirable. In the event
<PAGE>
                                     - 27 -

      the Corporation appoints one or more Co-Rights Agents, the respective
      duties of the Rights Agents and Co-Rights Agents shall be as the
      Corporation may determine. 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 wilful misconduct on
      the part of the Rights Agent, for anything done or omitted by the Rights
      Agent in connection with the acceptance and administration of this
      Agreement, including the costs and expenses of defending against any claim
      of liability, which right to indemnification will survive the termination
      of this Agreement.

(b)   The Rights Agent shall be protected and shall incur no liability for or in
      respect of any action taken, suffered or omitted by it in connection with
      its administration of this Agreement in reliance upon any certificate for
      Common Shares, Rights Certificate, certificate 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.

5.2   MERGER OR AMALGAMATION OR CHANGE OF NAME OF RIGHTS AGENT

(a)   Any corporation into which the Rights Agent or any successor Rights Agent
      may be merged or amalgamated or with which it may be consolidated, or any
      corporation resulting from any merger, amalgamation or consolidation to
      which the Rights Agent or any successor Rights Agent is a party, or any
      corporation succeeding to the shareholder or stockholder services business
      of the Rights Agent or any successor Rights Agent, will 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 5.4 hereof. In case
      at the time such successor Rights Agent succeeds to the agency created by
      this Agreement any of the Rights Certificates have been countersigned but
      not delivered, any such successor Rights Agent may adopt the
      countersignature of the predecessor Rights Agent and deliver such Rights
      Certificates so countersigned; and in case at that time any of the Rights
      Certificates have not been countersigned, any successor Rights Agent may
      countersign such Rights 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 Rights Certificates will have the full force provided in the
      Rights Certificates and in this Agreement.

(b)   In case at any time the name of the Rights Agent is changed and at such
      time any of the Rights Certificates shall have been countersigned but not
      delivered, the Rights Agent may adopt the countersignature under its prior
      name and deliver Rights Certificates so countersigned; and in case at that
      time any of the Rights Certificates shall not have been countersigned, the
      Rights Agent may countersign such Rights Certificates either in its prior
      name or in its changed name; and in all such cases such Rights
      Certificates shall have the full force provided in the Rights Certificates
      and in this Agreement.
<PAGE>
                                     - 28 -

5.3   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 Rights Certificates, by their acceptance thereof, shall be bound:

(a)   the Rights Agent may consult with legal counsel (who may be legal counsel
      for the Corporation) and the opinion of such counsel will 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 deems 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 a Person believed by the Rights
      Agent to be 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;
      and such certificate will 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 will be liable hereunder only for its own negligence, bad
      faith or wilful misconduct;

(d)   the Rights Agent will not be liable for or by reason of any of the
      statements of fact or recitals contained in this Agreement or in the
      certificates for Common Shares or the Rights Certificates (except its
      countersignature thereof) or be required to verify the same, but all such
      statements and recitals are and will be deemed to have been made by the
      Corporation only;

(e)   the Rights Agent will not be under any responsibility in respect of the
      validity of this Agreement or the execution and delivery hereof (except
      the due authorization, execution and delivery hereof by the Rights Agent)
      or in respect of the validity or execution of any Common Share certificate
      or Rights Certificate (except its countersignature thereof); nor will it
      be responsible for any breach by the Corporation of any covenant or
      condition contained in this Agreement or in any Rights Certificate; nor
      will it be responsible for any change in the exercisability of the Rights
      (including the Rights becoming void pursuant to subsection 4.1(b)) or any
      adjustment required under the provisions of section 3.2 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 after receipt of the certificate
      contemplated by section 3.2 describing any such adjustment); nor will it
      by any act hereunder be deemed to make any representation or warranty as
      to the authorization of any Common Shares to be issued pursuant to this
      Agreement or any Rights or as to whether any Shares will, when issued, be
      duly and validly authorized, executed, issued and delivered as fully paid
      and non-assessable;
<PAGE>
                                     - 29 -

(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 this Agreement;

(g)   the Rights Agent is hereby authorized and directed to accept instructions
      with respect to the performance of its duties hereunder from any Person
      believed by the Rights Agent to be the Chairman of the Board, the
      President, any Vice-President or the Secretary or any Assistant-Secretary
      or the Treasurer or any Assistant-Treasurer of the Corporation, and to
      apply to such Persons for advice or instructions in connection with its
      duties, and it shall not be liable for any action taken or suffered by it
      in good faith in accordance with instructions of any such Person;

(h)   the Rights Agent and any shareholder or stockholder, director, officer or
      employee of the Rights Agent may buy, sell or deal in Common Shares,
      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; and

(1)   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 will 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.

