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                                                                   EXHIBIT 10.13

                 COLLABORATION, DEVELOPMENT AND SUPPLY AGREEMENT

                                     BETWEEN

                            ATRIX LABORATORIES, INC.

                                       AND

                          GENEVA PHARMACEUTICALS, INC.

                             DATED: AUGUST 28, 2000

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                                TABLE OF CONTENTS

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ARTICLE I DEFINITIONS....................................................................................1

ARTICLE II COLLABORATION.................................................................................6
   Section 2.01.   Objectives............................................................................6
   Section 2.02.   Development Program...................................................................6
   Section 2.03.   Atrix Obligations.....................................................................6
   Section 2.04.   Geneva Obligations....................................................................6
   Section 2.05.   Availability of Resources; Cooperation................................................7
   Section 2.06.   Project Management Committee..........................................................7

ARTICLE III RIGHTS TO MARKET PRODUCTS....................................................................8
   Section 3.01.   Sale of Product.......................................................................8
   Section 3.02.   Research and Development Expenses.....................................................9
   Section 3.03.   Retainer for Research and Development Expenses........................................9

ARTICLE IV ADDITIONAL PRODUCTS..........................................................................10
   Section 4.01.   Additional Products..................................................................10

ARTICLE V COMMERCIALIZATION.............................................................................11
   Section 5.01.   Geneva's Obligations.................................................................11
   Section 5.02.   Net Sales Thresholds.................................................................12

ARTICLE VI MANUFACTURE AND SUPPLY.......................................................................12
   Section 6.01.   Agreement to Supply Product..........................................................12
   Section 6.02.   Quality Assurance....................................................................13
   Section 6.03.   Compliance with Applicable Laws......................................................13
   Section 6.04.   Failure to Supply....................................................................13

ARTICLE VII PURCHASE AND SALE...........................................................................14
   Section 7.01.   Purchase of Product..................................................................14
   Section 7.02.   Terms of Payment.....................................................................14
   Section 7.03.   Purchase Forms.......................................................................16
   Section 7.04.   Confirmation.........................................................................16
   Section 7.05.   Delivery.............................................................................16
   Section 7.06.   Forecasts............................................................................16

ARTICLE VIII WARRANTY, REJECTION AND INSPECTIONS........................................................17
   Section 8.01.   Atrix Warranty.......................................................................17
   Section 8.02.   Rejection of Products for Failure to Conform to Specifications.......................17
   Section 8.03.   Geneva Inspections...................................................................17
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ARTICLE IX REGULATORY COMPLIANCE........................................................................18
   Section 9.01.   Holder Of Marketing Authorizations...................................................18
   Section 9.02.   Maintenance Of Marketing Authorizations..............................................18
   Section 9.03.   Assistance...........................................................................19
   Section 9.04.   Compliance...........................................................................19

ARTICLE X CONFIDENTIALITY...............................................................................19
   Section 10.01.   Confidentiality.....................................................................19
   Section 10.02.   Disclosure of Agreement.............................................................19

ARTICLE XI REPRESENTATIONS AND WARRANTIES...............................................................20
   Section 11.01.   Corporate Power.....................................................................20
   Section 11.02.   Due Authorization...................................................................20
   Section 11.03.   Binding Obligation..................................................................20
   Section 11.04.   Limitation on Warranties............................................................20
   Section 11.05.   Limitation of Liability.............................................................20

ARTICLE XII INDEMNIFICATION AND JOINT LIABILITY.........................................................20
   Section 12.01.   Geneva Indemnified by Atrix.........................................................20
   Section 12.02.   Atrix Indemnified by Geneva.........................................................21
   Section 12.03.   Prompt Notice Required..............................................................21
   Section 12.04.   Indemnitor May Settle...............................................................21
   Section 12.05.   Joint Responsibility for Product Liability Claims...................................22

ARTICLE XIII COVENANTS..................................................................................22
   Section 13.01.   Covenant Not To Launch Competitive Product..........................................22
   Section 13.02.   Limitation To The Territory.........................................................23

ARTICLE XIV QUALITY ASSURANCE PROVISIONS................................................................23
   Section 14.01.   Product Conformance.................................................................23
   Section 14.02.   Starting Materials..................................................................24
   Section 14.03.   Manufacturing.......................................................................24
   Section 14.04.   Finished Product Testing............................................................24
   Section 14.05.   Manufacturing & Packaging Batch Record & Sample Requirements........................24
   Section 14.06.   Storage and Transport...............................................................24
   Section 14.07.   Validation..........................................................................25
   Section 14.08.   Stability...........................................................................25
   Section 14.09.   Waste Material......................................................................25
   Section 14.10.   Adverse Drug Event Reporting and Phase IV Surveillance..............................25
   Section 14.11.   Post - First Commercial Sale Testing and Reporting..................................26
   Section 14.12.   Returned Goods......................................................................26
   Section 14.13.   Persons to Whom Communications Should be Addressed..................................26
   Section 14.14.   Product Recalls or Withdrawal.......................................................27
   Section 14.15.   Recall Costs........................................................................27
   Section 14.16.   Notification Of Threatened Action...................................................27
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ARTICLE XV INSURANCE....................................................................................27
   Section 15.01.   Insurance...........................................................................27

ARTICLE XVI TERM AND TERMINATION........................................................................28
   Section 16.01.   Term................................................................................28
   Section 16.02.   Termination by Either Party for Cause...............................................28
   Section 16.03.   Termination by Atrix................................................................28
   Section 16.04.   Effect of Termination...............................................................28

ARTICLE XVII DISPUTE RESOLUTION.........................................................................31
   Section 17.01.   Arbitration.........................................................................31

ARTICLE XVIII MISCELLANEOUS.............................................................................32
   Section 18.01.   No-Solicitation.....................................................................32
   Section 18.02.   Commercially Reasonable Efforts.....................................................32
   Section 18.03.   Assignment; Binding Effect..........................................................32
   Section 18.04.   Force Majeure.......................................................................32
   Section 18.05.   Governing Law.......................................................................33
   Section 18.06.   Waiver..............................................................................33
   Section 18.07.   Severability........................................................................33
   Section 18.08.   Notices.............................................................................33
   Section 18.09.   Independent Contractors.............................................................34
   Section 18.10.   Rules of Construction...............................................................34
   Section 18.11.   Entire Agreement; Amendment.........................................................34
   Section 18.12.   Headings............................................................................34
   Section 18.13.   Publicity...........................................................................35
   Section 18.14.   Counterparts........................................................................35

Exhibit A         Products.............................................................................A-1
Exhibit B         Development Program Outline..........................................................B-1
Exhibit C         Quality Assurance List of Contacts ..................................................C-1
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                 COLLABORATION, DEVELOPMENT AND SUPPLY AGREEMENT

         This Collaboration, Development and Supply Agreement (the "Agreement")
is made as of August 28, 2000 (the "Effective Date") by and between Atrix
Laboratories, Inc., a Delaware corporation having its offices at 2579 Midpoint
Drive, Fort Collins, CO, 80525-4417 ("Atrix"), and Geneva Pharmaceuticals, Inc.,
a Colorado corporation having offices at 2655 W. Midway Blvd., P.O. Box 446,
Broomfield, Colorado 80038 ("Geneva"). Atrix and Geneva are sometimes referred
to collectively herein as the "Parties" or singly as a "Party."

                                    RECITALS

         WHEREAS, Atrix has substantial experience and expertise in the
discovery, design and development of prescription drug products for medical,
dental and veterinary applications;

         WHEREAS, Geneva possesses substantial resources and expertise in the
development, commercialization and marketing of pharmaceutical products;

         WHEREAS, Atrix wishes to grant to Geneva, and Geneva wishes to obtain
from Atrix, a right to market, advertise, promote, distribute, offer for sale,
sell and import the Products in the Territory on the terms and subject to the
conditions set forth herein; and

         WHEREAS, Geneva wishes Atrix to manufacture all Products to be sold in
the Territory by Geneva, subject to the terms and conditions herein.

         NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the Parties hereto, intending
to be legally bound, do hereby agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

         The following terms as used in this Agreement shall, unless the context
clearly indicates to the contrary, have the meaning set forth below:

         "ADE" has the meaning set forth in Section 14.10(a).

         "Affiliate" means an individual, trust, business trust, joint venture,
partnership, corporation, association or any other entity which owns, is owned
by or is under common ownership with, a Party. For the purposes of this
definition, the term "owns" (including, with correlative meanings, the terms
"owned by" and "under common ownership with") as used with respect to any Party,
shall mean the possession (directly or indirectly) of more than 50% of the
outstanding voting securities of a corporation or comparable equity interest in
any other type of entity.

         "ANDA" means an Abbreviated New Drug Application, and all amendments
and supplements thereto, filed or to be filed, with the FDA seeking
authorization and approval to

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manufacture, package, ship and sell a product as more fully defined in Title 21,
Section 355 of the United States Code.

         "Applicable Laws" means all applicable laws, rules, regulations and
guidelines within or without the Territory that may apply to the development,
marketing or sale of the Products in the Territory or the performance of either
Party's obligations under this Agreement including laws, regulations and
guidelines governing the import, export, development, marketing, distribution
and sale of the Products in the Territory, to the extent applicable and
relevant, and including all current Good Manufacturing Practices or current Good
Clinical Practices standards or guidelines promulgated by the FDA or Competent
Authorities and including trade association guidelines, where applicable, as
well as U.S. export control laws and the U.S. Foreign Corrupt Practices Act.

         "Atrix Manufacturing Cost" means the actual cost of Manufacture by
Atrix of a Product under a Manufacturing Process, which actual cost shall be
comprised of the cost of goods produced as determined in accordance with GAAP,
and shall include direct labor, direct material, including raw materials and
packaging materials, and the allocable portion of the manufacturing overhead of
Atrix directly attributable to the manufacture of a Product, determined by
taking the total output of such Product during the period divided by the total
output of all products manufactured by Atrix during the period, multiplied by
the total amount of manufacturing overhead for the period. Atrix Manufacturing
Cost shall exclude selling, general and administrative, research and
development, and interest expenses and any and all debt service payments of
Atrix. The Atrix Manufacturing Cost shall include, to the extent applicable, the
cost to Atrix of having some portion or all of the Manufacturing Process
performed by a Third Party; but shall exclude any incremental increases in the
Atrix Manufacturing Costs resulting from the use of a toll manufacturer under
Sections 6.01 or 6.04 of this Agreement. Sixty (60) days prior to the First
Commercial Sale of a Product, Atrix shall provide Geneva a written estimate of
the Atrix Manufacturing Cost for such Product for purposes of calculating Net
Profits and Atrix Profit Share for the first calendar year in which the First
Commercial Sale occurs. For each subsequent calendar year, the Atrix
Manufacturing Cost used to calculate the Net Profits and Atrix Profit Share for
that calendar year shall equal the actual Atrix Manufacturing Cost for such
Product for the preceding calendar year (as determined in accordance with
Section 7.02(c)).

         "Atrix Profit Share" means the percentage of Net Profits to be paid by
Geneva to Atrix in accordance with Section 7.02(a).

         "Bundled Product" means a Product offered or sold in combination with
one or more of Geneva's branded pharmaceutical or generic products, including
the Products, for a single price.

         "Collaboration" means the activities of the Parties carried out in
performance of, and the relationship between the Parties established by, this
Agreement.

         "Competent Authorities" means collectively the entities in each country
in the Territory responsible for the regulation of medicinal products intended
for human use.

         "Competitive Product" means, with respect to any Product, a generic
pharmaceutical product that is "therapeutically equivalent" to the same branded
pharmaceutical product as the Product. "Therapeutically equivalent" means that
an AB rating is assigned to the product's entry

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in the list of drug products with effective approvals published in the current
edition of FDA's publication "Approved Drug Products with Therapeutic
Equivalence Evaluations" and any current supplement to the publication (also
known as the "Orange Book") referred to in 21 CFR 314.3.

           "Confidential Information" means any confidential information of a
Party relating to any use, process, method, compound, research project, work in
process, future development, scientific, engineering, manufacturing, marketing,
business plan, financial or personnel matter relating to the disclosing Party,
its present or future products, sales, suppliers, customers, employees,
investors or business, whether in oral, written, graphic or electronic form.
Confidential Information shall not include any information which the receiving
Party can prove by competent evidence:

                  (a) is now, or hereafter becomes, through no act or failure to
         act on the part of the receiving Party, generally known or available;

                  (b) is known by the receiving Party at the time of receiving
         such information, as evidenced by its written records maintained in the
         ordinary course of business;

                  (c) is hereafter furnished to the receiving Party by a Third
         Party, as a matter of right and without restriction on disclosure;

                  (d) is independently developed by the receiving Party, as
         evidenced by its written records maintained in the ordinary course of
         business, without knowledge of, and without the aid, application or use
         of, the disclosing Party's Confidential Information; or

                  (e) is the subject of a written permission to disclose
         provided by the disclosing Party.

         "Development Program" has the meaning set forth in Section 2.02.

         "FDA" means the United States Food and Drug Administration.

         "First Commercial Sale" means (i) with respect to a country in the
Territory, the first sale for use, consumption or resale of a Product by Geneva
in such country (excluding any sales for clinical trials) and (ii) with respect
to the Territory, the First Commercial Sale in any country within the Territory.
A sale to an Affiliate shall not constitute a First Commercial Sale unless the
Affiliate is the end user of the Product.

         "GAAP" means United States generally accepted accounting principles
applied in a manner consistent with past practice.

         "Governmental Approval" means all permits, licenses and authorizations,
including but not limited to, Marketing Authorization and Pricing and
Reimbursement Approvals required by the FDA or any Competent Authority as a
prerequisite to the manufacturing, packaging, marketing and selling of a Product
or the Units; excluding however import permits.

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         "Gross Sales" means the gross amounts invoiced for sales of a Product
by Geneva or its Affiliates. Sales or transfers of Products to Affiliates for
ultimate use or resale by such person shall be at prices (or deemed prices) that
are consistent with sales made to non-Affiliates of the same or a similar
business type that make purchases in similar quantities. In the event Geneva
transfers Product for consideration, in whole or in part, other than cash, the
Gross Sales price for such Product shall be deemed to be the standard invoice
price then being invoiced by the seller in arms length transaction with similar
customers.

         "Manufacture" or "Manufacturing Process" means the storage, handling,
production, processing and packaging of a Product, in accordance with this
Agreement.

         "Marketing Authorization" means all necessary and appropriate
regulatory approvals, excluding Pricing and Reimbursement Approvals, where
applicable, to put a Product on the market in a particular country in the
Territory.

         "Marketing Year" means the first day of the calendar month following
the First Commercial Sale of a Product and extending for twelve (12) months, and
each twelve month period thereafter during the Term of this Agreement.

         "Net Profits" means Net Sales minus Selling Expense minus the Atrix
Manufacturing Cost; [**].

         "Net Sales" means Gross Sales, less customary discounts, returns,
promotional allowances, volume and incentive rebates, shelf stock adjustments,
other similar customary adjustments or allowances actually given to such
customers in the normal course of business by Geneva, taxes the legal incidence
of which is on the purchaser and separately shown on Geneva's or its Affiliates'
invoices, and transportation, insurance and postage charges, if prepaid by
Geneva or its Affiliates and billed on Geneva's or its Affiliates' invoices as a
separate item. Components of Net Sales shall be determined in the ordinary
course of business in accordance with historical practice and using the accrual
method of accounting in accordance with GAAP.

         In no event shall Geneva sell the Product as a Bundled Product unless
there is a Competitive Product on the market. Net Sales of such Bundled Product
shall be calculated by multiplying the standard invoice price for the Bundled
Product by a fraction, the numerator of which shall be the number of units of
the Product sold in the Bundled Product multiplied by the list price per unit of
the Product, and denominator of which shall be the sum, for all items (including
Products) included in the Bundled Product, of the number of units sold for each
item in the Bundled Product multiplied by the price per unit for each such
items.

         "Packaging Specifications" means the packaging and labeling
specifications for the Unit, as may be determined by Geneva, in consultation
with Atrix, from time to time.

         "PMC" has the meaning set forth in Section 2.06.

----------

** CONFIDENTIAL TREATMENT REQUESTED.

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         "Pricing and Reimbursement Approvals" means any pricing and
reimbursement approvals which must be obtained before placing the Product on the
market in any country in the Territory in which such approval is required.

         "Product" or "Products" means those generic products for the product
families set forth on Exhibit A.

         "R&D Start Date" has the meaning set forth in Section 3.03(b).

         "Selling Expense" means Geneva's expenditures to sell and market a
product, which expenditures shall include all reasonable costs, fees and
out-of-pocket or other expenses incurred, paid or accrued by Geneva in
connection with the sale of a Product by, but not limited to, its sales force,
including but not limited to (i) all costs directly allocable to the sale of a
Product, such as customary commissions attributable to the sale of a Product by
its sales force, and (ii) the allocable portion of the sales and marketing
overhead of Geneva directly attributable to the sale and marketing of a Product,
determined by taking an apportioned share (based on the proportion of a Product
to all of the products sold by Geneva, in terms of unit volume) of the costs and
expenses which may not be directly allocated to the sale of a Product, such as
costs of operating Geneva's sales and marketing office(s) through which the
Products are sold, all as determined in accordance with GAAP. Selling Expense
shall exclude general and administrative and interest expenses and any and all
debt service payments of Geneva. Sixty (60) days prior to the First Commercial
Sale of a Product, Geneva shall provide to Atrix a written estimate of the
Selling Expense, as a percentage of Net Sales, for that Product for purposes of
calculating Net Profits and Atrix Profit Share for that calendar year. For each
subsequent calendar year, the Selling Expense used to calculate Net Profits and
Atrix Profit Share for that calendar year shall equal the actual Selling Expense
for such Product for the preceding calendar year (as determined in accordance
with Section 7.02(c)).

         "Shipment" means each individual group of Products received by Geneva
from Atrix.

         "Specifications" means the specifications for a Product as set forth in
the ANDA for that Product.

         "Term" has the meaning set forth in Section 16.01.

         "Territory" means the United States, and such other countries as may be
added to this Agreement by the PMC.

         "Third Party" means any entity other than Atrix or Geneva or an
Affiliate of Atrix or Geneva.

         "Unit" means a Product packaged in such sizes reasonably designated by
Geneva.

         "U.S." or the "United States" means the United States of America.

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                                   ARTICLE II

                                  COLLABORATION

         Section 2.01. OBJECTIVES. Pursuant to the Development Program, Atrix
and Geneva shall conduct research and development activities on a collaborative
basis to develop the Products. During the Term, Atrix will have primary
responsibility for the activities described in Section 2.03 and Geneva will have
primary responsibility for the activities described in Section 2.04, as further
described in the Development Program.

         Section 2.02. DEVELOPMENT PROGRAM. Atrix and Geneva shall conduct
research and development of the Products pursuant to a development program (the
"Development Program"), an outline of which is attached hereto as Exhibit B. The
Parties will develop a detailed program for the development of each of the
Products within ninety (90) days of the Effective Date. The detailed program for
development of each of the Products shall become the "Development Program" and
may be modified during the Term only by the mutual agreement of the Parties,
except as provided in Section 2.06.

         Section 2.03. ATRIX OBLIGATIONS. Atrix will use commercially reasonably
efforts to timely complete (a) validation, formulation, development, and
required clinical studies of the Products, (b) scale-up and initial stability
studies in primary closure package system(s), (c) other tasks supporting
commercialization of the final formulation of the Product, all in accordance
with the Development Program and (d) preparation and submission of regulatory
filings including the filing of all ANDAs. Except as otherwise provided in
Article III of this Agreement, Atrix shall be solely responsible for the costs
of obtaining Governmental Approvals in such countries in the Territory,
including, but not limited to, filing fees paid to Competent Authorities and all
of the costs and expenses incurred in performing additional testing or studies
required by the Competent Authorities. Except as otherwise provided in Sections
3.01 and 9.01, Atrix shall own and maintain all Governmental Approvals and
related information. Atrix shall maintain records in sufficient detail and in
good scientific manner appropriate for patent and regulatory purposes and shall
properly reflect all work done and results achieved in the performance of the
Development Program (including all data in the form required to be maintained
under any applicable governmental regulations), and any subsequent preclinical
or clinical studies. Such records shall include books, records, reports,
research notes, charts, graphs, comments, computations, analyses, recordings,
photographs, computer programs and documentation thereof, computer information
storage means, samples of materials and other graphic or written data generated
in connection with the research and development activities (the "Development
Records"). The Development Records, Governmental Approvals and related
information shall be considered Confidential Information of Atrix.

         Section 2.04. GENEVA OBLIGATIONS. Geneva will use commercially
reasonable efforts to timely complete, at its own expense, (a) all market
research related to the Products; and (b) commercialization of the Products
(including all sales and marketing activities related to the Products). Such
commercially reasonable efforts shall be consistent with the efforts used by
Geneva in preparing commercialization plans and budgets and commercializing its
own pharmaceutical products. Atrix has the right to inspect such records, and
Geneva shall provide copies of all requested records, to the extent reasonably
required for the exercise of Atrix's rights

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under this Agreement. Geneva will obtain import permits and pay all duties,
fees, tariffs and similar obligations required to market a Product in such
countries in the Territory.

         Section 2.05. AVAILABILITY OF RESOURCES; COOPERATION. Each Party shall
maintain laboratories, offices and/or other facilities reasonably necessary to
carry out the activities to be performed by such Party pursuant to the
Development Program. Upon reasonable advance notice, each Party agrees to make
its employees and non-employee consultants reasonably available at their
respective places of employment to consult with the other Party on issues
arising during the Collaboration and in connection with any request from any
regulatory agency, including, without limitation, regulatory, scientific,
technical and clinical testing issues.

         Section 2.06. PROJECT MANAGEMENT COMMITTEE. Promptly after the
Effective Date, the Parties will form a Project Management Committee ("PMC")
comprised of three (3) representatives of each of Atrix and Geneva, including
representation from each Parties' quality assurance organization. Geneva shall
designate one member of the PMC to act as the chairperson of the PMC. A
reasonable number of additional representatives of a Party may attend meetings
of the PMC in a non-voting capacity. The PMC shall meet on a quarterly basis or
at such other frequency as the PMC agrees. The Parties shall agree upon the time
and place of meetings. All decisions of the PMC shall be unanimous. Within
thirty (30) days after each meeting, the PMC chairperson will provide the
Parties with a written report describing, in reasonable detail, the status of
the Development Program and the commercialization of a Product, a summary of the
results and progress to date, the issues requiring resolution, and the agreed
resolution of previously reported issues. If the PMC is unable to decide or
resolve an issue unanimously, the issue shall be referred to the Chairman of
Atrix and the President of Geneva, or their designees. Such officers of the
Parties will meet promptly thereafter and shall negotiate in good faith to
resolve such issue. If they cannot resolve the issue within thirty (30) days of
commencing such negotiations then the issue shall be resolved pursuant to
Article XVII, except for those matters not subject to arbitration as set forth
in this Section 2.06.

         The PMC shall:

                  (a) determine the specific goals for the development of the
         Products (but may not amend the Development Program other than pursuant
         to Section 2.02 if such amendment would increase the cost or expenses
         of the Development Program or be to the detriment of a Party), shall
         manage the ongoing research conducted under the Development Program,
         and shall monitor the progress and results of such work;

                  (b) monitor the progress and results of the marketing, sale
         and distribution of the Products;

                  (c) review and recommend Product pricing and market
         positioning for particular Products, which recommendations shall not be
         binding upon Geneva;

                  (d) determine the Net Sale Thresholds in accordance with
         Section 5.02;

                  (e) consider additional product opportunities for potential
         addition to this Agreement;

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                  (f) determine the financial viability of an individual Product
         prior to the commencement of the Development Program and determine
         whether to commercialize such Product and file an ANDA for such
         Product;

                  (g) determine whether to seek additional Governmental
         Approvals for a Product outside the United States;

                  (h) determine whether to continue or discontinue the
         marketing, sale and distribution of a Product at any time after the
         First Commercial Sale.

         The matters set forth in Sections 2.06(c), (e), (f), (g) and (h) shall
not be subject to arbitration if the PMC cannot reach agreement; rather (i)
those matters set forth in Sections 2.06(f), (g) and (h) shall be subject to the
terms and provisions of Section 3.01 below, and (ii) no action shall be taken
with the respect to Section 2.06(c)and (e) if the PMC cannot reach a decision.

