Document:

exv10w11

 

Exhibit 10.11

INVESTMENT AGREEMENT

by and among

ORBIMAGE Inc.

and

[   ]

Dated November 16, 2004

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	PAGE
	Section 1. Definitions
	 	 	4	 
	Section 2. The Private Placement.
	 	 	6	 
	Section 3. The Rights Offering.
	 	 	7	 
	3.1 Subscription
	 	 	7	 
	3.2 Backstop
	 	 	7	 
	3.3 The Rights Offering.
	 	 	8	 
	Section 4. Representations and Warranties of the Company
	 	 	9	 
	4.1 Organization
	 	 	9	 
	4.2 Due Authorization
	 	 	9	 
	4.3 Due Execution; Enforceability
	 	 	9	 
	4.4 Board of Directors
	 	 	9	 
	4.5 Due Issuance and Authorization of Capital Stock
	 	 	10	 
	4.6 Capitalization
	 	 	10	 
	4.7 Consents
	 	 	10	 
	4.8 No Conflicts
	 	 	10	 
	4.9 Licenses
	 	 	11	 
	4.10 Government Contracts
	 	 	11	 
	4.11 Environmental
	 	 	11	 
	4.12 Compliance Laws and Regulations
	 	 	11	 
	4.13 SEC Filings
	 	 	11	 
	4.14 Bankruptcy Plan
	 	 	11	 
	4.15 Ownership of shares of Subsidiaries.
	 	 	11	 
	4.16 Financial Statements; Internal Controls.
	 	 	12	 
	4.17 Litigation.
	 	 	12	 
	4.18 Taxes.
	 	 	12	 
	4.19 Intellectual Property.
	 	 	13	 
	4.20 Title to Property; Leases.
	 	 	13	 
	4.21 Existing Indebtedness; Future Liens.
	 	 	13	 
	4.22 Status under Certain Statutes.
	 	 	13	 
	4.23 Insurance.
	 	 	14	 
	Section 5. Representations and Warranties of the Investor
	 	 	14	 
	5.1 Organization
	 	 	14	 
	5.2 Due Authorization.
	 	 	14	 
	5.3 Due Execution; Enforceability.
	 	 	14	 
	5.4 No Registration Under the Securities Act
	 	 	14	 
	5.5 Acquisition for Investment
	 	 	15	 
	5.6 Evaluation of Merits and Risks of Investment
	 	 	15	 
	5.7 Additional Information
	 	 	15	 
	5.8 U.S. Person
	 	 	15	 

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	 	 	PAGE
	Section 6. Additional Covenants
	 	 	15	 
	6.1 Listing
	 	 	15	 
	6.2 Cooperation with the Rights Offering
	 	 	15	 
	6.3 Legends
	 	 	15	 
	6.4 Further Assurances
	 	 	16	 
	Section 7. Conditions to Closing.
	 	 	16	 
	7.1 Conditions to Private Placement Obligations
	 	 	16	 
	7.2 Conditions to Investor’s Backstop Obligations
	 	 	17	 
	Section 8. Miscellaneous
	 	 	18	 
	8.1 Notices
	 	 	18	 
	8.2 Indemnification
	 	 	18	 
	8.3 Survival of Representations and Warranties etc
	 	 	19	 
	8.4 Assignment
	 	 	19	 
	8.5 Entire Agreement
	 	 	19	 
	8.6 Waivers and Amendments
	 	 	19	 
	8.7 Governing Law; Jurisdiction; Venue; Process
	 	 	19	 
	8.8 Counterparts
	 	 	20	 
	8.9 Headings
	 	 	20	 
	8.10 Severability
	 	 	20	 
	SCHEDULE 1
	 	 	1	 
	SCHEDULE 4.13
	 	 	2	 
	SCHEDULE 5.8
	 	 	3	 
	SCHEDULE 7
	 	 	4	 
	EXHIBIT A
	 	 	6	 
	EXHIBIT B
	 	 	7	 
	EXHIBIT C
	 	 	8	 

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INVESTMENT AGREEMENT

     THIS INVESTMENT AGREEMENT (this “Agreement”) is made this 16 day of
November, 2004 by and between ORBIMAGE Inc., a Delaware corporation (the
“Company”), and                    , a                     (the “Investor”).