5.4   CHANGE OF RIGHTS AGENT

The Rights Agent may resign and be discharged from its duties under this
Agreement upon 90 days' notice in writing (or such lesser notice as is
acceptable to the Corporation) mailed to the Corporation and to each transfer
agent of Common Shares by registered or certified mail, and to the holders of
the Rights in accordance with section 6.8. The Corporation may remove the Rights
Agent upon 30 days' notice in writing, mailed to the Rights Agent and to each
transfer agent of the Common Shares by registered or certified mail, and to the
holders of the Rights in accordance with section 6.8. If the Rights Agent should
resign or be removed or otherwise become incapable of acting, the Corporation
will appoint a successor to the Rights Agent. If the Corporation fails 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 any Rights (which holder shall,
with such notice, submit such holder's Rights Certificate for inspection by the
Corporation), then the holder of any Rights 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
corporation incorporated under the laws of Canada or a province thereof
authorized to carry on the business of a trust company in the Province of
British Columbia. After appointment, the successor Rights Agent will be vested
with the same powers, rights, duties and
<PAGE>
                                     - 30 -

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 will file notice thereof in writing with the predecessor Rights
Agent and each transfer agent of the Common Shares, and mail a notice thereof in
writing to the holders of the Rights. Failure to give any notice provided for in
this section 5.4, 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.

                                    ARTICLE 6

                                  MISCELLANEOUS

6.1   REDEMPTION AND WAIVER

(a)   Until the close of business or the eighth Trading Day after the occurrence
      of a Flip-in Event as to which the application of section 4.1 has not been
      waived pursuant to this section 6.1, the Board of Directors may, with the
      prior consent of the holders of the Voting Shares or the holders of Rights
      given in accordance with subsection 6.1(i) or 6.1(j), as the case may be,
      elect to redeem all but not less than all of the then outstanding Rights
      at a redemption price of $0.00001 per Right, appropriately adjusted in a
      manner analogous to the applicable adjustment provided for in section 3.2,
      if an event of the type analogous to any of the events described in
      section 3.2 shall have occurred (such redemption price being herein
      referred to as the "Redemption Price").

(b)   Until the occurrence of a Flip-in Event as to which the application of
      section 4.1 has not been waived pursuant to this section 6.1, upon written
      notice to the Rights Agent, the Board of Directors may, with the prior
      consent of the holders of Voting Shares or the holders of Rights given in
      accordance with subsection 6.1(i) or 6.1(j), as the case may be, determine
      to waive the application of section 4.1 to any Flip-in Event which would
      occur by reason of an acquisition of Voting Shares otherwise than pursuant
      to a Take-over Bid made by way of Take-over Bid circular to all holders of
      Voting Shares and otherwise than in the circumstances set forth in
      subsection 6.1(d); provided that, in the event that the Board of Directors
      proposes such a waiver, it shall, if prior to the Separation Time, extend
      the Separation Time to a date subsequent to and not more than 10 Business
      Days following the meeting called to approve such waiver.

(c)   Until the occurrence of a Flip-in Event as to which the application of
      section 4.1 has not been waived pursuant to this section 6.1, upon written
      notice delivered to the Rights Agent, the Board of Directors may determine
      to waive the application of section 4.1 to any Flip-in Event which would
      result from a Take-over Bid made by way of Take-over Bid circular to all
      holders of Voting Shares; provided that if the Board of Directors waives
      the application of section 4.1 to such Flip-in Event pursuant to this
      subsection 6.1(c), the Board of Directors shall be deemed to have waived
      the application of section 4.1 to any other Flip-in Event occurring by
      reason of any Take-over Bid made by Take-over Bid circular to all holders
      of Voting Shares which is made prior to the expiry of any
<PAGE>
                                     - 31 -

      Take-over Bid (as the same may be extended from time to time) made by
      Take-over Bid circular in respect of which a waiver is, or is deemed to
      have been, granted under this subsection 6.1(c).