                                  ARTICLE III

                            RIGHTS TO MARKET PRODUCTS

         Section 3.01. SALE OF PRODUCT.

                  (a) Commercialization. So long as this Agreement remains in
         effect, Geneva shall have the sole and exclusive right to market and
         sell the Products in the Territory, provided such Products are approved
         for commercialization by the PMC. If the PMC does not approve a Product
         for continued development or commercialization under Section 2.06(f),
         and either Party wishes to continue development or commercialization of
         such Product outside of the terms of this Agreement (the "Proceeding
         Party"), then, after providing the non-Proceeding Party with written
         notice of its election to go forward (the "Decision Date"), the
         Proceeding Party shall have the right to complete development and
         market and sell such Product in accordance with the terms of this
         Section 3.01(a). If the Proceeding Party is Geneva, Geneva shall
         reimburse Atrix for Geneva's proportionate share of the research and
         development expenses incurred or accrued by Atrix up to the Decision
         Date and Atrix, after receiving such payment, shall (i) transfer to
         Geneva all rights in, and title to, the Product including the ANDA; and
         (ii) shall provide to Geneva copies of all Development Records. If the
         Proceeding Party is Atrix, Geneva shall remain liable for paying its
         proportionate share of the research and development expenses incurred
         or accrued by Atrix up to the Decision Date. Except as set forth in
         this Section 3.01 the terms and provisions of this Agreement shall no
         longer apply to such Product.

                  (b) Additional Countries. The Parties acknowledge that the
         Products will be initially targeted for commercialization in the United
         States, and that the PMC will examine the financial feasibility of
         seeking Government Approval and commercialization outside of the United
         States on a case-by-case basis. If the PMC determines under Section
         2.06(g) to commercialize a Product and seek Governmental Approval in a
         specified country, such country shall be part of the Territory. If the
         PMC cannot reach agreement on whether to commercialize and seek
         Governmental Approval of a Product in

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         a specified country, and either Party wishes to seek Governmental
         Approval in such country, the following terms shall govern the rights
         of the Proceeding Party and non-Proceeding Party, with respect to such
         country. If the Proceeding Party is Geneva, Geneva shall reimburse
         Atrix for Geneva's proportionate share of the research and development
         expenses incurred or accrued by Atrix up to the Decision Date and
         Atrix, after receiving such payment, shall transfer to Geneva copies of
         all Development Records for such Product. If the Proceeding Party is
         Atrix, Geneva shall remain liable for paying its proportionate share of
         the research and development expenses incurred or accrued by Atrix up
         to the Decision Date. Except as set forth in this Section 3.01 the
         terms and provisions of this Agreement shall no longer apply to such
         Product.

                  (c) Discontinuance of Product After First Commercial Sale. If
         the PMC determines under Section 2.06(h) to stop the marketing, sale or
         distribution of a Product, the rights of the Parties with respect to
         such Product shall be as set forth in Section 16.04(c). If the PMC
         cannot reach agreement under Section 2.06(h) because the Geneva
         representatives of the PMC vote to discontinue the marketing, sale and
         distribution of a Product, then Atrix, after providing the Geneva with
         written notice of its election to go forward, shall have the right to
         continue the marketing, sale and distribution of such Product. After
         the Decision Date, the rights of the Parties with respect to such
         Product shall be as set forth in Section 16.04(c). If the PMC cannot
         reach agreement under Section 2.06(h) because the Atrix representatives
         of the PMC vote to discontinue the marketing, sale and distribution of
         a Product, then Geneva, after providing Atrix with written notice of
         its election to go forward, shall have the right to continue the
         marketing, sale and distribution such Product. After the Decision Date,
         Atrix shall (i) continue to Manufacture and supply the Product until
         such time as Geneva can qualify another Third Party manufacturer, but
         in no event longer than six (6) months after the Decision Date, (ii)
         transfer to Geneva all rights in, and title to, the Product including
         the ANDA, and (iii) provide to Geneva copies of all Development
         Records. In addition, so long as Atrix is Manufacturing such Product
         for Geneva and with respect to all of such Product Manufactured by
         Atrix, the obligations of Geneva to Atrix under this Agreement,
         including the payment of the Atrix Profit Share, shall continue in full
         force and effect. Except as set forth in this Section 3.01(c) the terms
         and provisions of this Agreement shall no longer apply to such Product.

         Section 3.02. RESEARCH AND DEVELOPMENT EXPENSES. In partial
consideration for the right to market and sell the Products, Geneva shall be
responsible for [**] of all research and development expenses incurred by Atrix,
whether internal or external, in accordance with the Development Program in
connection with the Products. Such research and development expenses shall
include any expenses directly related to registration with, or approval by, any
Competent Authority in any country in the Territory approved by the PMC, or
testing or studies performed in connection therewith for any country in the
Territory approved by the PMC, including the United States. Atrix shall provide
Geneva with detailed, monthly invoices for all expenses incurred by it in
connection with such research and development expenses.

         Section 3.03. RETAINER FOR RESEARCH AND DEVELOPMENT EXPENSES.

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<PAGE>   14

                  (a) Retainer. Geneva shall pay Atrix the sum of [**] per
         Product as a retainer to be applied against Geneva's share of research
         and development costs (each a "Retainer" and collectively the
         "Retainers"). A Retainer shall be due and payable for each Product on
         which Atrix has commenced or will commence research and development in
         accordance with the Development Program. For purposes of this Section
         3.03 only, a "Product" shall mean the Products listed in Column 1 of
         Exhibit A. Retainer payments for a Product shall terminate effective
         upon the filing of an ANDA for such Product.

                  (b) Payment of Retainer. Atrix will provide written notice to
         Geneva of the date on which the research and development will commence
         on each Product (the "R&D Start Date"). Geneva will pay to Atrix the
         Retainer for each Product within fifteen (15) days of the R&D Start
         Date. On a monthly basis, Atrix shall offset against the Retainer for
         each Product, Geneva's proportionate share of the research and
         development expenses incurred by Atrix in that month for each such
         Product. Upon notice by Atrix to Geneva that Atrix has exhausted a
         Retainer, Geneva shall promptly remit to Atrix the sum of [**] to be
         applied against the on-going research and development expenses incurred
         or to be incurred by Atrix with respect to each such Product. Such
         additional payment(s) shall be paid by Geneva to Atrix within ten (10)
         calendar days after notice by Atrix to Geneva.

                  (c) Reconciliation of Retainer. Within fifteen (15) days after
         the month end in which an ANDA is filed for a Product, Atrix shall
         prepare a reconciliation report setting forth the aggregate Retainer
         payments received by Atrix for such Product, the aggregate amount of
         Geneva's proportionate share of the research and development expenses
         offset against the Retainer payments for each such Product, and the
         remaining balance, if any, owed by Geneva to Atrix or by Atrix to
         Geneva for each such Product. Any remaining balance shall be paid to
         Geneva in accordance with Section 7.02(a).

                                   ARTICLE IV

                               ADDITIONAL PRODUCTS

         Section 4.01. ADDITIONAL PRODUCTS. The Parties agree to provide to the
PMC reasonable advance notice of any product opportunity that either Party
identifies and which it wishes to make available to a Third Party; provided the
opportunity relates to a generic prescription dermatology product that is not
the subject of a right of negotiation with a Third Party. The Parties further
agree that such notice is for the sole purpose of providing an opportunity for
discussion of the possibility of expanding the alliance created hereby to
include such additional product and does not create any rights in the
opportunity or obligations with respect thereto. Neither Party shall have a
right of first refusal or right of first negotiation with respect to additional
product opportunities.

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<PAGE>   15

                                   ARTICLE V

                                COMMERCIALIZATION

         Section 5.01. GENEVA'S OBLIGATIONS.

                  (a) Marketing Efforts. Geneva agrees to use its commercially
         reasonable best efforts to timely promote the sale, marketing and
         distribution of each Product in each country in the Territory. In this
         regard, Geneva shall follow substantially the same procedures, commit
         substantially the same financial and personnel resources and otherwise
         treat each Product as it would a product distributed by Geneva of
         comparable sales. Without limiting the foregoing, Geneva's activities
         shall include but not be limited to the use of the following services
         or capabilities in support of each Product:

                           (i) National field sales force

                           (ii) Telemarketing staff

                           (iii) Full-Service distribution centers

                           (iv) Fully-integrated professional advertising and
                  marketing support materials

                           (v) Direct order entry capability and invoicing

                           (vi) Maintenance of inventory level adequate to serve
                  the market for Product available in Geneva's warehouses at all
                  times including product launch.

         Geneva shall promptly advise Atrix of any issues that materially and
adversely affect Geneva's ability to market a Product in the Territory. In such
event, the PMC shall meet and in good faith discuss what actions should be taken
in light of such issues and if they cannot agree any dispute shall be resolved
pursuant to Article XVII.

                  (b) Packaging. Packaging and labeling of a Product shall
         comply with the Packaging Specifications and Applicable Laws. Geneva,
         in consultation with Atrix, shall be responsible for determining
         commercial packaging configurations and trade dress. Atrix and Geneva
         shall be jointly responsible for assuring that such packaging and
         labeling conform with all Applicable Laws, if any, of the FDA or other
         Competent Authorities for export of a Product in the Territory. Prior
         to the marketing and sale of a Product in the Territory, Atrix and
         Geneva shall execute a written agreement which sets forth the packaging
         and labeling standards agreed to; and Atrix shall thereafter be
         responsible for assuring that the Units comply with the Packaging
         Specifications and Applicable Laws where such Product is to be
         distributed for sale.

                  (c) Consultation. Commencing sixty (60) days prior to the
         expected date of the First Commercial Sale of a Product in any country
         in the Territory, Geneva shall provide to Atrix an outline of its
         marketing plans for the Product which shall provide in reasonable
         detail: (i) Product positioning in the marketplace; (ii) quantity of
         direct selling

                                       11
<PAGE>   16

         efforts, including the number of sales calls to be made; (iii) extent
         and degree of non-personal selling and promotional efforts and (iv)
         development and implementation of the pricing strategy. The Parties
         acknowledge that marketing the Products as generics in the United
         States will generally not justify the use of a direct sales force.
         Geneva shall update such outline of the marketing plan at least
         annually or more often as such marketing plans may be modified with
         each selling cycle.

         Section 5.02. NET SALES THRESHOLDS. Beginning on the first day of the
fifth calendar quarter following the First Commercial Sale of a Product in the
United States (and continuing for the Term of this Agreement, each such year
thereafter being a "Measurement Year"), Geneva will be subject to performance
obligations. Such performance obligations will be Geneva's achievement of at
least [**] of Net Sales forecasts ("Net Sales Threshold") for each country in
the Territory for each Product. Not later than six (6) months prior to the
expected date of First Commercial Sale for a Product, Geneva shall provide to
Atrix with Net Sales Threshold for each country in the Territory for such
Product. Atrix will have thirty (30) days to provide Geneva with written
approval of the Net Sales Threshold. If Atrix and Geneva cannot reach agreement
on the Net Sales Threshold, the Net Sales Threshold shall be determined by the
PMC. Geneva shall provide to Atrix the Net Sales Threshold for each country in
the Territory for each Product for the succeeding calendar year by October 31 of
the preceding year. In setting the Net Sales Threshold for each country in the
Territory, Geneva or the PMC, as applicable, shall set forth the basic
assumptions underlying the Net Sales Thresholds specified. In the event Geneva
fails to achieve the Net Sales Thresholds for a country for any Measurement Year
after the First Commercial Sale of that Product due to Geneva's failure to
perform or other conditions within Geneva's reasonable control and such failure
was not the result of the assumptions used to determine the Net Sales Thresholds
proving inaccurate (through no fault of Geneva), then Atrix may, at its sole
option: (a) terminate Geneva's right to market and sell such Product in that
country, or (b) require Geneva to pay Atrix an amount equal to the Net Profits
that would have otherwise been due Atrix on the difference between the aggregate
Net Sales Thresholds and Geneva actual aggregate Net Sales for such period.

                                   ARTICLE VI

                             MANUFACTURE AND SUPPLY

         Section 6.01. AGREEMENT TO SUPPLY PRODUCT. Subject to the terms of this
Agreement, Geneva agrees to purchase exclusively from Atrix, and Atrix agrees to
Manufacture for, and sell exclusively to Geneva, during the Term of this
Agreement, Geneva's total requirements for the Products in the Territory on the
terms and conditions set forth herein. Subject to notice to and prior written
approval of Geneva which approval shall not be unreasonably withheld,
conditioned or delayed, Atrix may subcontract any part of the Manufacturing
Process for a Product to Third Parties provided the Product and the facilities
continue to meet the requirements as defined in this Agreement. If
subcontracting is initiated by Atrix, Atrix will bear the costs of qualifying
the Third Party as a qualified site for the Manufacture of the Product,
including validation and necessary stability work.

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<PAGE>   17

         Section 6.02. QUALITY ASSURANCE. Atrix shall supply the Product in
accordance with the quality control provisions as set forth in Article XIV.
Atrix shall notify Geneva of any changes required by a Competent Authority in
the Specifications or Atrix's quality assurance procedures that shall render
Atrix unable to supply the Products in accordance with the terms of this
Agreement. The Parties agree to develop and execute an appropriate action plan
in such situation.

         Section 6.03. COMPLIANCE WITH APPLICABLE LAWS. Geneva shall be
responsible for compliance with Applicable Laws and the Government Approvals
relating to the promotion, marketing and sale of the Products, including
obtaining all necessary permits, licenses and any other requirements relating to
the import, sale and distribution of the Products. Atrix shall be responsible
for compliance with Applicable Laws and Government Approvals relating to the
design and production of the Products, as applicable, and with current Good
Manufacturing Practices, as promulgated by the FDA, relating to the Manufacture
and testing of the Product, as applicable.

         Section 6.04. FAILURE TO SUPPLY. Atrix shall immediately notify Geneva
if Atrix is unable or unwilling to fill any order placed by Geneva pursuant to
Section 7.06 and advise Geneva of the revised delivery date. Geneva shall then
have the option of terminating the purchase order without obligation of payment
or of accepting the revised delivery date. If (i) Atrix fails to supply for any
reason Geneva's requirements of such Product as ordered by Geneva hereunder for
any three (3) consecutive calendar months, then Atrix shall, upon such failure,
make arrangements with a toll manufacturer, the incremental costs of which shall
be borne by Atrix, to Manufacture such Product on behalf of Atrix until such
time as Atrix is again able to Manufacture that Product.

         Notwithstanding the foregoing, Atrix shall not be deemed to be unable
or unwilling to fill any order placed by Geneva as follows:

                  (a) if Atrix's inability to fill any order arises as a result
         of a fifty percent (50%) increase in Geneva's order over Geneva's
         immediately prior forecast; or

                  (b) in the event that Atrix must purchase additional equipment
         or construct a new facility in order to expand its capacity in order to
         meet purchase orders hereunder, Atrix will be deemed to have satisfied
         this paragraph by placing a purchase order for such equipment or
         signing a contract for such construction within sixty (60) days of
         Atrix's receipt of Geneva's purchase order showing firm quantities in
         excess of Atrix's capacity; provided that Atrix diligently pursues and
         completes within a reasonable time thereafter such purchase or
         construction. To reduce the possibility of unanticipated capacity
         shortfalls, and the adverse impact that would have on sales, the
         Parties agree to discuss, prior to the commercialization of any Product
         and at the same time that the forecasts are delivered pursuant to
         Section 7.06, Atrix's available capacity for the Manufacture of the
         Products. In connection therewith, Atrix agrees that the Products will
         be treated the same as its other products when it plans its
         manufacturing schedule and allocates its available capacity.

                                       13
<PAGE>   18
                                  ARTICLE VII

                                PURCHASE AND SALE

         Section 7.01. PURCHASE OF PRODUCT. Atrix shall sell, and Geneva shall
purchase, each Product at a price equal to the [**] of each Product.

         Section 7.02. TERMS OF PAYMENT.

                  (a) Allocation of Profits/Profit-Share Adjustment for
         Development Delay. Net Profits for each Product shall be allocated [**]

                  (b) Reports and Payment. Geneva shall pay to Atrix its share
         of research and development expenses under Section 3.02 (which expenses
         are in excess of the Retainer payments received by Atrix for such
         Product as determined in accordance with Section 3.03) and the Atrix
         Manufacturing Cost under Section 7.01, within thirty (30) days
         following receipt of the applicable monthly invoice. Atrix shall send
         all invoices to the attention of Geneva's accounting department and to
         Geneva's Vice President, Business Development. Net Profits shall be
         calculated and reported for each calendar quarter. All Atrix Profit
         Share payments shall be paid within forty-five (45) days of the end of
         each calendar quarter, unless otherwise specifically provided herein.
         Each payment shall be accompanied by a report in sufficient detail to
         permit confirmation of the accuracy of the payment made, including,
         without limitation, Gross Sales and Net Sales detailed country by
         country in the Territory, Selling Expenses, the Atrix Manufacturing
         Cost, the method used to calculate the payment and the exchange rates
         used, if any.

                  (c) End of Year Reconciliation. Within thirty (30) days after
         the end of each calendar year, (i) Geneva shall provide to Atrix a
         report setting forth in reasonable detail the actual Selling Expense
         for each Product during the preceding calendar year and the actual
         amount of any underpayment or overpayment of the Selling Expense during
         the preceding calendar year, and (ii) Atrix shall provide to Geneva a
         report setting forth in reasonable detail the actual Atrix
         Manufacturing Cost for each Product during the preceding calendar year
         and the actual amount of any underpayment or overpayment of the Atrix
         Manufacturing Cost during the preceding calendar year. Within
         forty-five (45) days of each calendar year, Geneva shall provide Atrix
         with a statement setting forth in reasonable detail, any underpayment
         or overpayment of the Atrix Profit Share based on the actual Selling
         Expense and actual Atrix Manufacturing Costs for the preceding calendar
         year, which statement shall accompany the report for the fourth quarter
         of the preceding calendar year. In the event of an underpayment to
         Atrix, Geneva shall include such underpayment with the fourth quarter
         payment of the Atrix Profit Share. In the event of an overpayment to
         Atrix, Geneva shall reduce such overpayment from the fourth quarter
         payment of the Atrix Profit Share. If the Parties are unable to resolve
         any dispute under this Section 7.02(c), the matter shall be referred to
         an independent firm of certified public accountants chosen by agreement
         of Geneva and Atrix for resolution of such

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<PAGE>   19

         dispute. Any decision by the said firm of independent certified public
         accountants shall be binding on the Parties.

                  (d) Exchange Rate; Manner and Place of Payment. All payments
         hereunder shall be payable in United States dollars. With respect to
         each quarter, for countries other than the United States, whenever
         conversion of payments from any foreign currency shall be required,
         such conversion shall be made at the rate of exchange reported in The
         Wall Street Journal on the last business day of such quarter. All
         payments owed under this Agreement shall be made by wire transfer to a
         bank account designated by Atrix, unless otherwise specified in writing
         by Atrix.

                  (e) Late Payments. In the event that any payment due hereunder
         is not made when due, the payment shall accrue interest from that date
         due at the rate of one and one-half percent (1.5%) per month; provided,
         however, that in no event shall such rate exceed the maximum legal
         annual interest rate. The payment of such interest shall not limit
         Atrix from exercising any other rights it may have as a consequence of
         the lateness of any payment.

                  (f) Records and Audits. During the Term and for a period of
         three (3) years thereafter, Geneva and Atrix shall keep complete and
         accurate records in sufficient detail to permit Atrix or Geneva, as the
         case may be, to confirm the accuracy of all payments due hereunder
         (including the calculation of Atrix Manufacturing Cost, Gross Sales,
         Net Sales and Selling Expenses). Each Party shall have the right to
         have the other Party's records audited by an independent firm of
         certified public accountants chosen by mutual agreement of Geneva and
         Atrix to confirm payments made and costs incurred for the preceding
         calendar year. Any decision by the said firm of independent certified
         public accountants shall be binding on the Parties. If the Parties are
         unable to agree on the firm of certified public accountants, such
         dispute shall be resolved in accordance with Article XVII. Such audits
         may be exercised during normal business hours no more than once in any
         twelve (12) month period upon at least thirty (30) days prior written
         notice to the other Party. The auditing Party shall bear the full cost
         of such audit unless such audit discloses an underpayment or
         overpayment, as the case may be, by more than five percent (5%) of the
         amount due under this Agreement. In such case, the Party being audited
         shall bear the full cost of such audit. In all events, the applicable
         Party shall pay any underpayment or refund any overpayment with
         interest in accordance with Section 7.02(e).

                  (g) Taxes. The Parties agree that, in the absence of any law
         or regulation to the contrary, all taxes levied on any payments
         accruing to Atrix under this Agreement, including, without limitation,
         any taxes levied upon net income, shall be paid by Atrix for its own
         account. If any applicable law or regulation requires Geneva to
         withhold or deduct taxes from payments made to Atrix, Geneva promptly
         shall deliver to Atrix documentation sufficient to indicate the amounts
         so withheld or deducted, including, if available, a receipt from the
         appropriate taxing authority evidencing receipt of such withheld or
         deducted amounts. Each Party agrees to assist the other Party by all
         means reasonably available in claiming exemption from any withholding
         or deduction requirements.

                                       15
<PAGE>   20

                  (h) Prohibited Payments. Notwithstanding any other provision
         of this Agreement, if Geneva is prevented from paying any payments by
         virtue of the statutes, laws, codes or governmental regulations of the
         country from which the payment is to be made, then such payment may be
         paid by depositing funds in the currency in which accrued to Atrix's
         account in a bank acceptable to Atrix in the country whose currency is
         involved.

         Section 7.03. PURCHASE FORMS. To the extent of any conflict or
inconsistency between this Agreement and any purchase orders, purchase order
releases, confirmations, acceptances and similar documents submitted by a Party
in conducting the activities contemplated under this Agreement, the terms of
this Agreement shall govern.

         Section 7.04. CONFIRMATION. Atrix shall confirm each purchase order
within ten (10) days from the date of receipt of a purchase order and shall
supply a Product within a maximum of sixty (60) days from the date of acceptance
of a purchase order, or later if so specified in the purchase order. Failure of
Atrix to confirm any purchase order shall not relieve Atrix of its obligation to
supply the Product ordered by Geneva in conformity with this Agreement.

         Section 7.05. DELIVERY. Delivery terms for the Products shall be FOB
Atrix's manufacturing facility at Fort Collins, Colorado or such other
manufacturing facility designated by Atrix. Atrix shall ship the Products in
accordance with Geneva's purchase order form or as otherwise directed by Geneva
in writing. Title to any Products purchased by Geneva shall pass to Geneva upon
the earlier of (i) a common carrier accepting possession or control of such
Product, as applicable, for shipment to Geneva or its agents, or (ii) passage of
such Product from the loading dock of Atrix's facilities or the manufacturing
facility designated by Atrix to Geneva or its agents.

         Section 7.06. FORECASTS. Not later than six (6) months following
submission of the ANDA or other applicable regulatory filing on a country by
country basis for a particular Product, Geneva will provide Atrix with a twelve
(12) month forecast of Geneva's requirement of that Product on a country by
country basis. On an ongoing basis, twelve (12) month forecasts shall be
provided quarterly, no less than forty-five (45) days prior to the beginning of
each quarter. Said requirements will be based on standard production planning
parameters including but not limited to sales forecasts, sales demand forecasts,
promotional forecasts, inventory requirements, and the like. The first two (2)
quarters of the twelve (12) month forecast will be stated in monthly
requirements. The second two (2) quarters of the twelve (12) month forecast will
be total requirement by stock keeping unit and will be stated as quarterly
requirements. The first three (3) months of the twelve (12) month forecast will
be firm orders. The second three (3) months will be allowed to be flexed from
the previous forecast by plus or minus twenty-five percent (25%) per month until
fixed by the subsequent forecast; provided that the aggregate adjustment from
the quantity set forth in the previous forecast for such three (3) month period
shall not exceed fifty percent (50%) in aggregate during that three (3) month
period. The last two (2) quarters' total quantities will be an estimate and not
binding. All orders will be for full batch quantities. It is understood that
Atrix will not maintain a Product inventory in excess of the forecast, but will
produce a Product upon receipt of that portion of Geneva's forecasts that
constitute firm orders. The above periods whether fixed or flexible will be
adjusted based upon existing lead times at time of start up. Geneva agrees to
use commercially reasonable best

                                       16
<PAGE>   21

efforts to purchase a sufficient amount of a Product to enable Geneva to carry
sufficient inventory to allow for fluctuations in sales demand so as to allow
Atrix reasonable lead time to meet increased demand. Atrix will use commercially
reasonable efforts to meet any increase in demand in excess of the allowed
adjustment, but will not be obligated to do so.