W I T N E S S E T H:

     WHEREAS, the Company has entered into the NextView Contract with the U.S.
Government;

     WHEREAS, in connection with, and as a part of, the Company’s plan to meet
its need for additional liquidity to fund the Company’s performance under the
NextView Contract, the Investors (as defined below) desire and have severally
agreed to make additional investments in the Company, and the Investor desires
to make an investment in the amount of its Allocable Percentage (as defined
below) of such additional investments by the Investors, comprised of the
investments contemplated by this Agreement, and in connection therewith, to
enter into this Agreement;

     WHEREAS, the Company plans to issue and sell shares of Common Stock and
Warrants (one share of Common Stock together with one Warrant, an “Investment
Unit”) to holders of the debt and equity securities of the Company pursuant to:

          (i) a private placement (the “Private Placement”) of 3,250,000
Investment Units in aggregate to the Investor and certain other holders
of debt and/or equity securities of the Company (such holders and the
Investor collectively, the “Investors”),

          (ii) a rights offering (the “Rights Offering”) whereby the Company
will distribute, on a pro rata basis and at no charge, transferable
Rights (as defined below) to each holder of record of the Common Stock as
of a record date (the “Rights Offering Record Date”) to be set by the
Board of Directors, to purchase 3,250,000 Investment Units, and

          (iii) the Backstop Issuance, pursuant to which the Company will sell
and issue to the Investors, in addition to the Investment Units to be
sold to the Investors in the Private Placement, such number of Investment
Units as equals the number of Rights (if any) that are not exercised
pursuant to the Rights Offering;

     WHEREAS, the Investor has agreed to purchase, on or about the NextView
Contract Date (the “Private Placement Date”), its Allocable Percentage of the
3,250,000 Investment Units to be issued and sold by the Company pursuant to the
Private Placement;

     WHEREAS, in the Rights Offering, each holder of Common Stock will receive
its pro rata number of 3,250,000 rights (each, a “Right”), each to purchase one
Investment Unit (the “Basic Subscription Privilege”);

     WHEREAS, each holder of Rights who exercises its full Basic Subscription
Privilege will be entitled, on a pro rata basis, to subscribe for additional
Investment Units (the “Over-Subscription Privilege”), to the extent that other
holders of Rights do not exercise all of their Rights in the Basic Subscription
Privilege;

     WHEREAS, in order to facilitate the Rights Offering, and in consideration
of the Company granting to the Investor its Allocable Percentage of the
Backstop Fee Warrants, the Investor is willing, as

3

 

set forth herein, to purchase, upon consummation of the Rights Offering,
its Allocable Percentage of Investment Units, if any, to be sold and issued by
the Company in the Backstop Issuance;

     WHEREAS, the price per Investment Unit sold pursuant to the Private
Placement, the Rights Offering and the Backstop Issuance will be $10.00 (as
appropriately adjusted for any stock split, combination, reorganization,
recapitalization, stock dividend, stock distribution or similar event, the
“Subscription Price”);

     WHEREAS, the parties hereto acknowledge and agree that the investment
contemplated by this Agreement will constitute the Investor’s investment
contemplated by the Investor’s letter to the Company dated July 27, 2004, and
that this Agreement will replace and supersede such letter in all respects and
such letter shall hereafter be of no further force or effect;

     WHEREAS, the Board of Directors of the Company (the “Board of Directors”)
has determined that this Agreement, the issuance of Common Stock and Warrants
in each of the Private Placement, the Rights Offering and the Backstop
Issuance, and the issuance of the Backstop Fee Warrants, and the transactions
contemplated by this Agreement are advisable and in the best interests of the
Company and its stockholders;

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained in this Agreement, the parties hereto hereby agree as
follows:

Section 1. Definitions. For purposes of this Agreement, the following
terms will have the meaning set forth below:

     “Affiliate” of any Person means any Person that directly or indirectly
controls, or is under common control with, or is controlled by, such Person.
As used in this definition, “control” (including with its correlative meanings,
“controlled by” and “under common control with”) shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).