(d)   Notwithstanding the provisions of subsections 6.1(b) and 6.1(c) hereof,
      the Board of Directors may waive the application of section 4.1 in respect
      of any Flip-in Event, provided that both of the following conditions are
      satisfied:

      (i)   the Board of Directors has determined within eight Trading Days
            following the Stock Acquisition Date that the Person became an
            Acquiring Person by inadvertence and without any intention to
            become, or knowledge that it would become, an Acquiring Person; and

      (ii)  such Person has reduced its Beneficial Ownership of Voting Shares
            such that, at the time of the granting of a waiver pursuant to this
            subsection 6.1(d), such Person is no longer an Acquiring Person,

      and, in the event of any such waiver, for the purposes of this Agreement,
      neither such Flip-in Event nor the Separation Time shall be deemed to have
      occurred.

(e)   The Board of Directors shall, without further formality, be deemed to have
      elected to redeem the Rights at the Redemption Price on the date that a
      Person who has made a Permitted Bid, a Competing Permitted Bid or
      Take-over Bid in respect of which the Board of Directors has waived or is
      deemed to have waived pursuant to subsection 6.1(c), the application of
      section 4.1, takes up and pays for Voting Shares pursuant to the terms and
      conditions of such Permitted Bid, Competing Permitted Bid or Take-over
      Bid, as the case may be.

(f)   Where a Take-over Bid that is not a Permitted Bid is withdrawn or
      otherwise terminated after the Separation Time has occurred and prior to
      the occurrence of a Flip-in Event, the Board of Directors may elect to
      redeem all the outstanding Rights at the Redemption Price. Upon the Rights
      being redeemed pursuant to this subsection 6.1(f) and subsection 6.1(g),
      all the provisions of this Agreement shall continue to apply as if the
      Separation Time had not occurred and Rights Certificates representing the
      number of Rights held by each holder of record of Common Shares as of the
      Separation Time had not been mailed to each such holder and for all
      purposes of this Agreement the Separation Time shall be deemed not to have
      occurred.

(g)   If the Rights are redeemed in accordance with this section 6.1, the right
      to exercise the Rights will thereupon, without further action and without
      notice, terminate, and the only right thereafter of the holders of Rights
      shall be to receive the Redemption Price.

(h)   Within 10 days after the election or deemed election to redeem the Rights
      in accordance with this section 6.1, the Corporation shall give notice of
      redemption to the holders of the then outstanding Rights by mailing such
      notice to each such holder at his last address as it appears upon the
      registry books of the Rights Agent or, prior to the Separation Time, on
      the registry books of the Transfer Agent for the Common Shares. Any notice
      which is mailed in the manner herein provided shall be deemed given,
      whether or not the holder
<PAGE>
                                     - 32 -

      receives the notice. Each such notice of redemption will state the method
      by which the payment of the Redemption Price will be made. The Corporation
      may not redeem, acquire or purchase for value any Rights at any time in
      any manner other than that specifically set forth in this section 6.1 or
      in section 6.4, and other than in connection with the purchase of Common
      Shares prior to the Separation Time.

(i)   If a redemption pursuant to subsection 6.1(a) or a waiver pursuant to
      subsection 6.1(b) is proposed at any time prior to the Separation Time,
      such redemption or waiver shall be submitted for approval to the holders
      of Voting Shares. Such approval shall be deemed to have been given if
      authorized by a majority of the votes cast by Independent Shareholders
      present in person or represented by proxy at a meeting of such holders
      duly called and held in compliance with applicable laws and with the
      articles of the Corporation.

(j)   If a redemption pursuant to subsection 6.1(a) or a waiver pursuant to
      subsection 6.1(b) is proposed at any time on or after the Separation Time,
      such redemption shall be submitted for approval to the holders of Rights.
      Such approval shall be deemed to have been given if authorized by a
      majority of the votes cast by the holders of Rights present in person or
      represented by proxy at a meeting of such holders duly called and held.
      For the purposes hereof, each outstanding Right (other than Rights which
      are Beneficially Owned by any Person referred to in clauses (i) to (v)
      inclusive of the definition of Independent Shareholders) shall be entitled
      to one vote and the procedures for the calling, holding and conduct of a
      meeting of holders of Rights shall be those as nearly as may be possible,
      which are provided in the Corporation's articles and the Company Act (or
      such other corporate statute that the corporation may become subject to)
      with respect to meetings of shareholders of the Corporation.

6.2   EXPIRATION

No Person shall have any rights pursuant to this Agreement or in respect of any
Right after the Expiration Time, except the Rights Agent as specified in section
5.1.