                                  ARTICLE VIII

                       WARRANTY, REJECTION AND INSPECTIONS

         Section 8.01. ATRIX WARRANTY. Atrix represents and warrants to Geneva
that (i) each Product delivered pursuant to this Agreement shall comply with the
Specifications for that Product; and (ii) at the time of Manufacture and
delivery to Geneva, the Products will be and are free from any failure or
defects and will not be and are not adulterated within the meaning of the U.S.
Federal Food, Drug, and Cosmetic Act (the "FD&C Act").

         EXCEPT AS OTHERWISE SET FORTH HEREIN, ATRIX MAKES NO OTHER WARRANTIES
OF ANY OTHER KIND, INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY
OR FITNESS OF THE PRODUCTS FOR ANY PURPOSE, AND ATRIX EXPRESSLY DISCLAIMS ANY
SUCH OTHER WARRANTIES WITH RESPECT TO THE PRODUCTS, EITHER EXPRESSED OR IMPLIED.

         Section 8.02. REJECTION OF PRODUCTS FOR FAILURE TO CONFORM TO
SPECIFICATIONS. Geneva shall have thirty (30) days after the receipt of any
Shipment to subject a Product, on a sample basis, to quality control testing to
determine conformity of the Product to the Specifications. If testing of such
samples shows a failure to meet Specifications, Geneva may return the entire
Shipment, or any portion thereof, to Atrix at Atrix's expense within a
reasonable period of time following the above described testing; provided that
notice of non-conformity is received by Atrix from Geneva within forty (40) days
of receipt of said Shipment. Atrix shall have the option to replace within
thirty (30) days such returned Product with Product that meets the
Specifications or to promptly refund to Geneva, all amounts paid for such
returned Product. In either case the cost of freight and handling to return or
replace the goods shall be at the expense of Atrix. If Geneva does not give
Atrix notice of the non-conformity of a Product within forty (40) days of
receipt of said Shipment, the Product shall be deemed to meet the Specifications
for purposes of Geneva's right to reject and return the Shipment.
Notwithstanding anything in this Agreement to the contrary, the Parties may
agree to a return of a Product or an adjustment in the purchase price in the
event of any failure or defect in a Product. Should there be a discrepancy
between Geneva's test results and the results of testing performed by Atrix,
such discrepancies shall be finally resolved by testing performed by an
independent Third Party selected by Geneva and approved by Atrix (which approval
shall not be unreasonably withheld and shall be presumed given if not
disapproved in writing by Atrix within ten (10) days after receipt of Geneva's
notice of such selection to Atrix). The costs of such testing shall be borne by
the Party against whom the discrepancy is resolved. In addition, in the event a
Product has been previously returned to Atrix and an independent Third Party
determines that a Product meets the Specifications, Geneva shall be responsible
for all costs associated with the return.

         Section 8.03. GENEVA INSPECTIONS. Atrix shall upon reasonable (but not
less than ten (10) days) prior written notice by Geneva and during normal
business hours, allow Geneva to

                                       17
<PAGE>   22

inspect Atrix's facilities used to Manufacture the Products, no more than twice
annually, to confirm that the Atrix's facilities and the equipment, personnel
and operating and testing procedures used by Atrix in the Manufacture, testing,
storage and distribution of the Products are in compliance with Applicable Laws
and the Governmental Approvals. Notwithstanding the foregoing, upon a material
breach of this Agreement by Atrix, if such breach has not been cured, Geneva
shall have the right to inspect Atrix's facilities on an "as-needed" basis;
provided, that such inspections shall not interfere with Atrix's performance of
its duties under this Agreement or its normal operations or cause Atrix to
violate or breach any confidentiality agreements with Third Parties. In the
event that Atrix shall receive notice of a pending inspection of such facilities
by a Competent Authority, and such inspection shall be specifically related to a
Product, Atrix shall immediately notify Geneva of such inspection and inform
such Competent Authority that Geneva may desire to be present at such
inspection; provided that Geneva's right to be present is subject to approval by
such Competent Authority and subject to Geneva being available at the time and
date established by such Competent Authority, and further provided that Geneva's
presence does not cause Atrix to violate or be in breach of any confidentiality
agreements with Third Parties.

                                   ARTICLE IX

                              REGULATORY COMPLIANCE

         Section 9.01. HOLDER OF MARKETING AUTHORIZATIONS. Unless otherwise
required by Applicable Laws and subject to Section 3.01, Atrix shall be the
holder of all Marketing Authorizations and Geneva shall be named as Atrix's
distributor in each country in the Territory in which Geneva has elected to
market a Product with respect to the Marketing Authorizations. In the event that
Atrix, in its sole discretion, determines that it is desirable, for legal or
administrative reasons, for Geneva to hold some or all of the Marketing
Authorizations, Geneva understands and agrees that Geneva will hold the
Marketing Authorizations in trust for the benefit of Atrix and that, therefore,
Geneva will not transfer, assign, mortgage, charge or sub-contract any of the
Marketing Authorizations other than to Atrix or to a Third Party distributor
appointed by Geneva to distribute a Product, and that Geneva will not do
anything to adversely affect a Marketing Authorization. Geneva agrees that Atrix
shall be free from time to time to inform the Competent Authorities that the
Marketing Authorizations are held in trust for Atrix. Any transfer of the
Marketing Authorization by Geneva to a Third Party distributor shall be
contingent upon: (i) Atrix's prior approval, which approval Atrix may withhold
in its sole discretion; and (ii) the execution by the Third Party distributor of
a written agreement pursuant to which the Third Party distributor agrees to hold
the Marketing Authorization on the same terms and conditions as set forth in
this Section 9.01. Geneva agrees to provide Atrix with copies of any agreements
with third parties entered into by Geneva and such Third Party in order to
comply with this Section 9.01 simultaneously upon execution, along with
appropriate evidence from the Competent Authorities documenting the transfer of
the Marketing Authorization. Any transfers of any Marketing Authorizations made
in violation of this Section 9.01 shall be null, void and unenforceable.

         Section 9.02. MAINTENANCE OF MARKETING AUTHORIZATIONS. Atrix agrees to
maintain the Marketing Authorizations including obtaining any variations or
renewals thereof, and Geneva

                                       18
<PAGE>   23

agrees to reimburse Atrix for [**] of Atrix's out-of-pocket expenses in
connection therewith on an as invoiced basis.

         Section 9.03. ASSISTANCE. Each Party shall provide reasonable
assistance to the other at the other's request, in connection with their
obligations pursuant to this Article IX, subject to reimbursement of all of its
out-of-pocket costs by the requesting Party.

         Section 9.04. COMPLIANCE. Geneva and Atrix shall comply with all
Applicable Laws within the Territory including the provision of information by
Geneva and Atrix to each other necessary for Atrix and Geneva to comply with any
applicable reporting requirements. Each Party shall promptly notify the other
Party of any comments, responses or notices received from, or inspections by,
the FDA, or other applicable Competent Authorities, which relate to or may
impact a Product or the Manufacture of a Product or the sales and marketing of a
Product, and shall promptly inform the other Party of any responses to such
comments, responses, notices or inspections and the resolution of any issue
raised by the FDA or other Competent Authorities.

                                   ARTICLE X

                                 CONFIDENTIALITY

         Section 10.01. CONFIDENTIALITY. During the Term and for a period of
[**] years thereafter, each Party shall maintain all Confidential Information of
the other Party as confidential and shall not disclose any such Confidential
Information to any Third Party or use any such Confidential Information for any
purpose, except (a) as expressly authorized by this Agreement, (b) as required
by law, rule, regulation or court order (provided that the disclosing Party
shall first notify the other Party and shall use commercially reasonable efforts
to obtain confidential treatment of any such information required to be
disclosed), or (c) to its Affiliates and its employees, agents, consultants and
other representatives ("Representatives") to accomplish the purposes of this
Agreement, so long as such persons are under an obligation of confidentiality no
less stringent than as set forth herein. Each Party may use such Confidential
Information only to the extent required to accomplish the purposes of this
Agreement. Each Party shall use at least the same standard of care as it uses to
protect its own Confidential Information to ensure that it and its Affiliates
and Representatives do not disclose or make any unauthorized use of the other
Party's Confidential Information. Each Party shall be responsible for any breach
of this Agreement by its Representatives. Each Party shall promptly notify the
other Party upon discovery of any unauthorized use or disclosure of the other
Party's Confidential Information.

         Section 10.02. DISCLOSURE OF AGREEMENT. Neither Party shall release to
any Third Party or publish in any way any non-public information with respect to
the terms of this Agreement without the prior written consent of the other
Party, which consent shall not be unreasonably withheld, conditioned or delayed,
except for the disclosure by a Party of the terms of this Agreement to lenders,
investment bankers and other financial institutions of its choice solely for
purposes of financing the business operations of such Party; provided such Party
uses reasonable efforts to obtain a signed confidentiality agreement with any
such financial institution with

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<PAGE>   24
respect to such information on terms substantially similar to those contained in
this Article X and except as provided in Section 18.13. Nothing contained in
this paragraph shall prohibit either Party from filing this Agreement as
required by the rules and regulations of the Securities and Exchange Commission,
national securities exchanges or the Nasdaq Stock Market; provided the
disclosing Party discloses only the minimum information required to be disclosed
in order to comply with such requirements, including requesting confidential
treatment of this Agreement (after consultation with the other Party) and filing
this Agreement in redacted form.

                                   ARTICLE XI

                         REPRESENTATIONS AND WARRANTIES

         Section 11.01. CORPORATE POWER. Each Party hereby represents and
warrants that such Party is duly organized and validly existing under the laws
of the state of its incorporation and has full corporate power and authority to
enter into this Agreement and to carry out the provisions hereof.

         Section 11.02. DUE AUTHORIZATION. Each Party hereby represents and
warrants that such Party is duly authorized to execute and deliver this
Agreement and to perform its obligations hereunder.

         Section 11.03. BINDING OBLIGATION. Each Party hereby represents and
warrants that this Agreement is a legal and valid obligation binding upon it and
is enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement by such Party does not conflict with any
agreement, instrument or understanding, oral or written, to which it is a party
or by which it may be bound, nor violate any law or regulation of any court,
governmental body or administrative or other agency having authority over it.

         Section 11.04. LIMITATION ON WARRANTIES. Neither Party makes any
warranties, express or implied, concerning the commercial utility of a Product.

         Section 11.05. LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE ENTITLED
TO RECOVER FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR
PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT EXCEPT TO THE EXTENT THAT A
PARTY IS MERELY SEEKING REIMBURSEMENT FOR SUCH DAMAGES PAID TO A THIRD PARTY AND
SUCH REIMBURSEMENT IS COVERED BY THE INDEMNIFICATION PROVISIONS OF ARTICLE XII.

                                  ARTICLE XII

                       INDEMNIFICATION AND JOINT LIABILITY

         Section 12.01. GENEVA INDEMNIFIED BY ATRIX. Atrix shall indemnify and
hold Geneva harmless from and against any liabilities or obligations, damages,
losses, claims, encumbrances, costs or expenses (including attorneys' fees) (any
or all of the foregoing herein collectively referred to as "Loss") insofar as a
Loss or actions in respect thereof, whether existing or occurring prior to, on
or subsequent to the Effective Date, arises out of or is based upon (a) any

                                       20
<PAGE>   25

misrepresentation (or alleged misrepresentation) or breach (or alleged breach)
of any of the warranties, covenants or agreements made by Atrix in this
Agreement; or (b) the Manufacture of a Product by Atrix.

         Section 12.02. ATRIX INDEMNIFIED BY GENEVA. Geneva shall indemnify and
hold harmless Atrix from and against any Loss insofar as such Loss or actions in
respect thereof, whether existing or occurring prior to, on or subsequent to the
Effective Date, arises out of or is based upon (a) any misrepresentation (or
alleged misrepresentation) or breach (or alleged breach) of any of the
warranties, covenants or agreements made by Geneva in this Agreement; or (b)
Geneva's marketing, sale, distribution or promotion of the Products.

         Section 12.03. PROMPT NOTICE REQUIRED. No claim for indemnification
hereunder shall be valid unless notice of the matter which may give rise to such
claim is given in writing by the indemnitee (the "Indemnitee") to the persons
against whom indemnification may be sought (the "Indemnitor") as soon as
reasonably practicable after such Indemnitee becomes aware of such claim;
provided that the failure to notify the Indemnitor shall not relieve it from any
liability which it may have to the Indemnitee otherwise than under this Article
XII. Such notice shall state that the Indemnitor is required to indemnify the
Indemnitee for a Loss and shall specify the amount of Loss and relevant details
thereof. The Indemnitor shall notify Indemnitee no later than sixty (60) days
from such notice of its intention to assume the defense of any such claim. In
the event the Indemnitor fails to give such notice within that time the
Indemnitor shall no longer be entitled to assume such defense.

         Section 12.04. INDEMNITOR MAY SETTLE. The Indemnitor shall at its
expense, have the right to settle and defend, through counsel reasonably
satisfactory to the Indemnitee, any action which may be brought in connection
with all matters for which indemnification is available. In such event the
Indemnitee of the Loss in question and any successor thereto shall permit
Indemnitor's counsel and independent auditors, to the extent relevant, full and
free access to its books and records and otherwise fully cooperate with the
Indemnitor in connection with such action; provided that (i) the Indemnitee
shall have the right fully to participate in such defense at its own expense;
(ii) the Indemnitor's counsel and independent auditors shall not disclose any
Confidential Information of the Indemnitee to the Indemnitor without the
Indemnitee's consent; (iii) access shall only be given to the books and records
that are relevant to the action at issue. The defense by the Indemnitor of any
such actions shall not be deemed a waiver by the Indemnitor of its right to
assert a claim with respect to the responsibility of the Indemnitor with respect
to the Loss in question. The Indemnitor shall have the right to settle or
compromise any claim against the Indemnitee without the consent of the
Indemnitee provided that the terms thereof: (a) provide for the unconditional
release of the Indemnitee; (b) require the payment of compensatory monetary
damages by Indemnitor only; and (c) expressly state that neither the fact of
settlement nor the settlement agreement shall constitute, or be construed or
interpreted as, an admission by the Indemnitee of any issue, fact, allegation or
any other aspect of the claim being settled. No Indemnitee shall pay or
voluntarily permit the determination of any liability which is subject to any
such action while the Indemnitor is negotiating the settlement thereof or
contesting the matter, except with the prior written consent of the Indemnitor,
which consent shall not be unreasonably withheld or delayed. If the Indemnitor
fails to give Indemnitee notice of its intention to defend any such action as
provided herein, the Indemnitee involved shall have the right to assume the
defense thereof with counsel of its choice, at the Indemnitor's expense, and

                                       21
<PAGE>   26

defend, settle or otherwise dispose of such action. With respect to any such
action which the Indemnitor shall fail to promptly defend, the Indemnitor shall
not thereafter question the liability of the Indemnitor hereunder to the
Indemnitee for any Loss (including counsel fees and other expenses of defense).

         Section 12.05. JOINT RESPONSIBILITY FOR PRODUCT LIABILITY CLAIMS. In
the event that a claim or action is brought, or threatened, by a Third Party
against either Atrix or Geneva based on a product liability theory which, such
as a failure to warn allegation, is not related to the wrongful conduct of any
Party and which arises out of the commercialization of any Product, Geneva and
Atrix will have joint responsibility. Specifically, in any such action, Atrix
and Geneva will share [**] all costs and damages, including legal expenses,
costs of settlement, or judgments. Atrix and Geneva will jointly select legal
counsel and will agree on all significant strategy decisions. If Atrix and
Geneva cannot reach agreement on any issue, the arbitration provisions of
Article XVII shall apply.

                                  ARTICLE XIII

                                    COVENANTS

         Section 13.01. COVENANT NOT TO LAUNCH COMPETITIVE PRODUCT.

                  (a) Geneva and Atrix hereby covenant and shall cause its
         sublicensees of the Products to agree not to develop, in-license,
         market, sell, distribute or have marketed, have sold or have
         distributed any Competitive Product in the Territory during the Term.
         Notwithstanding the foregoing, if either Party acquires an entity or
         all or substantially all of the assets of an entity and such entity
         distributes or such assets include a Competitive Product, or either
         Party's sublicensee distributes a Competitive Product, such Party or
         such sublicensee shall use its commercially reasonable best efforts to
         divest itself of such Competitive Product or to otherwise cease
         distribution of such Competitive Product within one-hundred and twenty
         (120) days (subject to any binding commitments to customers), and such
         Party shall not be in breach of this Section 13.01 if it or the
         sublicensee, as the case may be, so divests or ceases distribution
         within such one-hundred and twenty (120) day period;

                  (b) All of the covenants in this Section 13.01 shall be
         construed as an agreement independent of any other provision in this
         Agreement, and the existence of any claim or cause of action of either
         Party, its designee or its Affiliates or its sublicensees against the
         other Party, whether predicated on this Agreement or otherwise, shall
         not constitute a defense to the enforcement of such covenants;

                  (c) Geneva and Atrix hereby agree that the covenants set forth
         in this Section 13.01 are a material and substantial part of the
         transactions contemplated by this Agreement; and

                  (d) Because of the difficulty of measuring economic losses as
         a result of a breach of the restrictive covenants set forth in this
         Section 13.01, and because of the immediate

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<PAGE>   27

         and irreparable damage that would be caused for which monetary damages
         would not be a sufficient remedy, the Parties agree that either Party
         will be entitled to seek specific performance, temporary and permanent
         injunctive relief, and other equitable remedies against the other Party
         without the necessity of posting a bond or other security. This Section
         13.01 shall not limit any other legal or equitable remedies for
         violation of the restrictions herein. The Parties agree that either
         Party shall have the right to seek relief for any violation or
         threatened violation of this Section 13.01 from any court of competent
         jurisdiction in any jurisdiction authorized to grant the relief
         necessary to prohibit the violation or threatened violation of this
         Section 13.01. This Section 13.01 shall apply with equal force to any
         sublicensees used to distribute the Product, if any of them is the
         holder of the Marketing Authorization at the time the violation or
         threatened violation of this Section 13.01 takes place.

         Section 13.02. LIMITATION TO THE TERRITORY. Geneva hereby covenants
that it will not, without the prior written authorization of Atrix: (i) promote
or actively solicit sale of a Product or advertise a Product, outside of the
Territory; (ii) purchase or cause to be purchased a Product which Geneva has
represented, directly or indirectly, as being for the purpose of sale in a
specific country in the Territory for sale in any other country in the
Territory; (iii) contact any of Atrix's suppliers or vendors of a Product or
components relating to a Product; (iv) contact the Competent Authorities or
other entity about a Product, except as required by Applicable Laws or as may be
necessary or appropriate to carry out its obligations hereunder; and (v)
knowingly sell or distribute for resale a Product purchased hereunder to a Third
Party who intends to sell outside of the Territory.

                                   ARTICLE XIV

                          QUALITY ASSURANCE PROVISIONS

         Section 14.01. PRODUCT CONFORMANCE.

                  (a) All of Atrix's obligations herein shall be performed in
         accordance with the following regulations and guidance documents:

                           (i) the FD&C Act and any applicable implementing
                  regulations;

                           (ii) current Good Manufacturing Practices ("cGMP"),
                  U.S. 21 C.F.R. parts 210 and 211;

                           (iii) applicable foreign regulations; and

                           (iv) applicable FDA guidelines.

                  (b) Atrix covenants that, subject to its agreement to file an
         ANDA in accordance with the terms of this Agreement: (a) Atrix will be
         named as the responsible party in each ANDA; (b) Atrix will have either
         drafted or received and reviewed each ANDA; and (c) Atrix shall have
         sole responsibility for and shall ensure that a Product meets all
         standards established by the ANDA.

                                       23
<PAGE>   28

         Section 14.02. STARTING MATERIALS. Atrix will order and may select to
sample and test all active ingredients and excipients necessary for the
Manufacture of a Product, and all packaging components, including primary and
printed packaging materials (hereinafter collectively referred to as, the
"Starting Materials") according to the standards set forth in the ANDA for such
Product. Reduced testing/sampling may be applied as determined by Atrix. Atrix
shall release the Starting Materials for processing only after the
results/review of testing results, in accordance with the control procedures set
forth in the ANDA are satisfactory. Atrix shall store the Starting Materials
under such conditions that when used they comply in all material respects with
the Specifications.

         Section 14.03. MANUFACTURING

                  (a) Atrix will Manufacture, package and test the finished
         Product in accordance with the Specifications, and Atrix's internal
         process controls, which controls shall be developed by Atrix from the
         validation of the first three qualification batches. Atrix may elect to
         contract out to a Third Party all or part of product manufacturing or
         packaging. Atrix will utilize qualified contractors approved by its
         quality assurance organization.

                  (b) Atrix shall refrain from any activities, which may
         adversely affect the quality of a Product. Deviations shall be
         investigated and documented.

         Section 14.04. FINISHED PRODUCT TESTING.

                  (a) Prior to packaging and shipment, Atrix will ensure that
         all bulk finished Product satisfies all required Specifications.

                  (b) For each lot of product shipped to Geneva a certificate of
         analysis will be supplied as and if requested by Geneva.

         Section 14.05. MANUFACTURING & PACKAGING BATCH RECORD & SAMPLE
REQUIREMENTS.

                  (a) Atrix will maintain comprehensive and complete batch
         records on the manufacturing and packaging processes for a period
         described by each Party's internal requirements. Copies of such records
         will be provided by Atrix to Geneva upon request.

                  (b) Retain samples shall be taken which are representative of
         each batch of Product manufactured and packaged. Retain samples shall
         be held for a period of at least 1 year past finished product
         expiration date. Sample quantities should be at least two times the
         amount needed to conduct full analytical and microbiological testing in
         the event such action is required.

         Section 14.06. STORAGE AND TRANSPORT. Atrix shall store and transport
Starting Materials, bulk finished materials and packaged Products according to
label claim and under appropriate conditions of temperature, humidity, light,
and cleanliness so that the identity, strength, quality, and purity of the drug
products are not affected.

                                       24
<PAGE>   29

         Section 14.07. VALIDATION. Manufacturing and control procedures,
including cleaning procedures, shall be validated by Atrix, in accordance with
the Specifications and cGMP practices.

         Section 14.08. STABILITY. Stability testing will be performed by the
primary packager (or the responsible party at Atrix coordinating these efforts).
Stability testing shall be in accordance with the stability protocol set forth
in the ANDA. Atrix (or the primary packager) shall perform follow-up stability
testing in accordance with the stability protocol set forth in the ANDA.

         Section 14.09. WASTE MATERIAL.

                  (a) Atrix will destroy waste material in a secure and legal
         manner that is environmentally friendly and will prevent unauthorized
         use or diversion of such waste material. Complete records of the
         destruction of material must be maintained by Atrix.

                  (b) Atrix represents and warrants that it shall obtain and
         maintain all necessary permits, registrations and licenses required to
         Manufacture and supply the Products and it shall produce the Products
         and dispose of all waste material in compliance with all applicable
         environmental laws, regulations, and standards.

         Section 14.10. ADVERSE DRUG EVENT REPORTING AND PHASE IV SURVEILLANCE.

                  (a) Each Party shall advise the other Party, by telephone or
         facsimile, within such time as is required to comply with Applicable
         Laws after it becomes aware of any potentially serious or unexpected
         adverse event (including adverse drug experiences, as defined in 21
         C.F.R. Section 314.80 or other applicable regulations) (an "ADE")
         involving a Product. Such advising Party shall provide the other Party
         with a written report delivered by confirmed facsimile of any adverse
         reaction, stating the full facts known to such Party, including but not
         limited to customer name, address, telephone number, batch, lot and
         serial numbers, and other information as required by Applicable Laws.
         To the extent permitted by Applicable Laws, Geneva shall have full
         responsibility for (i) monitoring such adverse reactions; and (ii) data
         collection activities that occur between Geneva and the patient or
         medical professional, as appropriate, including any follow-up inquiries
         which Geneva deems necessary or appropriate; and Atrix shall have full
         responsibility for making any reports to the Competent Authorities,
         with a complete copy provided to Geneva at the same time the report is
         made to the Competent Authorities.