     “Allocable
Percentage” shall mean the percentage set forth in
Schedule 1
hereto.

     “Agreement” has the meaning assigned to it in the Preamble.

     “Backstop Fee Warrants” means the 1,000,000 Warrants in aggregate to be
granted by the Company to the Investors as consideration for the Investors’
respective commitments to purchase Investment Units in the Backstop Issuance,
if any.

     “Backstop Issuance” has the meaning assigned to it in Section 3.2.

     “Backstop Purchase Date” has the meaning assigned to it in Section 3.2(a).

     “Bankruptcy Plan” means the amended Plan of Reorganization filed by the
Company with the Bankruptcy Court of the Eastern District of Virginia on
September 15, 2003 and approved by such court on October 24, 2003.

     “Basic Subscription Privilege” has the meaning assigned to it in the
Preamble.

     “Board of Directors” has the meaning assigned to it in the Preamble.

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     “Business Day” means a day other than a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to close.

     “Common Stock” means the Company’s Common Stock, par value $0.01 per
share.

     “Company” has the meaning assigned to it in the Preamble.

     “Deposited Funds” has the meaning assigned to it in Section 2(b).

     “Deposited Securities” has the meaning assigned to it in Section 2(c).

     “Disbursing Agency Agreement” means the Disbursing Agency Agreement, dated
as of November 16, 2004, by and among the Company, the Disbursing Agent and the
Investors.

     “Disbursing Agent” means JPMorgan Chase Bank.

     “Disbursing Agent’s Bank Account” means JPMorgan Chase Bank, ABA Routing
No. 021000021, Credit A/C No. 507-89-7455, NY Special Subscription Account, For
Further Credit to A/C No. 10209431-Orbimage, Inc., Attention: Joseph Morales
(212) 623.5087.

     “Dollars” and “$” mean dollars in lawful currency of the United States of
America.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Existing Stock Options” means the 362,324 options to purchase Common
Stock, issued pursuant to the 2003 Employee Stock Incentive Plan dated as of
December 31, 2003.

     “Existing Registration Rights Agreement” means the Registration Rights
Agreement, dated December 31, 2003, among the Company, Crest Communications
Holdings LLC and certain holders of Common Stock, the Existing Warrants and
certain debt securities of the Company.

     “Existing Registration Statement” has the meaning assigned to it in
Section 4.12.

     “Existing Warrants” means the warrants issued on December 31, 2003
pursuant to which the holders of such warrants may purchase up to 318,947
shares of Common Stock at a price per share of $28.22 on or before December 31,
2007.

     “Indemnitees” has the meaning assigned to it in Section 8.2 hereof.

     “Investment Unit” has the meaning assigned to it in the Preamble.

     “Investor” has the meaning assigned to it in the Preamble.

     “Investors” has the meaning assigned to it in the Preamble.

     “Investors’ Counsel” shall mean Jones Day, 222 East 41st Street, New York,
New York 10017.

     “Losses” has the meaning assigned to it in Section 8.2 hereof.

     “Material Adverse Effect” means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company taken as a whole, whether or not arising from transactions in the
ordinary course of business, or (b) the ability of the Company to perform its

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obligations under this Agreement and the Registration Rights Agreement or
(c) the validity or enforceability of this Agreement or the Registration Rights
Agreement.