6.3   ISSUANCE OF NEW RIGHTS CERTIFICATE

Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Corporation may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by the Board of Directors to
reflect any adjustment or change in the number or kind or class of shares
purchasable upon exercise of Rights made in accordance with the provisions of
this Agreement.

6.4   FRACTIONAL RIGHTS AND FRACTIONAL SHARES

(a)   The Corporation shall not be required to issue fractions of Rights or to
      distribute Rights Certificates which evidence fractional Rights. In lieu
      of such fractional Rights, there shall be paid to the registered holders
      of the Rights Certificates with regard to which such fractional Right
      would otherwise be issuable, an amount in cash equal to the fraction of
      the Market Price of a whole Right that the fraction of a Right which would
      otherwise be issuable is of one whole Right.
<PAGE>
                                     - 33 -

(b)   The Corporation shall not be required to issue fractions of Common Shares
      upon exercise of the Rights or to distribute certificates which evidence
      fractional Common Shares. In lieu of issuing fractional Common Shares, the
      Corporation shall pay to the registered holders of Rights Certificates, at
      the time such Rights are exercised as herein provided, an amount in cash
      equal to the same fraction of the Market Price of a whole Common Share
      that the fraction of a Common Share which would otherwise be issuable upon
      the exercise of such right is of one whole Common Share at the date of
      such exercise.

6.5   SUPPLEMENTS AND AMENDMENTS

(a)   The Corporation may make amendments to this Agreement to correct any
      clerical or typographical error or which are required to maintain the
      validity of this Agreement as a result of any change in any applicable
      legislation, rules or regulations thereunder. The Corporation may, at or
      prior to the meeting of shareholders of the Corporation referred to in
      Section 6.15, or any adjournment thereof, to be held for shareholders of
      the Corporation to consider and, if deemed advisable, to adopt a
      resolution approving, ratifying and confirming this Agreement and the
      Rights issued pursuant thereto supplement or amend this Agreement without
      the approval of any holders of Rights or Voting Shares in order to make
      any changes which the Board of Directors acting in good faith may deem
      necessary or desirable. Notwithstanding anything in this section 6.5 to
      the contrary, no such supplement or amendment shall be made to the
      provisions of Article 5 except with the written concurrence of the Rights
      Agent to such supplement or amendment and the approval of applicable
      regulatory bodies.

(b)   Subject to subsection 6.5(a) and receipt of applicable regulatory
      approval, the Corporation may, with the prior consent of the holders of
      Voting Shares obtained as set forth below, at any time prior to the
      Separation Time, amend, vary or rescind any of the provisions of this
      Agreement and the Rights (whether or not such action would materially
      adversely affect the interests of the holders of Rights generally). Such
      consent shall be deemed to have been given if the action requiring such
      approval is authorized by the affirmative vote of a majority of the votes
      cast by Independent Shareholders present or represented at and entitled to
      be voted at a meeting of the holders of Voting Shares duly called and held
      in compliance with applicable laws and the articles and/or by-laws (as the
      case may be) of the Corporation.

(c)   Subject to subsection 6.5(a), the Corporation may, with the prior consent
      of the holders of Rights, at any time on or after the Separation Time,
      amend, vary or delete any of the provisions of this Agreement and the
      Rights (whether or not such action would materially adversely affect the
      interests of the holders of Rights generally), provided that no such
      amendment, variation or deletion shall be made to the provisions of
      Article 5 except with the written concurrence of the Rights Agent thereto.

(d)   Any approval of the holders of Rights shall be deemed to have been given
      if the action requiring such approval is authorized by the affirmative
      votes of the holders of Rights present or represented at and entitled to
      be voted at a meeting of the holders of Rights and representing a majority
      of the votes cast in respect thereof. For the purposes hereof, each
      outstanding Right (other than Rights which are void pursuant to the
      provisions hereof)
<PAGE>
                                     - 34 -

      shall be entitled to one vote, and the procedures for the calling, holding
      and conduct of the meeting shall be those, as nearly as may be, which are
      provided in the Corporation's articles and/or by-laws, as the case may be,
      and the Company Act with respect to meetings of shareholders of the
      Corporation.