                  (b) Within thirty (30) days of receipt of all Governmental
         Approvals for a Product in a given country in the Territory, the
         Parties shall jointly develop a standard operating procedure for
         reporting and identifying adverse drug reactions (the "SOP") that
         conforms to Applicable Laws, and which, at the option of Atrix, may be
         Geneva's current SOP. In the event the SOP is modified or amended
         during the Term of this Agreement, Geneva shall provide Atrix with
         copies of any such modification or amendment to the SOP for approval at
         least five (5) days prior to such amendment taking effect. The Parties
         agree to follow the SOP. Geneva shall designate a qualified person
         under Applicable Laws to be responsible for ADE reporting in each
         country in the Territory. In the event either Party requires
         information regarding adverse drug events with respect to reports
         required

                                       25
<PAGE>   30

         to be filed by it in order to comply with Applicable Laws, including
         obligations to report ADEs to the Competent Authorities, each Party
         agrees to provide such information to the other on a timely basis.

                  (c) If the report of an ADE causes a Competent Authority to
         request that a phase IV surveillance program be conducted, then the PMC
         shall determine the material terms and conditions of such phase IV
         surveillance program; provided, however the costs of such phase IV
         surveillance program shall be borne [**] by Geneva and [**] by Atrix.
         Geneva agrees that should Applicable Laws require that any such interim
         data and results from such programs be prepared in written form, Geneva
         shall comply with such requirements and provide all such information in
         writing to Atrix and Atrix shall then submit such information to the
         Competent Authorities in accordance with Applicable Laws. Geneva
         further agrees that Atrix shall have the right to incorporate, refer to
         and cross-reference such results and underlying data in any regulatory
         filing with respect to the Products.

         Section 14.11. POST - FIRST COMMERCIAL SALE TESTING AND REPORTING. If,
after the date of First Commercial Sale in any country in the Territory, adverse
events or other issues arise with respect to the safety or efficacy of a Product
which jeopardize the Product's performance or are deemed by the Parties to
potentially limit its approved indications, the Parties shall consult with each
other with respect to such events or other issues. If the Parties determine that
the situation requires clinical testing after First Commercial Sale in any
country in the Territory, modifications to any Marketing Authorization or other
communication with any Competent Authority or entity, Atrix shall design and
implement any such testing, modifications or communication and the costs of such
additional clinical testing shall be borne [**] by Geneva and [**] by Atrix. If
the Parties cannot agree on whether such situation requires clinical testing,
such dispute shall be resolved in accordance with Article XVII.

         Section 14.12. RETURNED GOODS. No returned Product shall be re-used or
re-issued without the prior written approval of Geneva's Head of Quality
Assurance or other authorized Geneva representative or as described in each
Party's internal procedures. Upon request, Atrix shall cooperate with, and
provide, Geneva with copies or access to all documentation related to a return
batch, including manufacturing and purchasing records. Detailed records of all
associated activities must be kept by Atrix for a period of three (3) years
after the date such records are created.

         Section 14.13. PERSONS TO WHOM COMMUNICATIONS SHOULD BE ADDRESSED. The
primary representatives of the Parties to this Agreement who should be contacted
in matters related to this Article XIV and a detailed contact list of each
Party's quality assurance working group is set forth in Exhibit C.

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         Section 14.14. PRODUCT RECALLS OR WITHDRAWAL. If at any time or from
time to time any Competent Authority of any country in the Territory requests
either Party to recall a Product, or if a voluntary recall is contemplated (a
"Recall"), the Party to whom such request is made or the Party contemplating
such Recall, as the case may be, shall immediately notify the other Party.
Geneva shall be responsible for conducting any Recalls, market withdrawals or
corrections with the respect to a Product and shall make the final decision as
to any voluntary Recalls after consultation with Atrix; provided that Atrix
shall not be prohibited hereunder from taking any action that is required by
law. Any Recall shall be carried out by Geneva in as expeditious a manner as
reasonably possible to preserve the goodwill and reputation of a Product and the
goodwill and reputation of the Parties. Geneva shall maintain records of all
sales and distribution of a Product and customers sufficient to adequately
administer a Recall, market withdrawal or correction for a period of five (5)
years after the date the record is created.

         Section 14.15. RECALL COSTS. The cost and expense of a Recall shall be
allocated as follows:

                  (a) if such Recall is a voluntary Recall or shall be due to
         tampering or other cause, other than a manufacturer's defect, but not
         due to the negligence or misconduct of the Parties, then Geneva and
         Atrix shall [**] of the costs and expenses incurred by Geneva in
         connection with such Recall, including, without limitation, all product
         credits and returns, freight and shipping costs and product disposal
         expenses;

                  (b) if such Recall shall be due to manufacturer's defect or
         the negligence or misconduct of Atrix, all such costs and expenses
         shall be borne and paid solely by Atrix; and

                  (c) if such Recall shall be due to the negligence or
         misconduct of Geneva, all such costs and expenses shall be borne and
         paid solely by Geneva.

         Section 14.16. NOTIFICATION OF THREATENED ACTION. Throughout the
duration of this Agreement and with respect to all Products supplied and
purchased under this Agreement, after the termination of this Agreement, each
Party shall immediately notify the other Party of any information it receives
regarding any threatened or pending action, inspection or communication by or
from a concerned Competent Authority which may affect the safety or efficacy
claims of a Product or the continued marketing of a Product. Upon receipt of
such information, the Parties shall consult with each other in an effort to
arrive at a mutually acceptable procedure for taking appropriate action and, if
they cannot agree on such action, such dispute shall be resolved pursuant to
Article XVII.

                                   ARTICLE XV

                                    INSURANCE

         Section 15.01. INSURANCE. Each Party shall, at its sole cost and
expense, obtain and keep in force comprehensive general liability insurance,
including any applicable self-insurance coverage, with bodily injury, death and
property damage limits of Five Million and 00/100 Dollars ($5,000,000.00) per
occurrence and Five Million and 00/100

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<PAGE>   32

Dollars ($5,000,000.00) in the aggregate, including contractual liability and
product liability coverage.

                                  ARTICLE XVI

                              TERM AND TERMINATION

         Section 16.01. TERM. This Agreement shall commence as of the Effective
Date and shall continue on a Product-by-Product basis in each country in the
Territory so long as each Product is generating Net Profits equal to or greater
than [**] of Net Sales, or unless and until the PMC decides to terminate
development or commercial sales of the Product (the "Term").

         Section 16.02. TERMINATION BY EITHER PARTY FOR CAUSE. Either Party may
terminate this Agreement prior to the expiration of the Term upon the occurrence
of any of the following:

                  (a) Upon or after the cessation of operations of the other
         Party or the bankruptcy, insolvency, dissolution or winding up of the
         other Party (other than dissolution or winding up for the purposes or
         reconstruction or amalgamation); or

                  (b) Upon or after the breach of any material provision of this
         Agreement by the other Party if the breaching Party has not cured such
         breach within sixty (60) calendar days after written notice thereof by
         the non-breaching Party.

         Section 16.03. TERMINATION BY ATRIX. Atrix may terminate this Agreement
prior to the expiration of the Term with respect to any country in the Territory
upon the occurrence of any of the following:

                  (a) Upon the failure by Geneva to pay for fifteen (15)
         calendar days after written notice thereof payment due to Atrix
         pursuant to Section 7.02; provided, however, that this subsection (a)
         shall not apply to any payment which is the subject of a good faith
         dispute between Geneva and Atrix; and

                  (b) Upon the failure by Geneva to deliver to Atrix any report
         required by Section 7.02(b) for such country for fifteen (15) calendar
         days after written notice thereof on more than two (2) occasions during
         any two (2) consecutive calendar years.

         Section 16.04. EFFECT OF TERMINATION.

                  (a) Subject to Section 16.04(c), upon termination of this
         Agreement by Atrix pursuant to Sections 16.02 or 16.03, Geneva shall
         reimburse Atrix for [**] of the out-of-pocket costs and expenses
         reasonably incurred or committed to by Atrix in connection with the
         activities performed by Atrix in accordance with the Development
         Program prior to the effective date of such termination.

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<PAGE>   33

                  (b) Upon termination of this Agreement by Geneva pursuant to
         Section 16.02, Geneva shall reimburse Atrix for [**] of the
         out-of-pocket costs and expenses reasonably incurred or committed to by
         Atrix in connection with the activities performed by Atrix in
         accordance with the Development Program prior to the effective date of
         such termination and the rights granted under Section 3.01 shall remain
         in effect so long as Geneva has not breached its obligations to Atrix
         under this Agreement.

                  (c) Upon termination by Atrix under Sections 16.02 or 16.03,
         the following shall occur:

                           (i) All rights granted to Geneva shall terminate
         immediately, including the rights granted to Geneva pursuant to Section
         3.01, and Geneva shall have no further rights in the Products subject
         to Geneva's option to sell off existing inventory of Products for six
         (6) months after the termination date under subsection (iii) hereof,
         and Geneva shall not, either directly or indirectly, use or permit the
         use of the same or of the documentation relating to the Products,
         except to sell off existing inventory under subsection (iii) hereof;

                           (ii) At Atrix's election, Geneva shall immediately
         transfer to Atrix, to the extent permitted by Applicable Laws, without
         further consideration, any Marketing Authorizations held by Geneva or
         its Affiliates or sublicensee, if any, and will fully cooperate with
         Atrix and all Competent Authorities and do all things and acts
         necessary to cause both the legal and equitable ownership of the
         Marketing Authorizations to vest in Atrix or its designee as soon as
         possible after termination of the Agreement;

                           (iii) Geneva, at its option, may sell off any
         existing inventory of the Products during a period not to exceed six
         (6) months following such termination. If Geneva chooses this option,
         Geneva shall:

                                 (A) within five (5) days (in the case of a
                  termination under Section 16.02(a)) and within sixty (60) days
                  (in the case of a termination under Section 16.02(b)) after
                  the issuance of a notice of termination by Atrix, notify Atrix
                  that it intends to sell off existing inventory of the
                  Products;

                                 (B) continue to comply with its payment
                  obligations under this Agreement;

                                 (C) continue to sell off existing inventory of
                  the Products for six (6) months after the notice of
                  termination but at the expiration of the six (6) months, at
                  Geneva's election, either (1) sell all useable existing
                  inventory of Product to Atrix or (2) destroy all remaining
                  inventory of Product in accordance with Applicable Law,
                  providing Atrix with proof of destruction in writing
                  sufficient to comply with Applicable Laws; provided that in
                  the case of useable Product, Atrix shall pay to Geneva the
                  actual cost paid by Geneva for such remaining useable
                  inventory of Product. If Geneva sells any inventory of Product
                  to Atrix pursuant to this subsection, it shall warrant that
                  such inventory of Product

----------
** CONFIDENTIAL TREATMENT REQUESTED.

                                       29
<PAGE>   34

                  has been stored in compliance with all Applicable Laws, has
                  not been adulterated and has otherwise been maintained
                  according to the requirements of Applicable Laws and Marketing
                  Authorizations;

                                 (D) if Geneva notifies Atrix that Geneva does
                  not intend to sell off any existing inventory of Product,
                  Geneva shall, at Geneva's election, either (1) sell all
                  existing useable inventory of Product to Atrix or (2) destroy
                  all remaining inventory of Product in accordance with
                  Applicable Law, providing Atrix with proof of destruction in
                  writing sufficient to comply with Applicable Laws; provided
                  that in the case of useable Product, Atrix shall pay to Geneva
                  the actual cost paid by Geneva for such remaining useable
                  inventory of Product. If Geneva sells any inventory of Product
                  to Atrix pursuant to this subsection, it shall warrant that
                  such inventory of Product has been stored in compliance with
                  all Applicable Laws, has not been adulterated and has
                  otherwise been maintained according to requirements of
                  Applicable Laws and Competent Authorities; and

                                 (E) any sales of Product made by Geneva to
                  Atrix pursuant to this Section 16.04 shall be made by Geneva
                  within thirty (30) days after (i) the end of the time period
                  specified by Section 16.04(c)(iii) or (ii) the date Geneva
                  informs Atrix that it does not intend to sell off any existing
                  inventory of a Product, as applicable, and shall be shipped to
                  Atrix appropriately packaged and stored. All transportation
                  costs in connection with such sale, including without
                  limitation, insurance, freight and duties, shall be paid by
                  Atrix. Amounts owed by Atrix to Geneva pursuant to this
                  Section 16.04(c) for the Product shall be paid by Atrix within
                  thirty (30) days after receipt of an appropriately detailed
                  invoice.

                  (d) Upon expiration of this Agreement with respect to a
         specific Product under Section 16.01 or Section 5.02, the provisions of
         Section 16.04(c) shall govern the rights of the Parties with respect to
         that Product.

                  (e) Expiration or termination of this Agreement shall not
         relieve the Parties of any obligation accruing prior to such expiration
         or termination. Except as set forth below or elsewhere in this
         Agreement, the obligations and rights of the Parties under Sections
         7.02(e), 11.05, 14.14, 14.15, 14.16, Articles X, XII, XVII, XVIII and
         this Article XVI shall survive expiration or termination of this
         Agreement.

                  (f) Within thirty (30) days following the expiration or
         termination of this Agreement, each Party shall return to the other
         Party, or destroy, upon the written request of the other Party, any and
         all Confidential Information of the other Party in its possession and
         upon a Party's request, such destruction (or delivery) shall be
         confirmed in writing to such Party by a responsible officer of the
         other Party.

                                       30
<PAGE>   35

                                  ARTICLE XVII

                               DISPUTE RESOLUTION

         Section 17.01. ARBITRATION. The Parties recognize that disputes as to
certain matters may from time to time arise which relate to either Party's
rights and/or obligations hereunder. It is the objective of the Parties to
establish procedures to facilitate the resolution of such disputes in an
expedient manner by mutual cooperation and without resort to litigation. To
accomplish this objective, the Parties agree to follow the procedures set forth
in this Section 17.01 if and when such a dispute arises between the Parties.

         If any dispute arises between the Parties relating to the
interpretation, breach or performance of this Agreement or the grounds for the
termination thereof, and the Parties cannot resolve the dispute within thirty
(30) days of a written request by either Party to the other Party, the Parties
agree to hold a meeting, attended by the Chief Executive Officer or President of
each Party, or their executive level designees, to attempt in good faith to
negotiate a resolution of the dispute prior to pursuing other available
remedies. If, within sixty (60) days after such written request, the Parties
have not succeeded in negotiating a resolution of the dispute, such dispute
shall be submitted to final and binding arbitration under the then current
commercial rules and regulations of the American Arbitration Association ("AAA")
relating to voluntary arbitrations. The arbitration proceedings shall be held in
Denver, Colorado. One arbitrator shall be selected by Atrix, one arbitrator
shall be selected by Geneva, and the third arbitrator shall be chosen by the
first two arbitrators chosen from a panel of arbitrators provided by the
Judicial Arbiter Group of Denver, of if such group no longer exists, by the AAA.
The arbitrators selected by Atrix and Geneva shall have substantial experience
in the pharmaceutical industry and be familiar with agreements of this type. The
arbitration shall be conducted in accordance with the following time schedule
unless otherwise mutually agreed to in writing by the Parties: (i) Parties to
the arbitration proceeding shall each appoint their respective arbitrator within
fifteen (15) business days after the date the dispute is submitted to
arbitration; (ii) within ten (10) business days thereafter, such arbitrators
shall appoint the third arbitrator; (iii) within ten (10) business days after
the appointment of the third arbitrator, the Parties to the arbitration
proceeding shall provide all documents, records and supporting information
reasonably necessary to resolve the dispute; and (iv) within fifteen (15)
business days after the date the above records are due, the arbitrators shall
hold a hearing, and (v) within fifteen (15) days thereafter render their
decision. Each Party shall initially bear its own costs and legal fees
associated with such arbitration. The prevailing Party in any such arbitration
shall be entitled to recover from the other Party the reasonable attorney's
fees, costs and expenses incurred by such prevailing Party in connection with
such arbitration. The decision of the arbitrator shall be final and binding on
the Parties. The arbitrator shall prepare and deliver to the Parties a written,
reasoned opinion conferring its decision. Judgment on the award so rendered may
be entered in any court having competent jurisdiction thereof and shall be
enforceable under the Federal Arbitration Act.

                                       31
<PAGE>   36

                                  ARTICLE XVIII

                                  MISCELLANEOUS

         Section 18.01. NO-SOLICITATION. Neither Party nor its Affiliates
(collectively, the "Initiating Group") shall, directly or through its
representatives, solicit for employment or consultation any officer, director or
employee of the other Party or its subsidiaries or controlled affiliates
(collectively, the "Other Group") with whom the Initiating Group has contact in
connection with, or who otherwise is known by the Initiating Group to
participate in, the transactions contemplated by this Agreement, without the
prior written consent of the other Party. The Initiating Group shall not be
precluded from hiring any such person who has been terminated by the Other Group
prior to commencement of employment or consultation discussions between such
person and the Initiating Group or its representatives. "Solicitation" shall not
include any generalized public advertisement or any other solicitation by the
Initiating Group or its representatives that is not specifically directed toward
any such employee of the Other Group or toward any group of such employees of
the Other Group.

         Section 18.02. COMMERCIALLY REASONABLE EFFORTS. Except as otherwise set
forth in this Agreement, each Party shall use commercially reasonable and
diligent efforts to perform its responsibilities under this Agreement. As used
herein, the term "commercially reasonable and diligent efforts" means, unless
the Parties agree otherwise, those efforts consistent with the exercise of
prudent scientific and business judgment, as applied to other products of
similar scientific and commercial potential within the relevant product lines of
the Parties.

         Section 18.03. ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the Parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other Party, which consent shall not be
unreasonably withheld, conditioned or delayed. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit of
the Parties hereto and their respective permitted successors and assigns.
Notwithstanding anything contained in this Agreement to the contrary, nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the Parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.

         Section 18.04. FORCE MAJEURE. Neither Party shall be held liable or
responsible to the other Party nor be deemed to have defaulted under or breached
this Agreement for failure or delay in fulfilling or performing any term of this
Agreement (other than non-payment) when such failure or delay is caused by or
results from causes beyond the reasonable control of the affected Party,
including, but not limited to, fire, floods, embargoes, war, acts of war
(whether war be declared or not), insurrections, riots, civil commotions,
strikes, lockouts or other labor disturbances, acts of God or acts, omissions or
delays in acting by any governmental authority or the other Party; provided that
the Party whose performance is delayed or prevented shall continue to use good
faith diligent efforts to mitigate, avoid or end such delay or failure in
performance as soon as practicable.

                                       32
<PAGE>   37

         Section 18.05. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware,
except that no conflict of laws provision shall be applied to make the laws of
any other jurisdiction applicable to this Agreement.

         Section 18.06. WAIVER. Except as specifically provided for herein, the
waiver from time to time by either of the Parties of any of their rights or
their failure to exercise any remedy shall not operate or be construed as a
continuing waiver of same or of any other of such Party's rights or remedies
provided in this Agreement.

         Section 18.07. SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby so long as the reasonable objectives and expectations of each
of the Parties can still be met.

         Section 18.08. NOTICES. All notices and other communications provided
for hereunder shall be in writing and shall be mailed by first-class, registered
or certified mail, postage paid, or delivered personally, by overnight delivery
service or by facsimile, computer mail or other electronic means, with
confirmation of receipt, addressed as follows:

         IF TO ATRIX:               Atrix Laboratories, Inc.
                                    2579 Midpoint Drive
                                    Fort Collins, CO  80525
                                    Attn:  Charles P. Cox, Ph.D., MBA
                                    Vice President, New Business Development
                                    Telephone:  (970) 482-5868
                                    Facsimile:  (970) 482-9735

        COPIES TO:                  Morrison & Foerster LLP
                                    5200 Republic Plaza
                                    370 17th Street
                                    Denver, Colorado  80202-5638
                                    Attn:  Warren L. Troupe, Esq.
                                    Telephone: (303) 592-2255
                                    Facsimile:  (303) 592-1510

                                       33
<PAGE>   38

         IF TO GENEVA:              Geneva Pharmaceuticals, Inc.
                                    2655 W. Midway Blvd.
                                    P.O. Box 446
                                    Broomfield, Colorado  80038
                                    Attn:  President
                                    Telephone:  (303) 438-4550
                                    Facsimile:  (303) 438-4300

         COPIES TO:                 Geneva Pharmaceuticals, Inc.
                                    2655 W. Midway Blvd.
                                    P.O. Box 446
                                    Broomfield, Colorado  80038
                                    Attn:  General Counsel
                                    Telephone:  (303) 438-4154
                                    Facsimile:  (303) 438-2756
                                    e-mail:  jerry.mcintyre@gx.novartis.com

         Either Party may by like notice specify or change an address to which
notices and communications shall thereafter be sent. Any such notice or
communication shall be deemed to have been effectively given (i) in the case of
personal or hand delivery, on the date of such delivery, (ii) in the case of
overnight delivery service, on the second business day after the date when sent,
(iii) in the case of mailing, on the third business day following that day on
which the piece of mail containing such communication is posted and (iv) in the
case of facsimile and computer mail or other electronic means, upon confirmation
of receipt.

         Section 18.09. INDEPENDENT CONTRACTORS. It is expressly agreed that
Atrix and Geneva shall be independent contractors and that the relationship
between the two Parties shall not constitute a partnership or agency of any
kind. Neither Atrix nor Geneva shall have the authority to make any statements,
representations or commitments of any kind, or to take any action, which shall
be binding on the other Party, without the prior written consent of the other
Party.

         Section 18.10. RULES OF CONSTRUCTION. The Parties hereto agree that
they have been represented by counsel during the negotiation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the Party drafting such agreement or
document.

         Section 18.11. ENTIRE AGREEMENT; AMENDMENT. This Agreement (including
the Exhibits attached hereto) sets forth all of the covenants, promises,
agreements, warranties, representations, conditions and understandings between
the Parties hereto with respect to the subject matter hereof and supersedes and
terminates all prior agreements and understandings between the Parties. There
are no covenants, promises, agreements, warranties, representations conditions
or understandings, either oral or written, between the Parties other than as set
forth herein. No subsequent alteration, amendment, change or addition to this
Agreement shall be binding upon the Parties hereto unless reduced to writing and
signed by the respective authorized officers of the Parties.

                                       34
<PAGE>   39

         Section 18.12. HEADINGS. The captions contained in this Agreement are
not a part of this Agreement, but are merely guides or labels to assist in
locating and reading the several articles hereof.

         Section 18.13. PUBLICITY. Geneva and Atrix shall consult with each
other before issuing any press release with respect to this Agreement or the
transactions contemplated hereby and neither shall issue any such press release
or make any such public statement without the prior consent of the other, which
consent shall not be unreasonably withheld, conditioned or delayed; provided,
however, (i) that a Party may, without the prior consent of the other Party,
issue such press release or make such public statement as may upon the advice of
counsel be required by law or the rules and regulations of the NASDAQ or any
stock exchange, if it has used reasonable efforts to consult with the other
Party prior thereto, and (ii) such consent shall be deemed to have been given if
the recipient of the press release or public statement fails to respond to the
other Party within forty-eight (48) hours after the recipient's receipt of such
proposed press release or public statement. No such consent of the other Party
shall be required to release information which has previously been made public.

         Section 18.14. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Each of the transaction
documents may be signed and delivered to the other Party by facsimile
transmission; such transmission shall be deemed a valid signature.

                  [Remainder of Page Intentionally Left Blank]

                                       35
<PAGE>   40

         IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed in duplicate by their duly authorized officers as of the Effective
Date.

ATRIX LABORATORIES, INC.                      GENEVA PHARMACEUTICALS, INC.

By:/s/ David R. Bethune                     By:/s/ Hubert Hirzinger
   --------------------------------            --------------------------------
       David R. Bethune                            Hubert Hirzinger
       Chairman and Chief Executive                President and Chief Executive
       Officer                                     Officer

                                       36
<PAGE>   41

                                    EXHIBIT A

                                    PRODUCTS

[**]

----------
**CONFIDENTIAL TREATMENT REQUESTED.

                                       A-1
<PAGE>   42

                                    EXHIBIT B

                               DEVELOPMENT PROGRAM
                                     OUTLINE

[**]

----------
**CONFIDENTIAL TREATMENT REQUESTED.