     “NextView Contract” means one or more agreements to be entered into
between the U.S. Government and the Company under the U.S. Government’s
NextView Second Vendor program pursuant to which (i) the Company will agree to
develop, manufacture and launch the OrbView-5 satellite, and the U.S.
Government will share the costs of such development, manufacturing and launch
in an amount up to approximately $237.4 million, and (ii) the U.S. Government
will agree to purchase images from the Company over a period of approximately
two years following the launch of the OrbView-5 satellite for an aggregate
amount of approximately $196 million.

     “NextView Contract Date” means the date on which the Company and the U.S.
Government each execute and deliver the NextView Contract.

     “Over-Subscription Privilege” has the meaning assigned to it in the
Preamble.

     “Person” includes all natural persons, corporations, business trusts,
limited liability companies, associations, companies, partnerships, joint
ventures and other entities, as well as governments and their respective
agencies and political subdivisions.

     “Preferred Stock” means the preferred stock, par value $0.01 per share, of
the Company.

     “Private Placement” has the meaning assigned to it in the Preamble.

     “Private Placement Date” has the meaning assigned to it in the Preamble.

     “Registration Rights Agreement” has the meaning assigned to it in Section
7.1(a)(ii) hereof.

     “Right” has the meaning assigned to it in the Preamble.

     “Rights Offering” has the meaning assigned to it in the Preamble.

     “Rights Offering Record Date” has the meaning assigned to it in the
Preamble.

     “Rights Offering Registration Statement” has the meaning assigned to it in
Section 3.3(a) hereof.

     “Securities” has the meaning assigned to it in Section 5.4.

     “Securities Act” has the meaning assigned to it in Section 4.6.

     “SEC” means the Securities and Exchange Commission.

     “Subscription Price” has the meaning assigned to it in the Preamble.

     “Warrant”
means a warrant, in the form of Exhibit C attached hereto, to
purchase shares of Common Stock at a price per share of $10.00 within five
years from the date of issuance of such warrant.

Section 2. The Private Placement.

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     (a) Subject to the terms and conditions hereof, the Investor agrees to
purchase its Allocable Percentage of Investment Units to be issued and sold in
the Private Placement, at a price per Investment Unit equal to the Subscription
Price.

     (b) On the Private Placement Date, the Investor will make available to the
Disbursing Agent in immediately available funds in Dollars not later than 12:00
p.m., New York City time on such Private Placement Date to the Disbursing
Agent’s Bank Account the entire amount of its Allocable Percentage of the
proceeds of the Private Placement (the “Deposited Funds”).

     (c) On the Private Placement Date, the Company shall deliver to the
Disbursing Agent (i) one or more certificates reserved for issuance in the name
of the Investor evidencing the Investor’s Allocable Percentage of Common Stock
to be issued in the Private Placement and (ii) one or more certificates
reserved for issuance in the name of the Investor evidencing the Investor’s
Allocable Percentage of Warrants to be issued in the Private Placement
(collectively, the “Deposited Securities”).

     (d) The parties hereto agree that the Deposited Funds and the Deposited
Securities shall be disbursed by the Disbursing Agent pursuant to the terms of
the Disbursing Agency Agreement, and that the disbursement of all or any part
of the Investor’s Allocable Percentage of the Deposited Funds to the Company
and of a corresponding amount of Deposited Securities to the Investor by the
Disbursing Agent in accordance with Section 6(b) or (c) of the Disbursing
Agency Agreement shall constitute the issuance and sale to the Investor of such
number of securities disbursed in exchange for payment therefor in the amount
of the Investor’s Allocable Percentage of such amount of funds disbursed. Upon
the disbursement of shares of Common Stock and Warrants to the Investor as set
forth in this paragraph (d), the Company shall register such shares of Common
Stock and Warrants in the name of the Investor or its designee.

     (e) On the Private Placement Date, in accordance with the terms of the
Disbursing Agency Agreement, the Company shall sell to the Investor, and the
Investor shall purchase, the Investor’s Allocable Percentage of 2,200,000
Investment Units.

     (f) On the Private Placement Date, the Company shall issue to the Investor
its Allocable Percentage of the Backstop Fee Warrants.