(e)   Any amendments made by the Corporation to this Agreement pursuant to
      subsection 6.5(a) which are required to maintain the validity of this
      Agreement as a result of any change in any applicable legislation , rule
      or regulation thereunder shall:

      (i)   if made before the Separation Time, be submitted to the shareholders
            of the Corporation at the next meeting of shareholders and the
            shareholders may, by the majority referred to in subsection 6.5(b),
            confirm or, reject such amendment; and

      (ii)  if made after the Separation Time, be submitted to the holders of
            Rights at a meeting to be called for a date not later than
            immediately following the next meeting of shareholders of the
            Corporation and the holders of Rights may, by resolution passed by
            the majority referred to in subsection 6.5(d), confirm or reject
            such amendment.

      Any such amendment shall be effective from the date of the resolution of
      the Board of Directors adopting such amendment, until it is confirmed or
      rejected or until it ceases to be effective (as described in the next
      sentence) and, where such amendment is confirmed, it continues in effect
      in the form so confirmed. If such amendment is rejected by the
      shareholders or the holders of Rights or is not submitted to the
      shareholders or holders of Rights as required, then such amendment shall
      cease to be effective from and after the termination of the meeting at
      which it was rejected or to which it should have been but was not
      submitted or from and after the date of the meeting of holders of Rights
      that should have been but was not held, and no subsequent amendment to
      this Agreement to substantially the same effect shall be effective until
      confirmed by the shareholders or holders of Rights, as the case may be.

6.6   RIGHTS OF ACTION

Subject to the terms of this Agreement, all rights of action in respect of this
Agreement, other than rights of action vested solely in the Rights Agent, are
vested in the respective holders of the Rights; and any holder of any Rights,
without the consent of the Rights Agent or of the holder of any other Rights,
may, on such holder's own behalf and for such holder's own benefit and the
benefit of other holders of Rights, enforce, and may institute and maintain any
suit, action or proceeding against the Corporation to enforce, or otherwise act
in respect of, such holder's right to exercise such holder's Rights in the
manner provided in such holder's Rights Certificate and in this Agreement.
Without limiting the foregoing or any remedies available to the holders of
Rights, it is specifically acknowledged that the holders of Rights would not
have an adequate remedy at law for any breach of this Agreement and 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.
<PAGE>
                                     - 35 -

6.7   NOTICE OF PROPOSED ACTIONS

In case the Corporation shall propose after the Separation Time and prior to the
Expiration Time:

(a)   to effect or permit (in cases where the Corporation's permission is
      required) any Flip-in Event; or

(b)   to effect the liquidation, dissolution or winding-up of the Corporation or
      the sale of all or substantially all of the Corporation's assets,

then, in each such case, the Corporation shall give to each holder of a Right,
in accordance with section 6.8, a notice of such proposed action, which shall
specify the date on which such Flip-in Event, liquidation, dissolution or
winding-up is to take place, and such notice shall be so given at least 20
Business Days prior to the date of taking such proposed action.

6.8   NOTICES

Notices or demands authorized or required by this Agreement to be given or made
by the Rights Agent or by the holder of any Rights to or on the Corporation
shall be sufficiently given or made if delivered or sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing with the
Rights Agent) as follows:

      Angiotech Pharmaceuticals, Inc.
      6660 N.W. Marine Drive
      Vancouver, British Columbia
      V6T 1Z4
      Attention: Corporate Secretary

Any notice or demand authorized or required by this Agreement to be given or
made by the Corporation or by the holder of any Rights to or on the Rights Agent
shall be sufficiently given or made if delivered or sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing with the
Corporation) to the address of the Rights Agent as provided to the Corporation
from time to time.

Notices or demands authorized or required by this Agreement to be given or made
by the Corporation or the Rights Agent to or on the holder of any Rights shall
be sufficiently given or made if delivered or sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder as it appears
upon the registry books of the Rights Agent or, prior to the Separation Time, on
the registry books of the Corporation for the Common Shares. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice.

6.9   COSTS OF ENFORCEMENT

The Corporation agrees that if it or any other Person the securities of which
are purchasable upon exercise of Rights fails to fulfill any of its obligations
pursuant to this Agreement, then the Corporation or such Person will reimburse
the holder of any Rights for the costs and expenses (including legal fees)
incurred by such holder in actions to enforce his rights pursuant to any Rights
or this Agreement.
<PAGE>
                                     - 36 -

6.10  SUCCESSORS

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

6.11  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 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 the Rights.

6.12  GOVERNING LAW

This Agreement and each Right issued hereunder shall be deemed to be a contract
made under the laws of the Province of British Columbia and for all purposes
shall be governed by and construed in accordance with the laws of such province
applicable to contracts to be made and performed entirely within such province.