                                       B-1

<PAGE>   43

                                    EXHIBIT C

            GENEVA PHARMACEUTICALS, INC. AND ATRIX LABORATORIES, INC.
                       QUALITY ASSURANCE LIST OF CONTACTS

[**]

----------
**CONFIDENTIAL TREATMENT REQUESTED.

                                       C-1<PAGE>

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

                                UGI CORPORATION

                                      and

                            MELLON BANK (EAST) N.A.

                                 Rights Agent

                               Rights Agreement

                          Dated as of April 29, 1986

--------------------------------------------------------------------------------
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                                  <C>
Section 1.     Certain Definitions.................................................   1

Section 2.     Appointment of Rights Agent.........................................   3

Section 3.     Issue of Right Certificates.........................................   3

Section 4.     Form of Right Certificates..........................................   5

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

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

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

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

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

Section 10.    Preference Shares Record Date.......................................  10

Section 11.    Adjustment of Purchase Price, Number and Kind of Shares or
               Number of Rights....................................................  10

Section 12.    Certificate of Adjusted Purchase Price or Number of Shares..........  18

Section 13.    Consolidation, Merger or Sale or Transfer of Assets or Earning
               Power...............................................................  18

Section 14.    Additional Covenants................................................  20

Section 15.    Fractional Rights and Fractional Shares.............................  20

Section 16.    Rights of Action....................................................  21

Section 17.    Agreement of Right Holders..........................................  22

Section 18.    Right Certificate Holder Not Deemed a Shareholder...................  22

Section 19.    Concerning the Rights Agent.........................................  22
</TABLE>
<PAGE>

<TABLE>
<S>                                                                                  <C>
Section 20.    Merger or Consolidation or Change of Name of Rights Agent...........  23

Section 21.    Duties of Rights Agent..............................................  23

Section 22.    Change of Rights Agent..............................................  25

Section 23.    Issuance of New Right Certificates..................................  26

Section 24.    Redemption and Termination..........................................  26

Section 25.    Notice of Certain Events............................................  27

Section 26.    Notices.............................................................  28

Section 27.    Supplements and Amendments..........................................  28

Section 28.    Determination and Actions by the Board of Directors, etc............  29

Section 29.    Successors..........................................................  29

Section 30.    Benefits of this Agreement..........................................  29

Section 31.    Severability........................................................  29

Section 32.    Governing Law.......................................................  29

Section 33.    Counterparts........................................................  29

Section 34.    Descriptive Headings................................................  30
</TABLE>

                                       2
<PAGE>

                                RIGHTS AGREEMENT
                                ----------------

          Agreement, dated as of April 29, 1986, between UGI CORPORATION, a
Pennsylvania corporation (the "Company"), and MELLON BANK (EAST) N.A., a
national bank (the "Rights Agent").

          The Board of Directors of the Company has authorized and declared a
dividend of one right (a "Right") for each share of Common Stock, $4.50 par
value, of the Company ("Common Share") outstanding or held in the Company's
treasury at the close of business on May 19, 1986 (the "Record Date") and has
authorized the issuance of one Right for each Common Share that shall become
outstanding between the Record Date and the earlier of the Distribution Date and
the Expiration Date (as such terms are defined in Sections 3 and 7 hereof), each
Right representing the right to purchase one one-hundredth of a share of Series
A Junior Participating Preference Stock, without par value, of the Company
("Preference Share") upon the terms and subject to the conditions of this
Agreement.

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

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

          (a)  "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the Beneficial
Owner (as such term is hereinafter defined) of shares of the Company which
entitle the holder to cast 20% or more of the votes that all shareholders of the
Company would be entitled to cast generally in the election of directors, but
shall not include the Company or any of its Subsidiaries (as such term is
hereinafter defined), or any employee benefit plan of the Company or any of its
Subsidiaries or an entity holding Common Shares for or pursuant to the terms of
any such plan.

          (b)  "Affiliate", "Associate" and "control" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").

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

               (i)  which such Person or any of such Person's Affiliates or
          Associates, directly or indirectly, has the right to acquire (whether
          such right is exercisable immediately or only after the passage of
          time) pursuant to any agreement, arrangement or understanding, or upon
          the exercise of conversion rights, exchange rights, rights (other than
          the Rights at any time prior to the occurrence of a Triggering Event
          (as such term is hereinafter defined), but thereafter including Rights
          acquired from and after the Distribution Date (as

                                       1
<PAGE>

          defined in Section 3(a) below) other than Rights acquired pursuant to
          Sections 3(a), 11(i) and 23 hereof), warrants or options, or
          otherwise; provided, however, that a Person shall not be deemed the
                     --------  --------
          Beneficial Owner of, or to beneficially own, securities tendered
          pursuant to a tender or exchange offer made by or on behalf of such
          Person or any of such Person's Affiliates or Associates until such
          tendered securities are accepted for purchase;

               (ii)   which such Person or any of such Person's Affiliates
          or Associates directly or indirectly, has the right to vote or to
          dispose of or "beneficial ownership" (as determined pursuant to Rule
          13d-3 of the General Rules and Regulations under the Exchange Act) of,
          including pursuant to any agreement, arrangement or understanding;
          provided, however, that a Person shall not be deemed the Beneficial
          --------  -------
          Owner of, or to beneficially own, any security pursuant to this
          subparagraph (ii) if the agreement, arrangement or understanding to
          vote such security (A) arises solely from a revocable proxy given to
          such Person in response to a public proxy or consent solicitation made
          pursuant to, and in accordance with, the applicable rules and
          regulations of the Exchange Act and (B) is not also then reportable on
          Schedule 13D under the Exchange Act (or any comparable or successor
          report); or

               (iii)  which are beneficially owned, directly or indirectly, by
          any other Person (or any Affiliate or Associate thereof) with which
          such Person or any of such Person's Affiliates or Associates has any
          agreement, arrangement or understanding for the purpose of acquiring,
          holding, voting (other than pursuant to a revocable proxy as described
          in the proviso to subparagraph (ii) of this paragraph (c)) or
          disposing of any securities of the Company.

          (d) "Business Day" shall mean any day other than a Saturday, Sunday,
or a day on which banking institutions in the Commonwealth of Pennsylvania are
authorized or obligated by law or executive order to close.

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

          (f) "Common Shares" when used with reference to the Company shall mean
the shares of Common Stock of the Company.  At the date hereof, the par value of
such Common Shares is $4.50 per share.  "Common Shares" when used with reference
to any Person other than the Company shall mean the capital stock or other
equity securities or equity interests of such Person with the greatest voting
power or other power to control or direct the management of such Person, or, if
such Person is a Subsidiary of another Person, such capital stock or other
equity securities or equity interests of the Person which ultimately controls
such first-mentioned Person.

          (g) "Continuing Director" shall mean (i) any member of the Board of
Directors of the Company, while such Person is a member of the Board, who is not
an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a
representative of an Acquiring Person or of any such Affiliate or Associate, and
was a member of the Board prior to the date of

                                       2
<PAGE>

this Agreement, or (ii) any Person who subsequently becomes a member of the
Board, while such Person is a member of the Board, who is not an acquiring
Person, or an Affiliate or Associate of an Acquiring Person, or a representative
of an Acquiring Person or of any such Affiliate or Associate, if such Person's
nomination for election or election to the Board is recommended or approved by a
majority of the Continuing Directors.

          (h) "Person" shall mean any individual, firm, corporation,
partnership, limited partnership or other entity, and shall include any
successor (by merger or otherwise) of such entity.

          (i) "Preference Shares" shall mean shares of Series A Junior
Participating Preference Stock, without par value, of the Company.

          (j) "Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include a report
filed pursuant to Section 13(d) of the Exchange Act) by the Company or an
Acquiring Person that an Acquiring Person has become such.

          (k) "Subsidiary" of a Person shall mean (i) any Person of which a
majority of any class equity securities or other equity interests is
beneficially owned, directly or indirectly, by such Person and (ii) any Person
that such Person otherwise controls.

          (l) "Triggering Event" shall mean any event described in Sections
11(a)(ii)(A), (B) or (C) or 13(a) hereof.

         Where reference is made in this Agreement to sections of, and the
General Rules and Regulations under, the Securities Exchange Act of 1934, such
reference shall mean such sections and rules as amended from time to time and
any successor provisions thereto.

         Section 2.  Appointment of Rights Agent.  The Company hereby appoints
                     ---------------------------
the Rights Agent to act as agent for the Company and the holders of the Rights
in accordance with the terms and Conditions hereof, and the Rights Agent hereby
accepts such appointment. The Company may from time to time appoint such Co-
Rights Agents as it may deem necessary or desirable.

         Section 3.  Issue of Right Certificates.
                     ---------------------------

         (a) Until the earlier of (i) the close of business on the tenth day
after the Shares Acquisition Date or (ii) the close of business on the tenth day
after the date of the commencement of, or first public announcement of the
intent of any Person (other than the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or of any Subsidiary of the Company, or any
entity holding Common Shares for or pursuant to the terms of any such plan) to
commence, a tender or exchange offer upon consummation of which any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company, or any entity holding
Common Shares for or pursuant to the terms of any such Plan) would beneficially
own shares of the Company which

                                       3
<PAGE>

entitle the holder to cast 30% or more of the votes which all shareholders of
the Company would be entitled to cast generally in the election of directors
(the earlier of (i) and (ii) being herein referred to as the "Distribution
Date"), (x) the Rights will be represented (subject to the provisions of
paragraph (b) of this Section 3) by the certificates for Common Shares
registered in the names of the holders thereof (which certificates for Common
Shares shall also be deemed to be Right Certificates) and not by separate Right
Certificates, and (y) the Rights will be transferable only in connection with
the transfer of Common Shares. As soon as practicable after the Distribution
Date, the Rights Agent will send, by first-class, insured, postage prepaid mail,
to each record holder of Common Shares as of the close of business on the
Distribution Date, at the address of such holder shown on the records of the
Company, a Right Certificate, in substantially the form of Exhibit A hereto (a
"Right Certificate"), evidencing one Right for each Common Share so held,
subject to adjustment as provided herein. As of and after the Distribution Date,
the Rights will be represented solely by such Right Certificates.

         (b) The Company will send a copy of a Summary of Rights to Purchase
Preference Stock, in substantially the form attached hereto as Exhibit B (the
"Summary of Rights"), by first-class, postage prepaid mail, to each record
holder of Common Shares as of the close of business on the Record Date at the
address of such holder shown on the records of the Company. Until the
Distribution Date, the registered holders of the Common Shares shall also be the
registered holders of the Rights. Until the earlier of the Expiration Date (as
such term is defined in Section 7 hereof) or the Distribution Date, the transfer
of any certificate for Common Shares, with or without a copy of the Summary of
Rights attached thereto, shall also constitute the transfer of the Rights.

         (c) Certificates for Common Shares which are issued after the Record
Date but prior to the earlier of the Distribution Date or the Expiration Date
shall have impressed on, printed on, written on or otherwise affixed to them the
following legend:

     This certificate represents certain Rights as set forth in a Rights
     Agreement between UGI Corporation and Mellon Bank (East) N.A. dated as
     of April 29, 1986 (the "Rights Agreement"), the terms of which are
     incorporated herein by reference and a copy of which is on file at the
     principal executive offices of UGI Corporation. Under certain
     circumstances, as set forth in the Rights Agreement, such Rights will
     be represented by separate certificates and will no longer be
     represented by this certificate. UGI Corporation will mail to the
     holder of this certificate a copy of the Rights Agreement without
     charge after receipt of a written request therefor. Under certain
     circumstances, Rights beneficially owned by Acquiring Persons and
     their Affiliates and Associates (as defined in the Rights Agreement)
     and any subsequent holder may become null and void.

Until the earlier of the Expiration Date and the Distribution Date, the transfer
of any such certificate shall also constitute the transfer of the Rights.

                                       4
<PAGE>

          Section 4.  Form of Right Certificates.
                      --------------------------

          (a)  The Right Certificates (and the forms of election to purchase and
of assignment to be printed on the reverse thereof) shall be in substantially
the form set forth in Exhibit A hereto and may have such marks of identification
or designation and such legends, summaries or endorsements printed thereon as
the Company may deem appropriate and as are not inconsistent with the provisions
of this Agreement, or as may be required to comply with any applicable law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Rights may from time to time be listed, or to
conform to usage.  Subject to the provisions of Section 11 and 23 hereof, the
Right Certificates, whenever issued, shall be dated as of the Record Date, and
on their face shall entitle the holders thereof to purchase such number of
Preference Shares as shall be set forth therein at the price per share set forth
therein (the "Purchase Price"), but the number of such shares and the Purchase
Price shall be subject to adjustment as provided herein.

          (b)  Any Right Certificate issued pursuant to Sections 3(a), 11(i) or
23 hereof that represents Rights beneficially owned by:  (i) an Acquiring Person
or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an
Acquiring Person (or such Associate or Affiliate) who becomes a transferee after
the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person
(or such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which is part of a plan, arrangement or understanding which has a primary
purpose or effect of avoidance of Section 7(e) hereof, and any Right Certificate
issued pursuant to Sections 6 or 11 hereof upon transfer, exchange, replacement
or adjustment of any other Right Certificate referred to in this sentence, shall
contain (to the extent feasible) the following legend:

     The Rights represented by this Right Certificate are or were
     beneficially owned by a Person who was or became an Acquiring Person
     or an Affiliate or Associate of an Acquiring Person (as such terms are
     defined in the Rights Agreement). Accordingly, this Right Certificate
     and the Rights represented hereby may become void in the circumstances
     specified in Section 7(e) of such Agreement.

          Section 5.  Countersignature and Registration.  The Right Certificates
                      ---------------------------------
shall be executed on behalf of the Company by its Chairman of the Board,
President or any Vice President, either manually or by facsimile signature, and
have affixed thereto the Company's seal or a facsimile thereof which shall be
attested by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature.  The Right Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any purpose unless
so countersigned.  In case any officer of the Company who shall have signed any
of the Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent,
and issued and delivered by the Company with the same

                                       5
<PAGE>

force and effect as though the person who signed such Right Certificates
had not ceased to be such officer of the Company; and any Right Certificate
may be signed on behalf of the Company by any person who, at the actual
date of the execution of such Right Certificate, shall be a proper officer
of the Company to sign such Right Certificate, although at the date of the
execution of this Rights Agreement any such person was not such an officer.

          Following the Distribution Date, the Rights Agent will keep or cause
to be kept, at its principal office or offices designated as the appropriate
place for surrender of Right Certificates upon exercise or transfer, books for
registration and transfer of the Right Certificates issued hereunder.  Such
books shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.

          Section 6.  Transfer, Split Up, Combination and Exchange of Right
                      -----------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.  Subject
---------------------------------------------------------------------
to the provisions of Sections 4(b), 7(e) and 15 hereof, at any time after the
close of business on the Distribution Date, and at or prior to the close of
business on the Expiration Date, any Right Certificate or Certificates may be
transferred, split up, combined or exchanged for another Right Certificate or
Right Certificates, entitling the registered holder to purchase a like number of
Preference Shares (or, following a Triggering Event, Common Shares, other
securities or property, as the case may be) as the Right Certificate or Right
Certificates surrendered then entitled such holder to purchase.  Any registered
holder desiring to transfer, split up, combine or exchange any Right Certificate
shall make such request in writing delivered to the Rights Agent, and shall
surrender the Right Certificate or Right Certificates to be transferred, split
up, combined or exchanged at the principal office of the Rights Agent.  Neither
the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any such surrendered Right
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Right Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.  Thereupon the
Rights Agent shall, subject to Sections 4(b) and 7(e) hereof, countersign and
deliver to the person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested.  The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.

          Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered owner in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.

                                       6
<PAGE>

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

          (a)  Subject to Section 7(e) hereof, the registered holder of any
Right Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein including, without limitation, the restrictions on exercise set
forth in Sections 9(c), 11(a)(iii) and 24(a) hereof) in whole or in part at any
time after the Distribution Date upon surrender of the Right Certificate, with
the form of election to purchase on the reverse side thereof duly executed, to
the Rights Agent at the principal office or offices of the Rights Agent
designated for that purpose, together with payment of the Purchase Price for the
Preference Shares (or other securities or property as the case may be) as to
which the Rights are exercised, at or prior to the earlier of (i) the close of
business on April 29, 1996 (the "Final Expiration Date"), or (ii) the time at
which the Rights are redeemed as provided in Section 24 hereof (such earlier
time being herein referred to as the "Expiration Date").

          (b)  The Purchase Price for each one one-hundredth of a Preference
Share pursuant to the exercise of a Right shall initially be $75, shall be
subject to adjustment from time to time as provided in Sections 11 and 13 hereof
and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) below.

          (c)  Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the shares to be purchased and an amount equal
to any applicable transfer tax in cash, or by certified check or bank draft
payable to the order of the Company, the Rights Agent shall thereupon promptly
(i) requisition from any transfer agent of the Preference Shares (or make
available, if the Rights Agent is the transfer agent) certificates for the
number of Preference Shares to be purchased and the Company hereby irrevocably
authorizes its transfer agent to comply with all such requests, (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 15, (iii) promptly
after receipt of such certificates, cause the same to be delivered to or upon
the order of the registered holder of such Right Certificate, registered in such
name or names as may be designated by such holder and (iv) when appropriate,
after receipt promptly deliver such cash to or upon the order of the registered
holder of such Right Certificate.  In the event that the Company is obligated to
issue other securities (including Common Shares) of the Company, pay cash or
distribute other property pursuant to Section 11(a) hereof, the Company will
make all arrangements necessary so that such other securities, cash or other
property are available for the distribution by the Rights Agent, if and when
appropriate.

          (d)  In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be
countersigned by the Rights Agent and delivered to the registered holder of such
Right Certificate or to his duly authorized assigns, subject to the provisions
of Section 15 hereof.

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

                                       7
<PAGE>

Person (or such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which is part of a plan, arrangement or understanding which has a primary
purpose or effect the avoidance of this Section 7(e), shall become null and void
without any further action, and any holder of such Rights shall thereupon have
no rights whatsoever with respect to such rights, whether under any provision of
this Agreement or otherwise, from and after the occurrence of a Triggering
Event. The Company shall use all reasonable efforts to ensure that the
provisions of this Section 7(e) and Section 4(b) hereof are complied with, but
shall have no liability to any holder of Right Certificates or other Person as a
result of its failure to make any determinations with respect to an Acquiring
Person or its Affiliates, Associates or transferees hereunder.

          (f)  Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Right Certificate surrendered for
such exercise, and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.

          (g)  In the event that the number of Preference Shares which are
authorized by a securities certificate registered by the Pennsylvania Public
Utility Commission under Chapter 19 of the Pennsylvania Public Utility Code are
not sufficient to permit the exercise in full of the Rights in accordance with
this Section 7, the Company shall take the steps provided in Section 11(a)(iii)
hereof with the following substitutions:  (i) "Common Shares" shall mean
"Preference Shares" except that in clauses (D) and (xxx) "Common Shares" shall
mean "Common and Preference Shares"; (ii) "Authorization Period" shall mean
within 90 days of the Distribution Date; and (iii) "Adjustment Shares" shall
mean the number of Preference Shares for which a Right is exercisable.

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

                                       8
<PAGE>

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

          (a) The Company covenants and agrees that it will cause to be reserved
and kept available out of its authorized and unissued Preference Shares or
authorized and issued shares of Preference Shares held in its treasury, the
number of shares of Preference Shares that, except as provided in Section
11(a)(iii) hereof, will be sufficient to permit the exercise in full of all
outstanding Rights.  Upon the occurrence of a Triggering Event, the Company
covenants and agrees to comply with the foregoing sentence with respect to
Common Shares or other securities for which Rights may be exercised pursuant to
Sections 11(a)(ii) and (iii) hereof.

          (b) So long as the Preference Shares (and, following the occurrence of
a Triggering Event, Common Shares or other securities) issuable and deliverable
upon the exercise of the Rights may be listed on any national securities
exchange, the Company shall use its best efforts to cause, from and after such
time as the Rights become exercisable, all shares reserved for such issuance to
be listed on such exchange upon official notice of issuance upon such exercise.

          (c) The Company shall use its best efforts to (i) file, as soon as
practicable following the expiration of the Substitution of Value Period (as
such term is defined in Section 11(a)(iii) hereof) or, if the Company
successfully authorizes sufficient additional Common Shares pursuant to Section
11(a)(iii) hereof, as soon as practicable following the expiration of the
Authorization Period, a registration statement under the Securities Act of 1933
(the "Act"), with respect to the securities purchasable upon exercise of the
Rights on an appropriate form, (ii) cause such registration statement to become
effective as soon as practicable after such filing, and (iii) cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Act) until the Expiration Date.  The Company
will also take such action as may be appropriate under the securities or "blue
sky" laws of the various states.  The Company may temporarily suspend, for a
period of time not to exceed 90 days after the expiration of the Substitution of
Value Period or Authorization Period, as the case may be, the exercisability of
the Rights in order to prepare and file such registration statement.  Upon any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended.

          (d) The Company covenants and agrees that it will take all such action
as may be necessary to ensure that all Preference Shares (and, following the
occurrence of a Triggering Event, Common Shares or other securities) delivered
upon exercise of Rights shall, at the time of delivery of the certificates for
such shares (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable.

          (e) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges which may
be payable in respect of the issuance or delivery of the Right Certificates and
of any certificates for shares of Preference Shares (or Common Shares or other
securities, as the case may be) upon the exercise of Rights.  The Company shall
not, however, be required to pay any transfer tax which may be payable in
respect of any transfer or delivery of Right Certificates to a person other
than, or the

                                       9
<PAGE>

issuance or delivery of the shares of Preference Shares (or Common Shares or
other securities, as the case may be) in respect of a name other than that of,
the registered holder of the Right Certificates evidencing Rights surrendered
for exercise or to issue or deliver any certificates for shares of Preference
Shares (or Common Shares or other securities, as the case may be) in a name
other than that of the registered holder upon the exercise of any Rights until
such tax shall have been paid (any such tax being payable by the holder of such
Right Certificate at the time of surrender) or until it has been established to
the Company's satisfaction that no such tax is due.

          Section 10.  Preference Shares Record Date.  Each person in whose name
                       -----------------------------
any certificate for Preference Shares (or Common Shares or other securities, as
the case may be) is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of the Preference Shares (or Common
Shares or other securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered and payment of the Purchase Price (and any
applicable transfer taxes) was made; provided, however, that if the date of such
                                     --------  -------
surrender and payment is a date upon which the Preference Shares (or Common
Shares or other securities, as the case may be) transfer books of the Company
are closed, such person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preference Shares (or Common Shares or other securities, as the
case may be) transfer books of the Company are open.  Prior to the exercise of
the Rights evidenced thereby, the holder of a Right Certificate shall not be
entitled to any rights of a shareholder of the Company with respect to shares
for which the Rights shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.

          Section 11.  Adjustment of Purchase Price, Number and Kind of Shares
                       -------------------------------------------------------
or Number of Rights.  The Purchase Price, the number of and kind of shares
-------------------
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.

          (a)  (i)     In the event the Company shall at any time after the date
          of this Agreement (A) declare a dividend on the Preference Shares
          payable in Preference Shares, (B) subdivide the outstanding Preference
          Shares, (C) combine the outstanding Preference Shares into a smaller
          number of shares or (D) issue any shares of its capital stock in a
          reclassification of the Preference Shares (including any such
          reclassification in connection with a consolidation or merger in which
          the Company is the continuing or surviving corporation), except as
          otherwise provided in this Section 11(a) and Section 7(e), the
          Purchase Price in effect at the time of the record date for such
          dividend or of the effective date of such subdivision, combination or
          reclassification, and the number and kind of shares of capital stock
          issuable on such date, shall be proportionately adjusted so that the
          holder of any Right exercised after such time shall be entitled to
          receive the aggregate number and kind of shares of capital stock
          which, if such Right had been exercised immediately prior to such date
          and at a time when the Preference Shares transfer books of the Company
          were open, the holder would have owned

                                       10
<PAGE>

               upon such exercise and been entitled to receive by virtue of such
               dividend, subdivision, combination or reclassification. If an
               event occurs which would require an adjustment under both Section
               11(a)(i) and Section 11(a)(ii), the adjustment provided for in
               this Section 11(a)(i) shall be in addition to, and shall be made
               prior to, any adjustment required pursuant to Section 11(a)(ii).