Section 3. The Rights Offering.

     3.1 Subscription. The Investor agrees to exercise all of its Rights, if
any, under its Basic Subscription Privilege in the Rights Offering, provided
however, that the Investor shall not be obligated to exercise its Rights under
this Section 3.1 unless (i) the Government Accountability Office (“GAO”) shall
not have recommended termination of the NextView Contract as requested in the
pending bid protest filed by New SI, LLC with GAO, (ii) the National
Geospatial-Intelligence Agency of the U.S. Government (“NGA”) shall not have
terminated or notified the Company that it intends to terminate the NextView
Contract, and (iii) the Company, acting pursuant to a directive from the NGA,
shall continue to perform its obligations under the NextView Contract. The
Investor may, but shall not be obligated to, subscribe for additional
Investment Units under its Over-Subscription Privilege, if any, in the Rights
Offering.

     3.2 Backstop. On the date (the “Backstop Purchase Date”) that is five
Business Days after the closing of the Rights Offering, pursuant to the terms
and subject to the conditions of this Agreement and the Rights Offering as set
forth in the Rights Offering Registration Statement, the Investor shall, on the
same terms as the Rights Offering, purchase its Allocable Percentage of such
number of Investment Units as equals all of the Rights that are not otherwise
subscribed for by the Rights holders under either their Basic Subscription
Privilege or their Over-Subscription Privilege, if any (the “Backstop
Issuance”).

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     3.3 The Rights Offering.

     (a) No later than thirty (30) days following the date of this Agreement,
the Company will prepare and file with the SEC a registration statement
(including each amendment and supplement thereto, the “Rights Offering
Registration Statement”) on Form S-1 (or, if Form S-1 is not then available to
the Company, on such form of registration statement as is then available to
effect a registration of securities), covering the issuance of the Rights and
the shares of Common Stock to be issued pursuant to the Rights Offering. The
Company will not permit any securities other than the Rights and the shares of
Common Stock to be sold pursuant to the Rights Offering to be included in the
Rights Offering Registration Statement. The Rights Offering Registration
Statement (and each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) will be provided to the Investor and to
Investors’ Counsel prior to its filing with or other submission to the SEC. The
Rights Offering Registration Statement will comply in all material respects
with the provisions of applicable federal securities laws. The Company
promptly will correct any information provided by it for use in the Rights
Offering Registration Statement if, and to the extent, that such information
becomes false or misleading in any material respect, and the Company will take
all steps necessary to cause the Rights Offering Registration Statement, as so
corrected, to be filed with the SEC and, upon its effectiveness, to be
disseminated to the distributees of the Rights, in each case as and to the
extent required by applicable federal securities laws. The Investor and
Investors’ Counsel will be given a reasonable opportunity to review and comment
upon the Rights Offering Registration Statement in each instance before it is
filed with the SEC. In addition, the Company will provide the Investor and
Investors’ Counsel with any written comments or other written communications
that the Company or its counsel receives from time to time from the SEC or its
staff with respect to the Rights Offering Registration Statement promptly after
the receipt of such comments or other communications. The Company will use its
reasonable best efforts to cause the Rights Offering Registration Statement to
be filed pursuant to this Section 3.3(a) and to be declared effective by the
SEC as soon as possible after the Rights Offering Registration Statement is
filed with the SEC, provided however that the Company shall procure that the
Rights Offering Registration Statement will not be declared effective prior to
the date that is ten (10) days following the disbursement of all of the
Deposited Funds and the Deposited Securities pursuant to the Disbursing Agency
Agreement.

     (b) Promptly following the effective date of the Rights Offering
Registration Statement, the Company will commence the Rights Offering. In the
Rights Offering, the Company will distribute, on a pro rata basis and at no
charge, Rights to each holder of record of Common Stock as of the Rights
Offering Record Date. In accordance with the terms of the Rights Offering,
each such Right shall be transferable. Each Right will entitle the holder to
purchase, at the election of the holder thereof, one Investment Unit at the
Subscription Price. The Rights Offering will remain open for at least thirty
(30) days. The Rights shall expire at 5:00 p.m., New York City time on the day
following such thirtieth (30th) day, except as such expiration date or time may
be extended by the Company or otherwise as may be required by applicable law.