6.13  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.

6.14  SEVERABILITY

If any section, subsection, clause, subclause, term or provision hereof or the
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such section, subsection, clause,
subclause, term or provision shall be ineffective as to such jurisdiction to the
extent of such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining sections, subsections, clauses, subclauses, terms
and provisions hereof or the application of such section, subsection, clause,
subclause, term or provision to circumstances other than those as to which it is
held invalid or unenforceable.

6.15  EFFECTIVE DATE

This Agreement is in full force and effect in accordance with its terms from the
date hereof. At the next annual general meeting of shareholders of the
Corporation, the Corporation shall request confirmation of this Agreement by the
holders of its Voting Shares. If this Agreement is not confirmed by a majority
of votes cast by holders of Voting Shares who vote in respect of the
confirmation of this Agreement at such meeting to be held not later than July
30, 1999, then this Agreement and all outstanding Rights shall terminate and be
void and of no further force and effect on and from the close of business from
the earlier of (a) the date of termination of such meeting; and (b) July 30,
1999.
<PAGE>
                                     - 37 -

6.16  RIGHTS OF BOARD, CORPORATION AND OFFEROR

Without limiting the generality of the foregoing, nothing contained herein shall
be construed to suggest or imply that the Board of Directors shall not be
entitled to recommend that holders of Voting Shares of the Corporation reject or
accept any Take-over Bid or take any other action (including, without
limitation, the commencement, prosecution, defence or settlement of any
litigation and the submission of additional or alternative Take-over Bids or
other proposals to the shareholders of the Corporation) with respect to any
Take-over Bid that the Board of Directors believes is necessary or appropriate
in the exercise of its fiduciary duties.

6.17  DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS

All actions, calculations and determinations (including all omissions with
respect to the foregoing) which are done or made by the Board of Directors, in
good faith, shall not subject the Board of Directors or any director of the
Corporation to any liability to the holders of the Rights.

6.18  TIME OF THE ESSENCE

Time shall be of the essence in this Agreement.

6.19  REGULATORY APPROVALS

Any obligation of the Corporation or action contemplated by this Agreement,
including any amendment hereof, shall be subject to the receipt of any requisite
approval or consent from any applicable regulatory authority including, without
limiting the generality of the foregoing, any necessary approvals of The Toronto
Stock Exchange or any other stock exchange.

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

ANGIOTECH PHARMACEUTICALS, INC.

by:   /s/ William L. Hunter
      -------------------------------------------------
      Chief Executive Officer and Chairman of the Board
      -------------------------------------------------

COMPUTERSHARE TRUST COMPANY OF CANADA

by:   /s/ Ilenda Buckley
      -----------------------------------
      Account Manager
      -----------------------------------

by:   /s/ Marina Reyes
      -----------------------------------
      Account Manager
      -----------------------------------
<PAGE>
                                    EXHIBIT A

                           FORM OF RIGHTS CERTIFICATE

CERTIFICATE NO.___________                                    ____________RIGHTS

                               RIGHTS CERTIFICATE

This certifies that _____________________ is the registered holder of the number
of Rights set forth above, each of which entitles the registered holder thereof,
subject to the terms, provisions and conditions of the Shareholder Rights Plan
Agreement made as of the ____ day of February, 1999, as amended (the "Rights
Agreement") between Angiotech Pharmaceuticals, Inc., a corporation incorporated
under the laws of British Columbia (the "Corporation") and Computershare Trust
Company of Canada, being a trust company incorporated under the laws of Canada,
as rights agent (the "Rights Agent", which term shall include any successor
Rights Agent under the Rights Agreement) to purchase from the Corporation at any
time after the Separation Time and prior to the Expiration Time (as such terms
are defined in the Rights Agreement), one fully paid Common Share of the
Corporation (a "Common Share") at the Exercise Price referred to below, upon
presentation and surrender of this Rights Certificate together with the Form of
Election to Exercise and Declaration of Ownership duly executed and submitted to
the Rights Agent at its principal office in the city of Vancouver. The Exercise
Price shall initially be $100.00 per Right and shall be subject to adjustment in
certain events as provided in the Rights Agreement.

In certain circumstances described in the Rights Agreement, each Right evidenced
hereby may entitle the registered holder thereof to purchase or receive assets,
debt securities or shares in the capital of the Corporation other than Common
Shares, or more or less than one Common Share, all as provided in the Rights
Agreement.