                    (ii) In the event

                         (A)  any Acquiring Person or any Associate or Affiliate
                    of any Acquiring Person, at any time after the date of this
                    Agreement, directly or indirectly, shall (1) merge with and
                    into the Company or otherwise combine with the Company and
                    the Company shall be the continuing or surviving corporation
                    of such merger or combination and the Common Shares of the
                    Company shall remain outstanding and unchanged, (2) in one
                    or more transactions, transfer any assets to the Company in
                    exchange (in whole or in part) for shares of any class of
                    equity securities of the Company or any of its Subsidiaries
                    or for securities exercisable for or convertible into shares
                    of any class of equity securities of the Company or any of
                    its Subsidiaries or otherwise obtain from the Company or any
                    of its Subsidiaries, with or without consideration, any
                    additional shares of any class of equity securities of the
                    Company or any of its Subsidiaries or securities exercisable
                    for or convertible into shares of any class of equity
                    securities of the Company or any of its Subsidiaries (other
                    than as part of a pro rata distribution to all holders of
                    Common Shares), (3) sell, purchase, lease, exchange,
                    mortgage, pledge, transfer or otherwise acquire or dispose
                    of (in one or more transactions), to, from or with, as the
                    case may be, the Company or any of its Subsidiaries, assets
                    on terms and conditions less favorable to the Company or
                    such Subsidiary than the Company or such Subsidiary would be
                    able to obtain in arm's-length negotiation with an
                    unaffiliated third party, other than pursuant to a
                    transaction set forth in Section 13(a) hereof, (4) sell,
                    purchase, lease, exchange, mortgage, pledge, transfer or
                    otherwise acquire or dispose of (in one or more
                    transactions), to, from or with, as the case may be, the
                    Company or any of its Subsidiaries (other than incidental to
                    the lines of business, if any, engaged in as of the date
                    hereof between the Company and such Acquiring Person or
                    Associate or Affiliate) assets having an aggregate fair
                    market value of more than $5,000,000, other than pursuant to
                    a transaction set forth in Section 13(a) hereof, (5) receive
                    any compensation from the Company or any of its Subsidiaries
                    other than compensation for full-time employment as a
                    regular employee at rates in accordance with the Company's
                    and such Subsidiary's past practices, or (6) receive the
                    benefit, directly or indirectly (except proportionately as a
                    shareholder), of any loans, advances, guarantees, pledges or
                    other financial assistance or any tax credits or other tax
                    advantage provided by the Company or any of its
                    Subsidiaries, or

                                       11
<PAGE>

                    (B) any Person (other than the Company, any Subsidiary of
               the Company, any employee benefit plan of the Company or of any
               Subsidiary of the Company, or any Person or entity organized,
               appointed or established by the Company for or pursuant to the
               terms of any such plan), alone or together with its Affiliates
               and Associates, shall become the Beneficial Owner of shares of
               the Company which entitle the holder to cast 40% or more of the
               votes that all shareholders of the Company would be entitled to
               cast generally in the election of directors, other than pursuant
               to any transaction set forth in Section 13(a) hereof, or

                    (C) during such time as there is an Acquiring Person, there
               shall be any reclassification of securities (including any
               reverse stock split), or recapitalization of the Company, or any
               merger or consolidation of the Company with any of its
               Subsidiaries or any other transaction or series of transactions
               (whether or not with or into or otherwise involving an Acquiring
               Person or any Affiliate or Associate thereof) which has the
               effect, directly or indirectly, of increasing by more than 1% the
               proportionate share of the outstanding shares of any class of
               equity securities or of securities exercisable for or convertible
               into equity securities of the Company or any of its Subsidiaries
               which is directly or indirectly beneficially owned by any
               Acquiring Person or any Associate or Affiliate of any Acquiring
               Person, then, and in each such case, proper provision shall be
               made so that each holder of a Right, except as provided below and
               in Section 7(e), shall thereafter have a right to receive, upon
               exercise thereof at the then current Purchase Price in accordance
               with the terms of this Agreement, in lieu of Preference Shares,
               such number of Common Shares as shall equal the result obtained
               by (x) multiplying the then current Purchase Price by the then
               number of one one-hundredth of a Preference Share for which a
               Right is then exercisable and dividing that product by (y) 50% of
               the current market price per Common Share (determined pursuant to
               Section 11(d)) on the date of such first occurrence (such number
               of shares, the "Adjustment Shares").

               (iii)  In the event that the number of Common Shares which (x)
          are authorized by the Company's articles but not outstanding or
          reserved for issuance for purposes other than upon exercise of the
          Rights or (y) are authorized by a securities certificate registered by
          the Pennsylvania Public Utility Commission under Chapter 19 of the
          Pennsylvania Public Utility Code, are not sufficient to permit the
          exercise in full of the Rights in accordance with the foregoing
          subparagraph (ii), the Company shall take all such action as may be
          necessary (unless the Board of Directors of the Company shall
          determine in good faith that no such action would be successful (the
          "Authorization Determination")) to have authorized additional Common
          Shares for issuance upon exercise of the Rights; provided, however, if
                                                           --------
          the Company is unable to cause the authorization of a sufficient
          number of additional Common Shares within 90 days of the first
          occurrence of an event set forth in Section 11(a)(ii)(A), (B), and (C)
          hereof, (such

                                       12
<PAGE>

          90 day period, the "Authorization Period"), then, in the event the
          rights become so exercisable, the Company, with respect to each Right
          and to the extent necessary and permitted by applicable law and any
          agreements or instruments in effect on the Shares Acquisition Date to
          which the Company or any of its Subsidiaries is a party which remain
          in effect following such first occurrence, shall, upon the exercise of
          any such Right, make adequate provision to: (A) pay an amount in cash
          equal to, or issue Common Shares having an aggregate current market
          price equal to, the excess of (1) the product of (xx) the number of
          Adjustment Shares, multiplied by (yy) the current market price
          (determined pursuant to Section 11(d) hereof) per Common Share on the
          date of the first occurrence of an event set forth in Section
          11(a)(ii)(A), (B) and (C) above (such product, the "Current Value"),
          over (2) the Purchase Price, in lieu of issuing Common Shares and
          requiring payment therefor, or (B) issue debt or equity securities
          (other than Common Shares) having a value equal to the Current Value,
          where the value of such securities shall be determined by a nationally
          recognized investment banking firm selected by the Board of Directors
          of the Company, and requiring the payment of the Purchase Price, or
          (C) issue a number of, or units of, Preference Shares equal to the
          number of Adjustment Shares where the Board of Directors of the
          Company shall have deemed such shares or units to have the same value
          as the Common Shares (a "common stock equivalent"), and requiring the
          payment of the Purchase Price, or (D) deliver any combination of cash,
          property, Common Shares, common share equivalents or other securities
          having the requisite value as determined by a nationally recognized
          investment banking firm selected by the Board of Directors of the
          Company and requiring the payment of all or any requisite portion of
          the Purchase Price; provided further, however, if the Company shall
                              -------- -------
          not have made adequate provision to deliver value pursuant to clauses
          (A), (B), (C), or (D) above within 30 days following the earlier of
          (i) the date of the Authorization Determination, and (ii) the
          expiration of the Authorization Period (such 30-day period, the
          "Substitution of Value Period"), then the Company shall be obligated
          to deliver cash in accordance with clause (A) above. To the extent
          that the Company determines that some action need be taken pursuant to
          clauses (A), (B), (C), or (D) of the first proviso to the first
          sentence of this Section 11(a)(iii), the Company (xxx) shall provide,
          subject to Section 7(e) hereof, that all outstanding Rights shall be
          exercisable for the same combination of cash, property, Common Shares,
          common share equivalents and/or other securities, and (yyy) may
          suspend the exercisability of the Rights until the expiration of the
          Substitution of Value Period in order to seek any authorization of
          additional shares and/or to decide the appropriate form of
          distribution to be made pursuant to such first proviso and to
          determine the value thereof. In the event of any such suspension, the
          Company shall issue a public announcement stating that the
          exercisability of the Rights has been temporarily suspended.

          (b) In the case the Company shall fix a record date for the issuance
of rights, options or warrants to all holders of Preference Shares entitling
them (for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preference Shares (or securities convertible into
Preference Shares) at a price per Preference Share (or having a

                                       13
<PAGE>

conversion price per Preference Share, if a security convertible into Preference
Shares) less than the current per share market price of the Preference Shares
(as defined in Section 11(d)) on such record date, the Purchase Price to be in
effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of Preference Shares outstanding on such
record date plus the number of Preference Shares which the aggregate offering
price of the total number of Preference Shares so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price and the denominator of
which shall be the number of Preference Shares outstanding on such record date
plus the number of additional Preference 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 in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Preference Shares owned by or held for the account
of the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.

          (c)  In case the Company shall fix a record date for the making of a
distribution to all holders of Preference Shares (including any such
distribution made in connection with a merger in which the Company is the
continuing or surviving corporation) of evidences of indebtedness or assets
(other than a regular periodic cash dividend out of the earnings or retained
earnings of the Company or a dividend payable in Preference Shares) or rights,
options or warrants (excluding those referred to in Section 11(b)), the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the current market price per
Preference Share (as defined in Section 11(d)) on such record date, less the
fair market value (as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed with the
Rights Agent) of the portion of the assets or evidences of indebtedness so to be
distributed in respect of one Preference Share or of such rights, options or
warrants applicable to one Preference Share and the denominator of which shall
be such current market price per Preference 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 Purchase Price shall again be adjusted to
be the Purchase Price which would then be in effect if such record date had not
been fixed.

          (d)   (i)  For the purpose of any computation hereunder, other than
          computations made pursuant to Section 11(a)(iii)(A) hereof, the
          "current market price" per Common Share on any date shall be deemed to
          be the average of the daily closing prices per Common Share for 30
          consecutive Trading Days (as such term is hereinafter defined)
          immediately prior to such date, and for purposes of computations made
          pursuant to Section 11(a)(iii)(A) hereof, the "current market price"
          per Common Share on any date shall be deemed to be the average of the
          daily closing prices per Common Share for ten consecutive Trading Days

                                       14
<PAGE>

          immediately following such date; provided, however, that in the event
                                           --------
          that the current market price per Common Share is determined during a
          period following the announcement by the issuer of such Common Shares
          of (A) a dividend or distribution on such Common Shares payable in
          Common Shares or securities convertible into Common Shares (other than
          the Rights), or (B) any subdivision, combination or reclassification
          of such Common Shares, and prior to the expiration of the requisite 30
          Trading Day or ten Trading Day period, as set forth above, after the
          ex-dividend date for such dividend or distribution, or the record date
          for such subdivision, combination or reclassification, then, and in
          each such case, the "current market price" shall be properly adjusted
          to take into account ex-dividend trading.  The closing price for each
          day shall be the last sale price, regular way, or, in case no such
          sale takes place on such day, the average of the closing bid and asked
          prices, regular way, in either case as reported in the principal
          consolidated transaction reporting system with respect to securities
          listed or admitted to trading on the New York Stock Exchange or, if
          the Common Shares are not listed or admitted to trading on the New
          York Stock Exchange, as reported in the principal consolidated
          transaction reporting system with respect to securities listed on the
          principal national securities exchange on which the Common Shares are
          listed or admitted to trading or, if the Common Shares are listed or
          admitted to trading or, if the Common Shares are not listed or
          admitted to trading on any national securities exchange, the last
          quoted price or, if not so quoted, the average of the high bid and low
          asked prices in the over-the-counter market, as reported by the
          National Association of Securities Dealers, Inc. Automated Quotation
          System ("NASDAQ") or such other system then in use, or, if on any such
          date the Common Shares are not quoted by any such organization, the
          average of the closing bid and asked prices as furnished by a
          professional market maker making a market in the Common Shares
          selected by the Board of Directors of the Company.  If on any such
          date no market maker is making a market in the Common Shares, the fair
          value of such shares on such date as determined in good faith by the
          Board of Directors of the Company shall be used.  The term "Trading
          Day" shall mean a day on which the principal national securities
          exchange on which the Common Shares are listed or admitted to trading
          is open for the transaction of business or, if the Common Shares are
          not listed or admitted to trading on any national securities exchange,
          a Business Day.

               (ii)  For the purpose of any computation hereunder, the "current
          market price" per Preference Share shall be determined in the same
          manner as set forth above for a Common Share in clause (i) of this
          Section 11(d) (other than the next to last sentence thereof).  If the
          current market price per Preference Share cannot be determined in the
          manner provided above or if the Preference Shares are not publicly
          held or listed or traded in a manner described in clause (i) of this
          Section 11(d), the "current market price" per Preference Share shall
          be conclusively deemed to be an amount equal to 100 (as such number
          may be appropriately adjusted for such events as stock splits, stock
          dividends and recapitalizations with respect to the Common Shares
          occurring after the date of this Agreement) multiplied by the current
          market price per Common Share.  If neither the

                                       15
<PAGE>

          Common Shares nor the Preference Shares are publicly held or so listed
          or traded, "current market price" per share shall mean the fair value
          per share as determined in good faith by the Board of Directors of the
          Company, whose determination shall be described in a statement filed
          with the Rights Agent and shall be conclusive for all purposes.

          (e)  No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
provided, however, that any adjustments which by reason of this Section 11(e)
--------  -------
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 11 shall be made
to the nearest cent or to the nearest ten-thousandth of a share as the case may
be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment or (ii)
the Expiration Date.

          (f)  If as a result of an adjustment made pursuant to Sections 11(a)
or 13(a), the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock other than Preference Shares, thereafter the
number of such other shares so receivable upon exercise of any Right shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the shares contained
in Section 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m) and the
provisions of Sections 7, 9, 10 and 13 hereof with respect to the Preference
Shares shall apply on like terms to any such other shares.

          (g)  All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Preference Shares
purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.

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

          (i)  The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of Preference Shares issuable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of Preference Shares for which a
Right was exercisable for the number of Preference Shares for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest ten-thousandth) obtained by dividing the
Purchase Price in effect immediately

                                       16
<PAGE>

prior to adjustment of the Purchase Price by the Purchase Price in effect
immediately after adjustment of the Purchase Price. The Company shall make a
public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least ten days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 15 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the option
of the Company, the adjusted Purchase Price) and shall be registered in the
names of the holders of record of Right Certificates on the record date
specified in the public announcement.

          (j)  Irrespective of any adjustment or change in the Purchase Price or
the number of Preference Shares issuable upon the exercise of the Rights, the
Right Certificates theretofore and thereafter issued may continue to express the
Purchase Price per share and the number of shares which were expressed in the
initial Right Certificates issued hereunder.

          (k)  Before taking any action that would cause an adjustment reducing
the Purchase Price below the then stated value, if any, of the Preference Shares
(or other shares of capital stock) issuable upon exercise of the Rights, the
Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable Preference Shares (or such other shares of capital
stock) at such adjusted Purchase Price.

          (l)  In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date
the Preference Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preference Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
                                                                       --------
however, that the Company shall deliver to such holder a due bill or other
-------
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.

          (m)  Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any (i) consolidation or subdivision of the

                                       17
<PAGE>

Preference Shares, (ii) issuance wholly for cash of any of the Preference Shares
at less than the current market price, (iii) issuance wholly for cash of
Preference Shares or securities which by their terms are convertible into or
exchangeable for Preference Shares, (iv) stock dividends or (v) issuance of
rights, options or warrants referred to in this Section 11, hereafter made by
the Company to holders of its Preference Shares shall not be taxable to such
shareholders.

          (n)  Anything in this Agreement to the contrary notwithstanding, in
the event that the Company shall at any time after the Record Date and prior to
the Distribution Date (i) declare a dividend on the outstanding Common Shares
payable in Common Shares, (ii) subdivide the outstanding Common Shares, (iii)
combine the outstanding Common Shares into a smaller number of shares, or (iv)
issue any shares of its capital stock in a reclassification of the outstanding
Common Shares, the number of Rights then outstanding, or issued or delivered
thereafter but prior to the Distribution Date, shall be proportionately adjusted
so that the number of Rights following any such event shall equal the result
obtained by multiplying the number of Rights immediately prior to such even by a
fraction the numerator of which shall be the total number of Common Shares
outstanding immediately prior to the occurrence of the event and the denominator
of which shall be the total number of Common Shares outstanding immediately
following the occurrence of such event.

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

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

          (a)  In the event that, following the Shares Acquisition Date,
directly or indirectly, (x) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the Company), and the
Company shall not be the continuing or surviving corporation of such
consolidation or merger, (y) any Person (other than a Subsidiary of the Company)
shall consolidate with, or merge with or into, the Company, and the Company
shall be the continuing or surviving corporation of such consolidation or
merger, all or part of the outstanding Common Shares shall be changed into or
exchanged for stock or other securities of any other Person or cash or any other
property, or (z) the Company shall sell or otherwise transfer (or one or more of
its Subsidiaries shall sell or otherwise transfer), in one or more transactions,
assets or earning power aggregating more than 50% of the assets or earning power
of the Company and its Subsidiaries (taken as a whole) to any Person or Persons
(other than the Company or any Subsidiary of the Company), then, and in each
such case, proper provision shall be made so that: (i) each holder of a Right,
except as provided in Section 7(e) hereof, shall thereafter have the right to
receive, upon the exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, such number of validly authorized
and issued, fully paid, nonassessable and freely tradeable Common Shares (or
other securities or property as

                                       18
<PAGE>

provided for herein) of the Principal Party (as such term is hereinafter
defined), not subject to any rights of first refusal, as shall be equal to the
result obtained by (1) multiplying the then current Purchase Price by the number
of one one-hundredths of a Preference Share for which a Right is then
exercisable, and dividing that product by (2) 50% of the current market price
(determined pursuant to Section 11(d)(i) hereof) per Common Share of such
Principal Party on the date of consummation of such consolidation, merger, sale
or transfer; (ii) such Principal Party shall thereafter be liable for, and shall
assume, by virtue of such consolidation, merger, sale or transfer, all the
obligations and duties of the Company pursuant to this Agreement; (iii) the term
"Company" shall thereafter be deemed to refer to such Principal Party, it being
specifically intended that the provisions of Section 11 hereof (including,
without limitation, the provisions of Section 11(a)(iii) which relate to the
first occurrence of an event set forth in Section 13(a) hereof) shall apply only
to such Principal Party following the first occurrence of an event set forth in
this Section 13(a); and (iv) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares) in connection with the consummation of any such transaction as
may be necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its Common Shares
thereafter deliverable upon the exercise of the Rights.

          (b)  "Principal" Party" shall mean

               (i)  in the case of any transaction described in clause (x) or
          (y) of the first sentence of Section 13(a), the Person that is the
          issuer of any securities into which Common Shares are converted in
          such merger or consolidation, and if no securities are so issued, the
          Person that is the other party to such merger or consolidation; and

               (ii) in the case of any transaction described in clause (z) of
          the first sentence of Section 13(a), the Person that is the party
          receiving the greatest portion of the assets or earning power
          transferred pursuant to such transaction or transactions;

provided, however, that in any such case, (1) if the Common Shares of such
--------
Person are not at such time and have not been continuously over the preceding 12
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Shares of which are
and have been so registered, "Principal Party" shall refer to such other Person;
and (2) in case such Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Shares of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Shares having the greatest aggregate market value.

          (c)  The Company shall not consummate any such consolidation, merger,
sale or transfer unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that, as soon as practicable after the date of any
consolidation, merger or sale of assets mentioned in paragraph (a) of this
Section 13, the Principal Party will

                                       19
<PAGE>

               (i)   prepare and file a registration statement under the Act,
          with respect to the Rights and the securities purchasable upon
          exercise of the Rights on an appropriate form, and will use its best
          efforts to cause such registration statement to (A) become effective
          as soon as practicable after such filing and (B) remain effective
          (with a prospectus at all times meeting the requirements of the Act)
          until the Expiration Date; and

               (ii)  will deliver to holders of the Rights historical financial
          statements for the Principal Party and each of its Affiliates which
          comply in all respects with the requirements for registration on Form
          10 under the Exchange Act.

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

          Section 14.  Additional Covenants.
                       --------------------

          (a)  Notwithstanding any other provision of this Agreement, from and
after the Shares Acquisition Date, no adjustment to the Purchase Price, the
number of Preference Shares (or fractions of a Preference Share) for which a
Right is exercisable or the number of Rights outstanding shall be made or be
effective if such adjustment would have the effect of reducing or limiting the
benefits the holders of the Rights would have had absent such adjustment,
including, without limitation, the benefits under Sections 11(a)(ii) and 13,
unless the terms of this Agreement are amended so as to preserve such benefits.

          (b)  The Company covenants and agrees that, from and after the Shares
Acquisition Date, it shall not engage in any transaction described in clauses
(a), (b) or (c) of the first sentence of Section 13 of this Agreement if at the
time of or after such transaction there are any charter or by-law provisions or
any rights, warrants or other instruments or securities outstanding or
agreements in effect, or any other action taken, which would eliminate or
otherwise diminish the benefits intended to be afforded by the Rights.

          (c)  The Company covenants and agrees that, from and after the Shares
Acquisition Date, it will not, directly or indirectly, take any action the
purpose or effect of which is to eliminate or otherwise diminish the benefits
intended to be afforded by the Rights.

          Section 15.  Fractional Rights and Fractional Shares.
                       ---------------------------------------

          (a)  The Company shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section 11(n), or to
distribute Right Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders of the Right
Certificates with regard to which such fractional

                                       20
<PAGE>

Rights would otherwise be issuable, an amount in cash equal to the same fraction
of the current market value of a whole Right. For the purposes of this Section
15(a), the current market value of a whole Right shall be the closing price of
the Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price for any
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Rights are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading or, if
the Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if no so quoted, the average of the high bid
and low asked prices in the over-the-counter market, as reported by NASDAQ or
such other system then in use or, if on any such date the Rights are not quoted
by any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker, making a market in the Rights selected
by the Board of Directors of the Company. If on any such date no such market
maker is making a market in the Rights the fair value of the Rights on such date
as determined in good faith by the Board of Directors of the Company shall be
used.

          (b)  The Company shall not be required to issue fractions of
Preference Shares upon exercise of the Rights or to distribute certificates
which evidence fractional Preference Shares, other than fractions of Preference
Shares which are integral multiples of one one-hundredth of a Preference Share.
In lieu of fractional shares which are not integral multiples, the Company may
pay to the registered holders of Right Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one one-hundredth of a Preference Share. For purposes of
this Section 15(b), the current market value of one one-hundredth of a
Preference Share shall be one one-hundredth of the closing price of a Preference
Share (as determined pursuant to Section 11(d)(ii) hereof) for the Trading Day
immediately prior to the date of such exercise.

          (c)  Following the occurrence of a Triggering Event, the Company 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 fractional Common Shares, the Company may pay to the registered holders of
Right Certificates at the time such Rights are exercised as herein provided an
amount in cash equal to the same fraction of the current market value of one
Common Share. For purposes of this Section 15(c), the current market value of
one Common Share shall be the closing price of one Common Share (as determined
pursuant to of Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.

          (d)  The holder of a Right by the acceptance of the Rights expressly
waives the right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as permitted by this Section 15.

          Section 16.  Rights of Action.  All rights of action in respect of
                       ----------------
this

                                       21
<PAGE>

Agreement are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate without the
consent of the Rights Agent or of the holder of any other Right Certificate,
may, in the holder's own behalf and for the holder's own benefit, enforce, and
may institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, the holder's right to exercise the
Rights evidenced by such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of, the obligations of any Person subject to this Agreement.

          Section 17.  Agreement of Right Holders. Every holder of a Right by
                       --------------------------
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:

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

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

          (c)  the Company and the Rights Agent may deem and treat the person in
whose name the Right Certificate (or, prior to the Distribution Date, the Common
Shares certificate) is registered as the absolute owner thereof and of the
Rights evidenced thereby (notwithstanding any notations of ownership or writing
on the Right Certificates or the Common Shares certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent shall be affected by any notice to the
contrary.

          Section 18.  Right Certificate Holder Not Deemed a Shareholder. No
                       -------------------------------------------------
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preference Shares or
any other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.

          Section 19.  Concerning the Rights Agent. The Company agrees to pay
                       ---------------------------

                                       22
<PAGE>

to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.

          The Rights Agent shall be protected and shall incur no liability for
or in respect of any action taken, suffered or omitted by it in connection with
its administration of this Agreement in reliance upon any Right Certificate or
certificate for the Preference Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper person or persons.