     (c) Each holder of Rights who exercises in full its Basic Subscription
Privilege will be entitled to subscribe for additional Investment Units at the
Subscription Price to the extent that other holders of Rights do not exercise
all of their Rights in the Basic Subscription Privilege. If the number of
Investment Units remaining after the exercise of all Basic Subscription
Privileges is not sufficient to satisfy all Over-Subscription Privileges, the
holders of Rights who exercised their Basic Subscription Privileges in full
will be allocated Investment Units pro rata and in proportion to the number of
Investment Units purchased through the Basic Subscription Privilege. If the
pro rata allocation exceeds the number of Investment Units requested on the
subscription certificate, then each Rights holder will receive the number of
Investment Units requested, and the remaining Investment Units from such Rights
holder’s pro rata allocation will be divided among other Rights holders
exercising their Over-Subscription Privileges. If the pro rata allocation is
less than the number of Investment Units requested on the

8

 

subscription certificate, then the excess funds paid by that Rights holder
as the Subscription Price for the Investment Units not issued will be returned
to such Rights holder without interest or deduction.

     (d) The closing of the purchase of the Over-Subscription Privilege by each
Rights holder will occur at the time, for the Subscription Price, in the manner
and on the terms and conditions of the Rights Offering, as will be set forth in
the Rights Offering Registration Statement.

     (e) The Company will pay all expenses associated with the Private
Placement, Rights Offering Registration Statement, the Rights Offering, the
Backstop Issuance, and all other transactions contemplated hereunder,
including, without limitation, negotiation of the Investment Agreement, the
Registration Rights Agreement and the Form of Warrant, due diligence on the
NextView Contract, filing and printing fees, fees and expenses of any
subscription and information agents, counsel and accounting fees and expenses,
costs associated with clearing the shares of Common Stock and/or the Warrants
to be sold pursuant to the Rights Offering for sale under applicable state
securities laws and the Investor’s reasonable fees in connection with the
registration, including the reasonable attorneys’ fees and disbursements of
Investors’ Counsel (but not attorneys’ fees or disbursements of any other
counsel to the Investor or the Investors).

Section 4. Representations and Warranties of the Company. The Company
represents and warrants to the Investor, as of the date hereof, as follows:

     4.1 Organization. The Company (a) is duly organized, validly existing and
in good standing under the laws of the State of Delaware, (b) is duly qualified
or licensed to do business as a foreign corporation and is in good standing
under the laws of each jurisdiction where the nature of the property owned or
leased by it or the nature of the business conducted by it makes such
qualification or license necessary, except where the failure to be so qualified
or licensed would not reasonably be expected to either prevent or materially
delay its ability to perform its obligations hereunder, and (c) has all
corporate power and authority to own and operate its properties, to lease the
property it operates under lease and to conduct its business as now or
currently proposed to be conducted. The Company is in compliance with its
certificate of incorporation and by-laws.

     4.2 Due Authorization. The Company has the requisite corporate power and
authority to enter into, execute and deliver this Agreement, the Registration
Rights Agreement and the Disbursing Agency Agreement and to perform its
obligations hereunder and thereunder, including the issuance of the Common
Stock and the Warrants (and the shares of Common Stock issuable upon exercise
of the Warrants), and has taken all necessary corporate action required for the
due authorization, execution, delivery and performance by it of this Agreement,
the Registration Rights Agreement and the Disbursing Agency Agreement,
including the issuance of the Common Stock and Warrants (and the shares of
Common Stock issuable upon exercise of the Warrants).