This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Rights Agent, the Corporation and the holders of the Rights Certificates. Copies
of the Rights Agreement are on file at the registered office of the Corporation
and are available upon written request.

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

Subject to the provisions of the Rights Agreement, the Rights evidenced by this
Rights Certificate (i) may be, and under certain circumstances are required to
be, redeemed by the Corporation at a redemption price of $0.00001 per Right and
(ii) may be exchanged at the option of the Corporation for cash, debt or equity
securities or other assets of the Corporation.
<PAGE>
                                     - 2 -

No fractional Common Shares will be issued upon the exercise of any Right or
Rights evidenced hereby, but in lieu thereof a cash payment will be made, as
provided in the Rights Agreement.

No holder of this Rights Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of Common Shares or of
any other shares of the Corporation which may at any time be issuable upon the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
shareholder of the Corporation or any right to vote for the election of
directors or upon any matter submitted to shareholders of the Corporation at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders of the
Corporation (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Rights evidenced by
this Rights Certificate shall have been exercised as provided in the Rights
Agreement.

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

WITNESS the facsimile signature of the proper officers of the Corporation.

Date:
      ------------------------------

ANGIOTECH PHARMACEUTICALS, INC.

By:
      ------------------------------
      President

Countersigned:

COMPUTERSHARE TRUST COMPANY OF CANADA

By:
      ------------------------------
      Authorized Signature
<PAGE>
                          FORM OF ELECTION TO EXERCISE

TO:   ANGIOTECH PHARMACEUTICALS, INC.

The undersigned hereby irrevocably elects to exercise ________ whole Rights
represented by the attached Rights Certificate to purchase the Common Shares
issuable upon the exercise of such Rights and requests that certificates for
such Common Shares be issued to:

      __________________________________________________________________
      Name

      __________________________________________________________________
      Address

      __________________________________________________________________
      City and Province

      __________________________________________________________________
      Social Insurance Number or other taxpayer identification number

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

      __________________________________________________________________
      Name

      __________________________________________________________________
      Address

      __________________________________________________________________
      City and Province

      __________________________________________________________________
      Social Insurance Number or other taxpayer identification number

Dated:____________________________________

Signature Guaranteed:
                                         _______________________________________
                                         Signature
                                         (Signature must correspond to name as
                                         written upon the face of this Rights
                                         Certificate in every particular,
                                         without alteration or enlargement or
                                         any change whatsoever)

Signature must be guaranteed by a member firm of a recognized stock exchange in
Canada, a registered national securities exchange in the United States, a member
of the Investment Dealers Association of Canada or National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an office
or correspondent in Canada or the United States.

                            (To be completed if true)

The undersigned hereby represents, for the benefit of the Corporation and all
holders of Rights and Common Shares, that the Rights evidenced by this Rights
Certificate are not, and, to the knowledge of the undersigned, have never been,
Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof
or any Person acting jointly or in concert with any of the foregoing (as such
terms are defined in the Rights Agreement).

                                         _______________________________________
                                         Signature
<PAGE>
                               FORM OF ASSIGNMENT

FOR VALUE RECEIVED______________________________________________________________
hereby sells, assigns and transfers unto _______________________________________

_______________________________________________________
     (Please print name and address of transferee)

_______________________________________________________

the Rights represented by this Rights Certificate, together with all right,
title and interest therein.

Dated:____________________________________

Signature Guaranteed:
                                         _______________________________________
                                         Signature
                                         (Signature must correspond to name as
                                         written upon the face of this Rights
                                         Certificate in every particular,
                                         without alteration or enlargement or
                                         any change whatsoever)

Signature must be guaranteed by a member firm of a recognized stock exchange in
Canada, a registered national securities exchange in the United States, a member
of the Investment Dealers Association of Canada or National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an office
or correspondent in Canada or the United States.

                            (To be completed if true)

The undersigned hereby represents, for the benefit of the Corporation and all
holders of Rights and Common Shares, that the Rights evidenced by this Rights
Certificate are not, and, to the knowledge of the undersigned, have never been,
Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof
or any person acting jointly or in concert with any of the foregoing (as defined
in the Rights Agreement).

                                         _______________________________________
                                         Signature

                                     NOTICE

In the event the certification set forth above in the Forms of Assignment and
Election is not completed, the Corporation will deem the Beneficial Owner of the
Rights evidenced by this Rights Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and
accordingly such Rights will be null and void.

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