          Section 20.  Merger or Consolidation or Change of Name of Rights
                       ----------------------------------------------------
Agent. Any corporation into which the Rights Agent or any successor Rights Agent
-----
may be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the corporate
trust business of the Rights Agent or any successor Rights Agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Rights Agent or any successor Rights Agent, shall be the successor to the Rights
Agent under this Agreement without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 22 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.

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

          Section 21.  Duties of Rights Agent. The Rights Agent undertakes the
                       ----------------------

                                       23
<PAGE>

duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:

          (a)  The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.

          (b)  Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
President, a Vice President, the Treasurer or the Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.

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

          (d)  The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except as to its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.

          (e)  The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any adjustment required under the provisions of Sections 11
or 13 hereof or responsible for the manner, method or amount of any such
adjustment or the ascertaining of the existence of facts that would require any
such adjustment (except with respect to the exercise of Rights evidenced by
Right Certificates after actual notice of any such adjustment); nor shall it by
any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Common or Preference Shares to be issued
pursuant to this Agreement or any Right Certificate or as to whether any Common
or Preference Shares will, when so issued, be validly authorized and issued,
fully paid and nonassessable.

          (f)  The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.

                                       24
<PAGE>

          (g)  The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the President, a Vice President, the Secretary
or the Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer.

          (h)  The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.

          (i)  The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.

          Section 22.  Change of Rights Agent. The Rights Agent or any successor
                       ----------------------
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common and Preference Shares by registered or certified mail, and to the
holders of the Right Certificates by first-class mail. The Company may remove
the Rights Agent or any successor Rights Agent upon 30 days' notice in writing,
mailed to the Rights Agent or successor Rights Agent, as the case may be, and to
each transfer agent of the Common and Preference Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of 30 days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent or
by the holder of a Right Certificate (who shall, with such notice, submit his
Right Certificate for inspection by the Company), then the registered holder of
any Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be (a) a corporation organized and
doing business under the laws of the United States or of any state of the United
States so long as such corporation is authorized to do business as a banking
institution in any state, in good standing, which is authorized under such laws
to exercise corporate trust powers and is subject to supervision or examination
by federal or state authority, which has an office, agency or drop in the State
of New York and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50,000,000 or (b) an Affiliate of a
corporation described in clause (a) of this sentence and controlled by such
corporation. After appointment, the successor Rights Agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed;

                                       25
<PAGE>

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
delivery any further assurance, conveyance, act or deed necessary for the
purpose. Not later than the effective date of any such appointment the Company
shall file notice thereof in writing with the predecessor Rights Agent and each
transfer agent of the Common and Preference Shares, and mail a notice thereof in
writing to the registered holders of the Right Certificates. Failure to give any
notice provided for in this Section 22, however, or any defect therein, shall
not affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.

          Section 23.  Issuance of New Right Certificates. Notwithstanding any
                       ----------------------------------
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change in the Purchase Price per share and the number or kind or class of
shares or other securities or property purchasable under the Right Certificates
made in accordance with the provisions of this Agreement.

          Section 24.  Redemption and Termination.
                       --------------------------

          (a)  The Board of Directors of the Company may, at its option, at any
time prior to 5:00 P.M., Philadelphia time, on the earlier of (i) the close of
business on the tenth day following the Shares Acquisition Date (or, if the
Shares Acquisition Date shall have occurred prior to the Record Date, the close
of the business on the tenth day following the Record Date), or (ii) the Final
Expiration Date, redeem all but not less than all the then outstanding Rights at
a redemption price of $.05 per Right, as such amount may be appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the "Redemption Price"); provided, however, if the Board of
                                        --------
Directors of the Company authorized redemption of the Rights in either of the
circumstances set forth in clauses (i) and (ii) below, then there must be
Continuing Directors then in office and such authorization shall require the
concurrence of a majority of such Continuing Directors: (i) such authorization
occurs on or after the time a Person becomes an Acquiring Person, or (ii) such
authorization occurs on or after the date of a change (resulting from a proxy or
consent solicitation) in a majority of the directors in office at the
commencement of such solicitation if any Person who is a participant in such
solicitation has stated (or, if upon the commencement of such solicitation, a
majority of the Board of Directors of the Company, have determined in good
faith) that such Person (or any of its Affiliates or Associates) intends to
take, or may consider taking, any action which would result in such Person
becoming an Acquiring Person or which would cause the occurrence of a Triggering
Event unless, concurrent with such solicitation, such Person (or one or more of
its Affiliates or Associates) is making a cash tender offer pursuant to a
Schedule 14D-1 filed with the Securities and Exchange Commission for all
outstanding Common Shares not beneficially owned by such Person (or by its
Affiliates or Associates); provided further, however, that if, following the
                           -------- -------
occurrence of a Shares Acquisition Date and following the expiration of the
right of redemption hereunder but prior to any Triggering Event, each of the
following shall have occurred and remain in effect: (i) a Person who is an
Acquiring Person shall have transferred or otherwise disposed of a number of
shares in a transaction, or series of transactions, which did not result in the
occurrence of a Triggering Event such that such Person

                                       26
<PAGE>

is thereafter a Beneficial Owner of shares of the Company which entitle the
holder to cast 10% or less of the votes that all shareholders of the Company are
entitled to cast generally in the election of directors, (ii) there are no other
Persons, immediately following the occurrence of the event described in clause
(i), who are Acquiring Persons, and (iii) the transfer or other disposition
described in clause (i) above was other than pursuant to a transaction, or
series of transactions, which directly or indirectly involved the Company or any
of its Subsidiaries; then the right of redemption shall be reinstated and
thereafter be subject to the provisions of this Section 24. Notwithstanding
anything contained in this Agreement to the contrary, the Rights shall not be
exercisable pursuant to Section 11(a)(ii) prior to the expiration of the
Company's right of redemption hereunder.

          (b)  Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, and without any further action
and without any notice, the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be to receive the
Redemption Price. Within ten days after the action of the Board of Directors
ordering the redemption of the Rights, the Company shall give notice of such
redemption to the holders of the then outstanding Rights by mailing such notice
to all such holders at their last addresses as they appear upon the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the Transfer Agent for the Common Shares. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the method by
which the payment of the Redemption Price will be made.

          Section 25.  Notice of Certain Events. In case the Company shall
                       ------------------------
propose (a) to pay any dividend payable in stock of any class to the holders of
Preference Shares or to make any other distribution to the holders of Preference
Shares (other than a regular periodic cash dividend out of earnings or retained
earnings of the Company) or (b) to offer to the holders of Preference Shares
rights or warrants to subscribe for or to purchase any additional Preference
Shares or shares of stock of any class or any other securities, rights or
options, or (c) effect any reclassification of its Preference Shares (other than
a reclassification involving only the subdivision of outstanding Preference
Shares), or (d) to effect any consolidation or merger into or with, or to effect
any sale or other transfer (or to permit one or more of its Subsidiaries to
effect any sale or other transfer), in one or more transactions, of more than
50% of the assets or earning power of the Company and its Subsidiaries (taken as
a whole) to, any other Person, or (e) to effect the liquidation, dissolution or
winding up of the Company, then, in each such case, the Company shall give to
each holder of a Right Certificate, in accordance with Section 26 hereof, a
notice of such proposed action, which shall specify the record date for the
purposes of such stock dividend, distribution of rights or warrants, or the date
on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the Preference Shares, if any such date
is to be fixed, and such notice shall be so given in the case of any action
covered by clause (a) or (b) above at least 20 days prior to the record date for
determining holders of Preference Shares for purposes of such action, and in the
case of any such other action, at least 20 days prior to the date of the taking
of such proposed action or the date of participation therein by the holders of
Preference Shares whichever shall be the earlier.

                                       27
<PAGE>

          In case any of the events set forth in Section 11(a)(ii) of this
Agreement shall occur, then, in any such case, (i) the Company shall as soon as
practicable thereafter give to each holder of a Right Certificate, in accordance
with Section 26 hereof, a notice of the occurrence of such event, which shall
specify the event and the consequences of the event to holders of Rights under
Section 11(a)(ii) hereof and (ii) all references in the preceding paragraph to
Preference Shares shall be deemed thereafter to refer to Common Shares and, if
appropriate, other securities.

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

                                 UGI Corporation
                                 Box 858
                                 Irwin Building, Route 363
                                 Valley Forge, PA 19482

                                 Attention:    Secretary

Subject to the provisions of Section 22 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:

                                 Mellon Bank (East) N.A.
                                 Four Mellon Bank Center
                                 1421 Chestnut Street, 16th Floor
                                 Philadelphia, PA  19101

                                 Attention:    Miss Sally J. Jones
                                               Vice President
                                               Corporate Trusts

Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.

          Section 27.  Supplements and Amendments. The Company and the Rights
                       --------------------------
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Right Certificates in order to cure any ambiguity, to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, or to make any other provisions
in regard to matters or questions arising hereunder (including but not limited
to extending the period of time during which the Rights may be redeemed,
provided that at the time of such amendment there is no Acquiring Person) which
the

                                       28
<PAGE>

Company and the Rights Agent may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Right Certificates.

          Section 28.  Determination and Actions by the Board of Directors, etc.
                       ---------------------------------------------------------
For all purposes of this Agreement, any calculation of the number of Common
Shares outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding Common Shares of which any Person
is the Beneficial Owner, shall be made in accordance with the last sentence of
Rule 13d-(d)(1)(i) of the General Rules and Regulations under the Exchange Act.
The Board of Directors of the Company (and, where specifically provided for
herein, the Continuing Directors) shall have the exclusive power and authority
to administer this Agreement and to exercise all rights and powers specifically
granted to the Board, or the Company (or, where specifically provided for
herein, the Continuing Directors), or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power to (i) interpret the provisions of this Agreement, and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights or to
amend the Agreement). All such actions, calculations, interpretations and
determinations (including, for purpose of clause (ii) below, all omissions with
respect to the foregoing) which are done or made by the Board (or, where
specifically provided for herein, by the Continuing Directors) in good faith,
shall (i) be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Right Certificates and all other parties, and (ii) not subject to
the Board or the Continuing Directors to any liability to the holders of the
Right Certificates.

          Section 29.  Successors. All the covenants and provisions of this
                       ----------
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.

          Section 30.  Benefits of this Agreement. Nothing in this Agreement
                       --------------------------
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Shares) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).

          Section 31.  Severability. If any provision of this Agreement is held
                       ------------
by a court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the provisions of this Agreement and the
application of such provision to other persons or circumstances, shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.

          Section 32.  Governing Law. This Agreement and each Right Certificate
                       -------------
issued hereunder shall be deemed to be a contract made under the laws of the
Commonwealth of Pennsylvania and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.

          Section 33.  Counterparts. This Agreement may be executed in any
                       ------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.

                                       29
<PAGE>

          Section 34.  Descriptive Headings. Descriptive headings of the several
                       --------------------
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.

                                       30
<PAGE>

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

                                              UGI CORPORATION

                                              By: /s/ James A. Sutton
                                                 --------------------------
                                                 Title: President

                                              MELLON BANK (EAST) N.A.

                                              By: /s/ S. Jones
                                                 --------------------------
                                                 Title: Vice President

                                       31
<PAGE>

                                                                       Exhibit A
                                                                       ---------

                          [Form of Right Certificate]

Certificate No. R-                                                _______ Rights

          NOT EXERCISABLE AFTER APRIL 29, 1996 OR EARLIER IF NOTICE OF
          REDEMPTION IS GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION,
          AT THE OPTION OF THE COMPANY, AT $.05 PER RIGHT ON THE TERMS
          SET FORTH IN THE RIGHTS AGREEMENT. [THE RIGHTS REPRESENTED
          BY THIS RIGHT CERTIFICATE WERE OR ARE BENEFICIALLY OWNED BY
          A PERSON WHO WAS AN ACQUIRING PERSON OR AN AFFILIATE OF OR
          AN ASSOCIATE OF AN ACQUIRING PERSON. THIS RIGHT CERTIFICATE
          AND THE RIGHTS REPRESENTED HEREBY MAY BECOME VOID IN THE
          CIRCUMSTANCES SPECIFIED IN SECTION 11(a)(ii) OF THE RIGHTS
          AGREEMENT.]*

                          Right Certificate

                           UGI CORPORATION

          This certifies that                  , or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement dated as of April 29, 1986 (the "Rights Agreement") between UGI
Corporation, a Pennsylvania corporation (the "Company"), and Mellon Bank (East)
N.A. (the "Rights Agent"), to purchase from the Company at any time after the
Distribution Date (as such term is defined in the Rights Agreement) and prior to
5:00 P.M. (Philadelphia time) on April 29, 1996, at the corporate trust office
of the Rights Agent, or its successors as Rights Agent, in Philadelphia,
Pennsylvania, one one-hundredth of a fully paid, non-assessable share of the
Series A Junior Participating Preference Stock (the "Preference Shares") of the
Company, at a purchase price of $75 per one one-hundredth of a share (the
"Purchase Price"), upon presentation and surrender of this Right Certificate
with the Form of Election to Purchase duly executed. The number of Rights
evidenced by this Right Certificate (and the number of shares which may be
purchased upon exercise thereof) set forth above, and the Purchase Price per
share set forth above, are the number and Purchase Price as of         , 198__,
based on the Preference Shares as constituted at such date.

         Upon the occurrence of a Triggering Event (as such term is defined in
the Rights Agreement), if the Rights evidenced by this Right Certificate are
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of
any such Acquiring Person (as such terms are defined in the Rights Agreement),
(ii) a transferee of any such Acquiring Person, Associate or

_________________
* The portion of the legend in brackets shall be inserted only if applicable.

                                       32
<PAGE>

Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such
Rights shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of any such Triggering
Event.

          As provided in the Rights Agreement, the Purchase Price and the number
of Preference Shares which may be purchased upon the exercise of the Rights
evidenced by this Right Certificate are subject to modification and adjustment
upon the happening of certain events, including Triggering Events.

          This Right 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 hereunder of the
Rights Agent, the Company and the holders of the Right Certificates.  Copies of
the Rights Agreement are on file at the above-mentioned office of the Rights
Agent.

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

          Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $.05 per Right.

          No fractional Preference Shares will be issued upon the exercise of
any Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preference Share), but in lieu thereof a
cash payment will be made, as provided in the Rights Agreement.

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

                                       33
<PAGE>

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

                                       34
<PAGE>

          WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of ______________ _____, 19___.

ATTEST:                                      UGI CORPORATION

________________________________             By:____________________________
Secretary                                    Title:

Countersigned:

MELLON BANK (EAST) N.A.

By:_____________________________
 Authorized Signature

                                       35
<PAGE>

                  [Form of Reverse Side of Right Certificate]

                              FORM OF ASSIGNMENT
                              ------------------

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

          FOR VALUE RECEIVED _________________________________________________
hereby sells, assigns and transfers unto______________________________________
______________________________________________________________________________
                 (Please print name and address of transferee)

____________________________________________________________________________

this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _______________ Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.

Dated: ____________________,  19___

                                             ________________________________
                                             Signature

Signature Guaranteed:

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

          The undersigned hereby certifies by checking the appropriate boxes
     that:

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

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

Dated: ________________, 19___

                                             ________________________________
                                             Signature

                                       36
<PAGE>

                                    NOTICE
                                    ------

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

                                       37
<PAGE>

                         FORM OF ELECTION TO PURCHASE
                         ----------------------------
                     (To be executed if holder desires to
                       exercise the Right Certificate.)

To UGI CORPORATION:

          The undersigned hereby irrevocably elects to exercise _____________
Rights represented by this Right Certificate to purchase the Preference Shares
(or such other securities of the Company or of any other person) issuable upon
the exercise of such Rights and requests that certificates for such shares be
issued in the name of:

Please insert social security or other identifying number

______________________________________________________________________________
                        (Please print name and address)

______________________________________________________________________________

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

______________________________________________________________________________
                        (Please print name and address)

______________________________________________________________________________

Dated:__________________, 19___

                                          ____________________________________
                                          Signature

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

Signature Guaranteed:

                                       38
<PAGE>

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

          The undersigned hereby certifies by checking the appropriate boxes
that:

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

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

Dated:_______________, 19___

                                                 _______________________________
                                                 Signature

                                       39
<PAGE>

                                                                       Exhibit B
                                                                       ---------

                SUMMARY OF RIGHTS TO PURCHASE PREFERENCE STOCK

          On April 29, 1986, the Board of Directors of UGI Corporation (the
"Company") declared a dividend distribution of one right (a "Right") for each
outstanding share of Common Stock, $4.50 par value (the "Common Shares"), of the
Company.  The distribution is payable on May 19, 1986 to the shareholders of
record at the close of business on that date.  Each Right entitles the
registered holder to purchase from the Company one one-hundredth of share of
Series A Junior Participating Preference Stock, without par value (the
"Preference Shares") at a price of $75 per one one-hundredth of share, subject
to adjustment (the "Purchase Price").  The description and terms of the Rights
are set forth in a Rights Agreement (the "Rights Agreement") between the Company
and Mellon Bank (East) N.A., as Rights Agent (the "Rights Agent").

          Until the earlier to occur of (i) ten days following a public
announcement that a person or group of affiliated or associated persons has
acquired beneficial ownership (as defined in the Rights Agreement) of 20% or
more of the outstanding voting shares (an "Acquiring Person") or (ii) ten days
following the commencement of or announcement of an intention to make a tender
offer or exchange offer upon consummation of which a person or a group would
beneficially own 30% or more of the outstanding voting shares (the earlier of
such dates being called the "Distribution Date"), the Rights will be
represented, with respect to any of the Common Share certificates outstanding as
of May 19, 1986, by such Common Share certificate with a copy of this Summary of
Rights attached thereto.  The Rights Agreement provides that, until the
Distribution Date, the Rights will be transferred with and only with the Common
Shares.  Until the Distribution Date (or earlier redemption or expiration of the
Rights), new Common Share certificates issued after May 19, 1986 upon transfer
or new issuance of the Common Shares will contain a notation incorporating the
Rights Agreement by reference. Until the Distribution Date (or earlier
redemption or expiration of the Rights), the transfer of any certificates for
Common Shares outstanding as of May 19, 1986, even without a copy of this
Summary of Rights attached thereto, will also constitute the transfer of the
Rights associated with the Common Shares represented by such certificate. As
soon as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of record
of the Common Shares as of the close of business on the Distribution Date and
such separate Right Certificates alone will evidence the rights.

          The Rights are not exercisable until the Distribution Date. The Rights
will expire on April 29, 1996, unless earlier redeemed by the Company as
described below.

          In the event that, at any time following the Distribution Date, (i)
the Company is the surviving corporation in a merger with an Acquiring Person
and its Common Shares are not changed or exchanged, (ii) a Person (other than
the Company and its affiliates) becomes the beneficial owner of more than 40% of
the then outstanding voting shares, (iii) an Acquiring Person engages in one or
more self-dealing transactions as set forth in Section 11(a)(ii)(A) of the
Rights Agreement, or (iv) during such time as there is an Acquiring Person, one
of the events set forth in Section 11(a)(ii)(C) occurs (e.g., a reverse stock
                                                        ----
split), the Rights Agreement provides that proper provision shall be made so
that each holder of a Right will thereafter have the right to

                                       40
<PAGE>

receive, upon exercise, Common Shares (or, in certain circumstances, cash,
property or other securities of the Company) having a value equal to two (2)
times the exercise price of the Right.

          In the event that, at any time following the Distribution Date, (i)
the Company engages in a merger or other business combination transaction in
which the Company is not the surviving corporation, (ii) the Company engages in
a merger or other business combination transaction with another person in which
the Company is the surviving corporation, but in which its Common Shares are
changed or exchanged, or (iii) 50% or more of the Company's assets or earning
power are sold or transferred, the Rights Agreement provides that proper
provision shall be made so that each holder of a Right shall thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, common stock of the acquiring company having a value equal to two
(2) times the exercise price of the Right. Notwithstanding any of the foregoing,
following the occurrence of any of the events set forth in this paragraph and
the preceding paragraph (the "Triggering Events"), any Rights that are, or
(under certain circumstances specified in the Rights Agreement) were,
beneficially owned by an Acquiring Person shall immediately become null and
void.

          The Purchase Price payable and the number of Preference Shares or
other securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of the Preference
Shares, (ii) upon the grant to holders of the Preference Shares of certain
rights, options or warrants to subscribe for Preference Shares or convertible
securities at less than the then current market price of the Preference Shares
or (iii) upon the distribution to holders of the Preference Shares of evidences
of indebtedness or assets (excluding regular periodic cash dividends out of
earnings or retained earnings or dividends payable in Preference Shares (other
than those referred to above).

          With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price.  No fractional shares will be issued and in lieu thereof,
an adjustment in cash will be made based on the market price of the Preference
Shares on the last trading date prior to the date of exercise.

          The Rights may be redeemed in whole, but not in part, at a price of
$.05 per Right (the "Redemption Price") as follows: (1) By the Board as a whole
at any time prior to the earlier of: (A) the date that a person or group
acquires beneficial ownership of 20% or more of the outstanding voting shares,
or (B) the date of a change in the majority of the Board resulting from a proxy
or consent solicitation if the solicitor (or any participant) indicates an
intention to become an Acquiring Person or to cause the occurrence of a
Triggering Event; and (2) By the Company with the concurrence of a majority of
the Continuing Directors at any time from the first occurrence of clause (A) or
(B) above until ten days after the Shares Acquisition Date or the Record Date,
whichever is later. Thereafter, the Company's right of redemption may be
reinstated if an Acquiring Person reduces his beneficial ownership to 10% or
less of the outstanding voting shares in a transaction or series of transactions
not involving the Company. Immediately upon the action of the Board of Directors
of the Company, with, where required, the concurrence of a majority of the
Continuing Directors, ordering redemption of the Rights, the

                                       41
<PAGE>

Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.

          The term "Continuing Directors" means any member of the Board of
Directors of the Company who was a member of the Board prior to the date of the
Rights Agreement, and any person who is subsequently elected to the Board if
such person is recommended or approved by a majority of the Continuing
Directors, but shall not include an Acquiring Person, or an affiliate or
associate of an Acquiring Person, or a representative of an Acquiring Person or
of an affiliate or associate of an Acquiring Person.

          Until a Right is exercised, the Right will confer upon the holder
thereof no rights as a shareholder of the Company, including, without
limitation, the right to vote or to receive dividends.

          The terms of the Rights may be amended by the Board of Directors of
the Company without the consent of the holders of the Rights, except that any
such amendment may not adversely affect the interests of the holders of Rights.
Provided there is no Acquiring Person, such amendment may extend the period of
time during which the Rights may be redeemed.

          A copy of the Rights Agreement is being filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company upon
written request to the Company at its principal place of business. This summary
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement, which is incorporated herein
by reference.

                                       42
<PAGE>

                              AMENDMENT NO. 1 TO

                               RIGHTS AGREEMENT
                               ----------------

     The date of this AMENDMENT NO. 1 is as of May 22, 1990. The parties are UGI
Corporation, a Pennsylvania corporation (the "Company"), and Mellon Bank (East)
N.A., a national bank (the "Rights Agent").

                                  BACKGROUND
                                  ----------

     The parties to this Amendment No. 1 entered into a Rights Agreement dated
as of April 29, 1986 (the "Rights Agreement").  Section 27 of the Rights
Agreement provides that the Company and the Rights Agent may amend the Rights
Agreement without the approval of any holders of Right Certificates in order to
cure any ambiguity, to correct or supplement defective or inconsistent
provisions or to make any other necessary or desirable provisions in regard to
questions thereunder which do not adversely affect the interests of the holders
of Right Certificates.  Having determined that subsection 11(n) of the Rights
Agreement is defective, the Company and the Rights Agent desire to amend that
subsection as provided in this Amendment No. 1.

     NOW THEREFORE, intending to be legally bound, the parties agree as follows:

     Section 1.  Amendment and Restatement.  Subsection 11(n) of the Rights
                 --------------------------
Agreement is hereby amended and restated in its entirety as follows:

     (n)  Anything in this Agreement to the contrary notwithstanding, in the
event that the Company shall at any time after the Record Date and prior to the
Distribution Date (i) declare a dividend on the outstanding Common Shares
payable in Common Shares, (ii) subdivide the outstanding Common Shares, (iii)
combine the outstanding Common Shares into a smaller number of shares, or (iv)
issue any shares of its capital stock in a reclassification of the outstanding
Common Shares, the number of Rights associated with each Common Share then
outstanding, or issued or delivered thereafter but prior to the Distribution
Date, shall be proportionately adjusted so that the number of Rights associated
with each Common Share following any such event shall equal the result obtained
by multiplying the number of Rights associated with each Common Share
immediately prior to such event by a fraction the numerator of which shall be
the total number of Common Shares outstanding immediately prior to the
occurrence of the event and the denominator of which shall be the total number
of Common Shares outstanding immediately following the occurrence of such event.