     4.3 Due Execution; Enforceability. Each of this Agreement, the
Registration Rights Agreement and the Disbursing Agency Agreement has been duly
and validly executed and delivered by the Company and constitutes its valid and
binding obligation, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors’ rights and
remedies generally and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).

     4.4 Board of Directors. The Board of Directors has determined that the
Rights Offering, this Agreement and the transactions contemplated hereby and
thereby, including the terms of issuance of

9

 

the Common Stock and Warrants, are advisable and in the best interests of
the Company and its stockholders.

     4.5 Due Issuance and Authorization of Capital Stock. No shares of capital
stock of the Company are subject to preemptive rights or any other similar
rights of any or all of the stockholders of the Company. The shares of Common
Stock issued and delivered to the Investor pursuant to the terms hereof will
be, upon issuance, duly authorized, validly issued, fully paid and
non-assessable, and will be free from all taxes, liens, preemptive rights and
charges with respect to the issue thereof, and the Warrants issued and
delivered to the Investor pursuant to the terms hereof will be, upon issuance,
duly authorized. The shares of Common Stock issuable upon exercise of the
Warrants have been duly and fully reserved for issuance and, when issued upon
such exercise, will be validly issued, fully paid and non-assessable, and will
be free from all taxes, liens, preemptive rights and charges with respect to
the issue thereof.

     4.6 Capitalization. The authorized capital stock of the Company consists
solely of (a) 25,000,000 shares of Common Stock, par value $0.01 per share, of
which 6,481,230 shares are issued and outstanding, and (b) 5,000,000 shares of
Preferred Stock, par value $0.01 per share, none of which are outstanding. All
of the issued and outstanding shares of Common Stock have been duly authorized
and validly issued, are fully paid and non-assessable, are not subject to any
preemptive rights and were not issued in violation of the Securities Act of
1933, as amended (the “Securities Act”) or any other applicable laws (including
state “Blue Sky” laws). Other than the Existing Warrants and the Existing
Stock Options, the Company has not issued or granted any outstanding options,
warrants, rights or other securities convertible into or exchangeable or
exercisable for shares of its Common Stock or Preferred Stock. Other than the
Existing Registration Rights Agreement, there are no agreements or
circumstances of any kind which may obligate the Company to issue, purchase,
register for sale, redeem or otherwise acquire any of its Common Stock or
Preferred Stock. There are no declared or accrued and unpaid dividends or
distributions, or any other obligations owing by the Company, with respect to
the Common Stock or Preferred Stock.

     4.7 Consents. Except for such filings and approvals as may be required
under, and other applicable requirements of, federal securities laws and
applicable state securities or blue sky laws, to the best knowledge of the
Company, neither the execution, delivery or performance of this Agreement, the
Registration Rights Agreement or the Disbursing Agency Agreement, including the
issuance of the Common Stock and Warrants (and the shares of Common Stock
issuable upon exercise of the Warrants) by it, requires any consent of,
authorization by, exemption from, filing with, or notice to any governmental
entity or any other Person.

     4.8 No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Disbursing Agency
Agreement, including the issuance of the Common Stock and Warrants (and the
shares of Common Stock issuable upon exercise of the Warrants and the
consummation of the transactions contemplated hereunder and thereunder, will
not (a) conflict with or result in any breach of any provision of its
certificate of incorporation or by-laws, (b) conflict with or result in the
breach of the terms, conditions or provisions of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give rise to any right of termination, acceleration or cancellation under,
any material agreement, lease, mortgage, license, indenture, instrument or
other contract to which it is a party or by which any of its properties or
assets are bound, or (c) result in a violation of any law, rule, regulation,
order, judgment or decree (including, without limitation, federal and state
securities laws and regulations) applicable to it or by which any of its
properties or assets are bound or affected, except in the case of clauses (b)
or (c), where such conflicts or violations would not prevent or materially
delay its ability to consummate the transactions contemplated by this
Agreement, the Registration Rights Agreement and the Disbursing Agency
Agreement, including

10

 

the issuance of the Common Stock and the Warrants (and the shares of
Common Stock issuable upon exercise of the Warrants).