     Section 2.  Ratification.  All other terms and conditions of the Rights
                 ------------
Agreement, including all Exhibits to the Rights Agreement, shall remain
unaffected by this Amendment No. 1 and are ratified and confirmed.

     Section 3.  Definitions.  Capitalized terms used in this Amendment No. 1
                 -----------
but not defined shall have the meanings ascribed to those terms in the Rights
Agreement.

                                       1
<PAGE>

     IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be duly
executed as of the day and year first above written.

                                         UGI CORPORATION

     Date: May 23, 1990                  By: /s/ Charles L. Ladner
                                             ---------------------------
                                         Title: Senior Vice President

                                         MELLON BANK (EAST) N.A.

     Date: May 22, 1990                  By: /s/ S. Jones
                                             ----------------------------
                                         Title: Vice President

                                       2
<PAGE>

                              AMENDMENT NO. 2 TO

                               RIGHTS AGREEMENT
                               ----------------

     The date of this AMENDMENT NO. 2 is as of April 30, 1991. The parties are
UGI Corporation, a Pennsylvania corporation (the "Company"), and Mellon Bank
N.A., successor to Mellon Bank (the "Rights Agent").

                                  BACKGROUND
                                  ----------

     The parties to this Amendment No. 2 entered into a Rights Agreement dated
as of April 29, 1986, as amended by Amendment No. 1 dated as of May 22, 1990
(the "Rights Agreement").  Section 27 of the Rights Agreement provides that the
Company and the Rights Agent may amend the Rights Agreement without the approval
of any holders of Right Certificates in order to cure any ambiguity, to correct
or supplement defective or inconsistent provisions or to make any other
necessary or desirable provisions in regard to questions thereunder which do not
adversely affect the interests of the holders of Right Certificates.  Having
determined that subsection 1(c) of the Rights Agreement is defective, the
Company and the Rights Agent desire to amend that subsection as provided in this
Amendment No. 2.

     NOW THEREFORE, intending to be legally bound, the parties agree as follows:

     Section 1.  Amendment and Restatement.  Subsection 1(c) of the Rights
                 -------------------------
Agreement is hereby amended by adding the following proviso to the end thereof:

     Provided, however, that nothing in this Subsection 1(c) shall cause a
     person engaged in business as an underwriter of securities to be the
     "Beneficial Owner" of, or to "Beneficially Own," any securities acquired
     through such person's participation in good faith in a firm commitment
     underwriting until the expiration of 40 days after the date of such
     acquisition.

     Section 2.  Ratification.  All other terms and conditions of the Rights
                 ------------
Agreement, including all Exhibits to the Rights Agreement, shall remain
unaffected by this Amendment No. 2 and are ratified and confirmed.

     Section 3.  Definitions.  Capitalized terms used in this Amendment No. 2
                 -----------
but not defined shall have the meanings ascribed to those terms in the Rights
Agreement.

                                       1
<PAGE>

     IN WITNESS WHEREOF, the parties have caused this Amendment No. 2 to be duly
executed as of the day and year first above written.

                                        UGI CORPORATION

     Date: June 3, 1991                 By: /s/ Charles L. Ladner
                                           ---------------------------------
                                        Title: Senior Vice President

                                        MELLON BANK N.A.

     Date: June 3, 1991                 By: /s/ Sally J. Jones
                                           ----------------------------------
                                        Title:  Vice President

                                       2
<PAGE>

                              AMENDMENT NO. 3 TO

                               RIGHTS AGREEMENT
                               ----------------

     The date of this Amendment No. 3 is as of April 7, 1992. The parties are
UGI Corporation, a Pennsylvania corporation (the "Company"), and Mellon Bank
N.A., a national bank and successor to Mellon Bank (East) N.A. (the "Rights
Agent").

                                  BACKGROUND
                                  ----------

     The parties to this Amendment No. 3 entered into a Rights Agreement dated
as of April 29, 1986, as amended by Amendments Nos. 1 and 2 thereto dated as of
May 22, 1990 and as of April 30, 1991, respectively (as so amended, the "Rights
Agreement").  Section 27 of the Rights Agreement provides that the Company and
the Rights Agent may amend the Rights Agreement without the approval of any
holders of Right Certificates in order to cure any ambiguity, to correct or
supplement defective or inconsistent provisions or to make any other necessary
or desirable provisions in regard to questions thereunder which do not adversely
affect the interests of the holders of Right Certificates.  The Company is
proposing to create a holding company structure through a merger with a
subsidiary whereby the holders of Common Shares of the Company will become the
holders of Common Shares of a second subsidiary which will become the parent of
the Company holding all of its Common Shares.  Having determined that the Rights
Agreement is defective in not providing for such a transaction, the Company and
the Rights Agent desire to add a new subsection 13(d) as provided in this
Amendment No. 3.

     NOW, THEREFORE, the parties agree as follows:

     Section 1.  Amendment.  The Rights Agreement is hereby amended to add
                 ----------
subsection 13(d) as follows:

     (d) In the event that the Company shall merge with and into a Subsidiary
     of the Company and in connection with such merger all of the outstanding
     Common Shares of the Company shall be changed into or exchanged for Common
     Shares of another corporation (the "New Parent"), then the New Parent shall
     either (x) be liable for, and assume, all the obligations and duties of the
     Company pursuant to this Agreement in which case the term "Company" herein
     shall thereafter be deemed to refer only to the New Parent, or (y) enter
     into a new Rights Agreement containing all of the terms and conditions of
     this Agreement and issue new rights thereunder in substitution for the
     rights held hereunder so that the holders of Common Shares of the New
     Parent shall have the same rights with respect to the New Parent as the
     holders of the Common Shares of the Company had immediately prior to such
     merger.

     The Company shall not consummate any such merger unless prior thereto the
     Company and the New Parent shall have executed and delivered to the Rights
     Agent a supplemental agreement providing for the terms set forth in this
     paragraph or the New Parent shall have entered into a new Rights Agreement
     in accordance herewith.
<PAGE>

     The provisions of this paragraph shall similarly apply to successive
     mergers with Subsidiaries.

     Section 2.  Ratification.  All other terms and conditions of the Rights
                 -------------
Agreement, including all Exhibits to the Rights Agreement, shall remain
unaffected by this Amendment No. 3 and are ratified and confirmed.

     Section 3.  Definitions.  Capitalized terms used in this Amendment No. 3
                 ------------
but not defined shall have the meanings ascribed to those terms in the Rights
Agreement.

     IN WITNESS WHEREOF, the parties have caused this Amendment No. 3 to be duly
executed as of the day and year first above written.

                                          UGI CORPORATION

     Date: April 7, 1992                  By: /s/ George W. Westernman
                                             -------------------------------
                                          Title: Vice President

                                          MELLON BANK N.A.

     Date: April 7, 1992                  By: /s/ S. Jones
                                             -------------------------------
                                          Title: Vice President

                                       2
<PAGE>

                              AMENDMENT NO. 4 TO
                               RIGHTS AGREEMENT

     The date of this Amendment No. 4 is as of April 17, 1996.  The parties are
UGI Corporation, a Pennsylvania corporation (the "Company'), formerly New UGI
Corporation, and successor to UGI Utilities, Inc. ("UGI"), formerly UGI
Corporation, and Mellon Bank N.A., a national bank (the "Rights Agent"), and
successor to Mellon Bank (East) N.A. ("Mellon").

                                  BACKGROUND

     UGI and Mellon entered into a Rights Agreement dated as of April 29, 1986,
which was amended by Amendment Nos. 1, 2, and 3 dated as of May 22, 1990, April
30, 1991, and April 7, 1992, respectively (as so amended, the "Rights
Agreement").

     Pursuant to an Assumption Agreement dated April 7, 1992 between the Company
and Mellon, the Company assumed and agreed to discharge and perform all
liabilities and obligations of UGI under the Rights Agreement.  The effective
time of such assumption was April 10, 1992, the effective time of the Plan of
Merger which restructured UGI into a holding company system. As part of the
restructuring, holders of UGI Common Stock became holders of the Company's
Common Stock, as permitted by paragraph (d) of Section 13 of the Rights
Agreement, added by Amendment No. 3 thereto.

     Section 27 of the Rights Agreement provides that the Company and the Rights
Agent may amend the Rights Agreement without the approval of any holders of
Right Certificates in order to cure any ambiguity, to correct or supplement any
defective or inconsistent provisions or to make any other necessary or desirable
provisions in regard to matters or questions thereunder which do not adversely
affect the interests of the holders of Right Certificates.  The Company has
approved an extension of the term of the Rights until April 29, 2006 and a
Purchase Price of $120 per one one-hundredth of a Preference Share.  Having
determined that delaying the Final Expiration Date and setting a Purchase Price
of $120 is desirable, the Company and the Rights Agent hereby amend the Rights
Agreement as provided in this Amendment No. 4.

NOW THEREFORE, the parties agree as follows:

     Section 1.  Amendment to Section 7.  Paragraphs (a) and (b) of Section 7 of
the Rights Agreement, "Exercise of Rights; Purchase Price; Expiration Date of
Rights," are hereby amended to read in their entirety as follows:

     (a)  Subject to Section 7(e) hereof, the registered holder of any Right
          Certificate may exercise the Rights evidenced thereby (except as
          otherwise provided herein including, without limitation, the
          restrictions on exercise set forth in Sections 9(c), 11(a) (iii) and
          24(a) hereof) in whole or in part at any time after the Distribution
          Date upon surrender of the Rights Certificate, with the form of
          election to purchase on the reverse side thereof duly executed, to the
          Rights Agent at the principal office or offices of the Rights Agent
          designated for that purpose,

                                       1
<PAGE>

          together with payment of the Purchase Price for the Preference Shares
          (or other securities or property as the case may be) as to which the
          Rights are exercised, at or prior to the earlier of (i) the close of
          business on April 29, 2006 (the "Final Expiration Date"), or (ii) the
          time at which the Rights are redeemed as provided in Section 24 hereof
          (such earlier time being herein referred to as the "Expiration Date")

     (b)  The Purchase Price for each one one-hundredth of a Preference Share
          pursuant to the exercise of a Right shall initially be $120, shall be
          subject to adjustment from time to time as provided in Sections 11 and
          13 hereof and shall be payable in lawful money of the United States of
          America in accordance with paragraph (c) below.

     Section 2.  Amendment to Exhibit A.  Exhibit A to the Rights Agreement is
hereby amended to read in its entirety as follows:

                                                                       Exhibit A

                          [Form of Right Certificate]

Certificate No. R-                                                    ___ Rights

     NOT EXERCISABLE AFTER APRIL 29, 2006 OR EARLIER IF NOTICE OF
     REDEMPTION IS GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE
     OPTION OF THE COMPANY, AT $.05 PER RIGHT ON THE TERMS SET FORTH
     IN THE RIGHTS AGREEMENT. [THE RIGHTS REPRESENTED BY THIS RIGHT
     CERTIFICATE WERE OR ARE BENEFICIALLY OWNED BY A PERSON WHO WAS AN
     ACQUIRING PERSON OR AN AFFILIATE OF OR AN ASSOCIATE OF AN
     ACQUIRING PERSON. THIS RIGHT CERTIFICATE AND THE RIGHTS
     REPRESENTED HEREBY MAY BECOME VOID IN THE CIRCUMSTANCES SPECIFIED
     IN SECTION 11(a) (ii) OF THE RIGHTS AGREEMENT.]*

_______________
*    The portion of the legend in brackets shall be inserted only if applicable.

                                  2
<PAGE>

                          Right Certificate

                           UGI CORPORATION

     This certifies that            , or registered assigns, is the registered
owner of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights Agreement
dated as of April 29, 1986, as amended (the "Rights Agreement") between UGI
Corporation, a Pennsylvania corporation (the "Company"), and Mellon Bank N.A.
(the "Rights Agent"), to purchase from the Company at any time after the
Distribution Date (as such term is defined in the Rights Agreement) and prior to
5:00 p.m. (Philadelphia time) on April 29, 2006, at the corporate trust office
of the Rights Agent, or its successors as Rights Agent, in Philadelphia,
Pennsylvania, one one-hundredth of a fully paid, non-assessable share of the
Series A Junior Participating Preference Stock (the "Preference Shares") of the
Company, at a purchase price of $120 per one one-hundredth of a share (the
"Purchase Price"), upon presentation and surrender of this Right Certificate
with the Form of Election to Purchase duly executed. The number of Rights
evidenced by this Right Certificate (and the number of shares which may be
purchased upon exercise thereof) set forth above, and the Purchase Price per
share set forth above, are the number and Purchase Price as of [date], based on
the Preference Shares as constituted at such date.

     Upon the occurrence of a Triggering Event (as such term is defined in the
Rights Agreement), if the Rights evidenced by this Right Certificate are
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of
any such Acquiring Person (as such terms are defined in the Rights Agreement),
(ii) a transferee of any such Acquiring person, Associate or Affiliate, or (iii)
under certain circumstances specified in the Rights Agreement, a transferee of a
person who, after such transfer, became an Acquiring Person, or an Affiliate or
Associate of an Acquiring Person, such Rights shall become null and void and no
holder hereof shall have any right with respect to such Rights from and after
the occurrence of any such Triggering Event.

     As provided in the Rights Agreement, the Purchase Price and the number of
Preference Shares which may be purchased upon the exercise of the Rights
evidenced by this Right Certificate are subject to modification and adjustment
upon the happening of certain events, including Triggering Events.

     This Right 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 hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the above-mentioned office of the Rights
Agent.

     The Right Certificate, with or without other Right Certificates, upon
surrender at the corporate trust office of the Rights Agent, may be exchanged
for another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preference Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate

                                       3
<PAGE>

shall be exercised in part, the holder shall be entitled to receive upon
surrender hereof another Right Certificate or Right Certificates for the number
of whole Rights not exercised.

     Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Company at its option at a redemption
price of $.05 per Right.

     No fractional Preference Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preference Share), but in lieu thereof a
cash payment will be made, as provided in the Rights Agreement.

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

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

     WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of ___________________.

ATTEST:                                UGI CORPORATION

____________________________           By__________________________________
Secretary                                Title:

Countersigned:

MELLON BANK N.A.

By__________________________
  Title

                                       4
<PAGE>

                  [Form of Reverse Side of Right Certificate]

                              Form of Assignment
                              ------------------

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

          FOR VALUE RECEIVED _______________________ hereby sells, assigns and
transfers unto_________________________________________________________________
                 (Please print name and address of transferee)

_______________________________________________________________________________
this Right Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ______________ Attorney, to
transfer the within Right Certificate on the books of the within-name Company,
with full power of substitution.

Dated: __________________________

                                              _________________________________
                                              Signature

Signature Guaranteed:

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

          The undersigned hereby certifies by checking the appropriate boxes
that:

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

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

Dated:__________________________              _________________________________
                                              Signature

                                    NOTICE
                                    ------

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

                                       5
<PAGE>

                         FORM OF ELECTION TO PURCHASE
                         ----------------------------
                     (to be executed if holder desires to
                       exercise the Right Certificate.)

To UGI CORPORATION:

          The undersigned hereby irrevocably elects to exercise ______________
Rights represented by this Right Certificate to purchase the Preference Shares
(or such other securities of the Company or of any other person) issuable upon
the exercise of such Rights and requests that certificates for such shares be
issued in the name of:

Please insert social security
or other identifying number

_______________________________________________________________________________
                        (Please print name and address)

_______________________________________________________________________________

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

Please insert social security
or other identifying number

_______________________________________________________________________________
                        (Please print name and address)

_______________________________________________________________________________

Dated:__________________________

                                              _________________________________
                                              Signature

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

Signature Guaranteed:

                                       6

<PAGE>

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

          The undersigned hereby certifies by checking the appropriate boxes
that:

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

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

Dated:__________________________              _________________________________
                                              Signature

                        *    *    *    *    *    *    *

     Section 3. Ratification. All other terms and conditions of the Rights
Agreement shall remain unaffected by this Amendment No. 4 and are ratified and
confirmed.

     Section 4. Definitions. Capitalized terms used in this Amendment No. 4 but
not defined herein shall have the meanings ascribed to those terms in the Rights
Agreement.

     IN WITNESS WHEREOF, the parties have caused this Amendment No. 4 to be duly
executed as of the day and year first above written.

                                         UGI CORPORATION

                                         By: /s/ Brendan P. Bovaird
                                             --------------------------------
                                             Vice President

                                         MELLON BANK N.A.

                                         By: /s/ Grace Vicki
                                             --------------------------------
                                            Vice President

                                       7
<PAGE>

                              AMENDMENT NO. 5 TO
                               RIGHTS AGREEMENT

     The date of this Amendment No. 5 is as of August 18, 2000. The parties are
UGI Corporation, a Pennsylvania corporation (the "Company"), formerly New UGI
Corporation, and successor to UGI Utilities, Inc. ("UGI"), formerly UGI
Corporation, and Mellon Bank N.A., a national bank (the "Rights Agent"), and
successor to Mellon Bank (East) N.A. ("Mellon").

                                  BACKGROUND

     UGI and Mellon entered into a Rights Agreement dated as of April 29, 1986,
which was amended by Amendment Nos. 1, 2, 3 and 4 dated as of May 22, 1990,
April 30, 1991, April 7, 1992 and April 17, 1996, respectively (as so amended,
the "Rights Agreement").

     Pursuant to an Assumption Agreement dated April 7, 1992 between the Company
and Mellon, the Company assumed and agreed to discharge and perform all
liabilities and obligations of UGI under the Rights Agreement. The effective
time of such assumption was April 10, 1992, the effective time of the Plan of
Merger which restructured UGI into a holding company system. As part of the
restructuring, holders of UGI Common Stock became holders of the Company's
Common Stock, as permitted by paragraph (d) of Section 13 of the Rights
Agreement, added by Amendment No. 3 thereto.

     Section 27 of the Rights Agreement provides that the Company and the Rights
Agent may amend the Rights Agreement without the approval of any holders of
Right Certificates in order to cure any ambiguity, to correct or supplement any
defective or inconsistent provisions or to make any other necessary or desirable
provisions in regard to matters or questions thereunder which do not adversely
affect the interests of the holders of Right Certificates. The Company has
approved a change in the provisions of the Rights Agreement applicable to the
redemption of Rights so as to delete the requirement that a majority of
Continuing Directors concur in the authorization of the redemption of Rights in
certain circumstances. Having determined that omitting all requirements for
action on the part of Continuing Directors is desirable, the Company and the
Rights Agent hereby amend the Rights Agreement as provided in this Amendment No.
5.

     NOW THEREFORE, the parties agree as follows:

     Section 1.  Amendment to Section 1.  Paragraph (g) of Section 1 of the
Rights Agreement, "Continuing Director," is hereby deleted.
                   -------------------

     Section 2.  Amendment to Section 24.  Paragraph (a) of Section 24 of the
Rights Agreement, "Redemption and Termination," is hereby amended to read in its
                   --------------------------
entirety as follows:

     (a)  The Board of Directors of the Company may, at its option, at any time
prior to 5:00 P.M., Philadelphia time, on the earlier of (i) the close of
business on the tenth day following the Shares Acquisition Date (or, if the
Shares Acquisition Date shall have occurred prior to the Record Date, the close
of business on the tenth day following the Record Date), or (ii) the Final

                                       1
<PAGE>

Expiration Date, redeem all but not less than all the then outstanding Rights at
a redemption price of $.05 per Right, as such amount may be appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the "Redemption Price"); provided, however, that if, following
                                        --------
the occurrence of a Shares Acquisition Date and following the expiration of the
right of redemption hereunder but prior to any Triggering Event, each of the
following shall have occurred and remain in effect: (i) a Person who is an
Acquiring Person shall have transferred or otherwise disposed of a number of
shares in a transaction, or series of transactions, which did not result in the
occurrence of a Triggering Event such that such Person is thereafter a
Beneficial Owner of shares of the Company which entitle the holder to cast 10%
or less of the votes that all shareholders of the Company are entitled to cast
generally in the election of directors, (ii) there are no other Persons,
immediately following the occurrence of the event described in clause (i), who
are Acquiring Persons, and (iii) the transfer or other disposition described in
clause (i) above was other than pursuant to a transaction, or series of
transactions, which directly or indirectly involved the Company or any of its
Subsidiaries; then the right of redemption shall be reinstated and thereafter be
subject to the provisions of this Section 24. Notwithstanding anything contained
in this Agreement to the contrary, the Rights shall not be exercisable pursuant
to Section 11(a)(ii) prior to the expiration of the Company's right of
redemption hereunder.

     Section 3.  Amendment to Section 28. Section 28, "Determination and Actions
                                                       -------------------------
by the Board of Directors, etc." is hereby amended to read in its entirety as
------------------------------
follows:

     For all purposes of this Agreement, any calculation of the number of Common
Shares outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding Common Shares of which any Person
is the Beneficial Owner, shall be made in accordance with the last sentence of
Rule 13d-(d)(1)(i) of the General Rules and Regulations under the Exchange Act.
The Board of Directors of the Company shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board, or the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purpose of clause (ii) below,
all omissions with respect to the foregoing) which are done or made by the Board
in good faith, shall (i) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Right Certificates and all other parties, and
(ii) not subject the Board to any liability to the holders of the Right
Certificates.

     Section 4.  Ratification.  All other terms and conditions of the Rights
Agreement shall remain unaffected by this Amendment No. 5 and are ratified and
confirmed.

     Section 5.  Definitions.  Capitalized terms used in this Amendment No. 5
but not defined herein shall have the meanings ascribed to those terms in the
Rights Agreement.

                                       2
<PAGE>

     IN WITNESS WHEREOF, the parties have caused this Amendment No. 5 to be duly
executed as of the day and year first above written.

                                        UGI CORPORATION

                                        By: ________________________________
                                            Vice President

                                        MELLON BANK N.A.

                                        By: _________________________________
                                            Vice President

                                       3
<PAGE>

                             ASSUMPTION AGREEMENT
                             --------------------

     ASSUMPTION AGREEMENT dated April 7, 1992 between New UGI Corporation, a
Pennsylvania corporation ("Holdco"), and Mellon Bank N.A. ("Bank").

     WHEREAS, pursuant to a Plan of Merger (the "Plan") to be submitted for
approval by the shareholders of UGI Corporation, a Pennsylvania corporation
("UGI"), at a special meeting to be held on April 9, 1992, it is proposed that
the holders of Common Shares of UGI will become the holders of Common Shares of
Holdco;

     WHEREAS, UGI and Mellon Bank N.A. are parties to a Rights Agreement dated
as of April 29, 1986, as amended by Amendments Nos. 1, 2 and 3 thereto dated as
of May 22, 1990, April 30, 1991 and April 7, 1992, respectively (as so amended,
the "Rights Agreement");

     WHEREAS, the Board of Directors of Holdco has approved, effective upon the
effective time of the Plan as set forth therein (the "Effective Time"), the
assumption by Holdco of the liabilities and obligations of UGI under the Rights
Agreement (the "Assumed Obligations") and the substitution of Holdco for UGI for
all purposes thereunder; and

     WHEREAS, Holdco wishes to provide for such assumption of the Assumed
Obligations as provided in the Rights Agreement;

     NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound, Holdco hereby assumes and agrees to discharge and
perform all liabilities and obligations of UGI under the Rights Agreement,
effective upon the Effective Time.

     This instrument shall be governed by and interpreted and enforced in
accordance with the laws of the Commonwealth of Pennsylvania and shall be
binding upon Holdco, its successors and assigns.

     IN WITNESS WHEREOF, Holdco has caused this Assumption Agreement to be duly
executed on the date first above written and the Bank has joined therein to
evidence its acceptance of the assumption.

                                         NEW UGI CORPORATION

                                         By: /s/ James A. Sutton
                                            ------------------------------
                                            Title: President

                                         MELLON BANK N.A.

                                         By: /s/ S. Jones
                                            ------------------------------
                                            Title: Vice President

                                       1

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