     4.9 Licenses. The Company possesses adequate licenses, certificates,
authorities or permits issued by appropriate governmental agencies or bodies,
including without limitation the U.S. Department of Commerce, the U.S. Federal
Communications Commission and International Telecommunications Union, necessary
to conduct the business now operated by it and has not received any notice of
proceedings relating to the revocation or modification of any such license,
certificate, authority or permit that, if determined adversely to the Company,
would individually or in the aggregate have or result in a Material Adverse
Effect.

     4.10 Government Contracts. The Company (i) is not in material default or
noncompliance with any contract or regulation relating to any contract with the
United States Government, except for such default or noncompliance as would not
be expected to have a Material Adverse Effect and (ii) has not been suspended
or debarred from doing business with the United States Government..

     4.11 Environmental. Except as disclosed in the Existing Registration
Statement, the Company is not in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any court,
domestic or foreign, relating to the use, disposal or release of hazardous or
toxic substances or relating to the protection or restoration of the
environment or human exposure to hazardous or toxic substances (collectively,
“environmental laws”), does not own or operate any real property contaminated
with any substance that is subject to any environmental laws, is not liable for
any off-site disposal or contamination pursuant to any environmental laws, and
is not subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim would individually or in the
aggregate have a Material Adverse Effect; and the Company is not aware of any
pending investigation which might lead to such a claim.

     4.12 Compliance Laws and Regulations. Except as disclosed in the Existing
Registration Statement, the Company is not in violation of any applicable law,
ordinance, statute, rule, regulation, decision or order of any governmental
agency or body or any court, domestic or foreign, applicable to the Company,
which violation would not, individually or in the aggregate, have a Material
Adverse Effect.

     4.13 SEC Filings. The Company has filed a registration statement on Form
10 (the “Existing Registration Statement”) with the SEC to register its issued
and outstanding shares of Common Stock pursuant to Section 12(g) of the
Exchange Act. Except as provided on Schedule 4.13 hereto, the Existing
Registration Statement does not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.

     4.14 Bankruptcy Plan. The Bankruptcy Plan became effective on December
31, 2003, and the Company has complied in all respects with the Bankruptcy
Plan.

     4.15 Ownership of shares of Subsidiaries.

     The Company has no Subsidiaries and does not own any equity interests of
another Person.

11

 

     4.16 Financial Statements; Internal Controls.

     (a) All of the financial statements (including in each case the related
schedules and notes) included in the Existing Registration Statement fairly
present in all material respects the financial position of the Company as of
the respective dates specified in such financial statements and the results of
its operations and cash flows for the respective periods so specified and have
been prepared in accordance with GAAP consistently applied throughout the
periods involved except as set forth in the notes thereto (subject, in the case
of any interim financial statements, to normal year-end adjustments). Since the
date of the most recent financial statements included in the Existing
Registration Statement, there has been no material adverse change in the
condition (financial or otherwise), earnings, business or properties of the
Company, taken as a whole, whether or not arising from transactions in the
ordinary course of business.

     (b) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management’s general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.

     4.17 Litigation.

     Except as disclosed in the Existing Registration Statement, there are no
actions, suits or proceedings pending or, to the knowledge of the Company,
threatened against or affecting the Company or any property of the Company in
any court or before any arbitrator of any kind or before or by any Governmental
Authority that, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.

     4.18 Taxes.

     Except as disclosed in the Existing Registration Statement, the Company
has filed all tax returns that are required to have been filed in any
jurisdiction, and has paid all taxes shown to be due and payable on such
returns and all other taxes and assessments levied upon it or its properties,
assets, income or franchises, to the extent such taxes and assessments have
become due and payable and before they have become delinquent, except for any
taxes and assessments (i) the amount of which is not individually or in the
aggregate material or (ii) the amount, applicability or validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which the Company has established adequate reserves in accordance
with GAAP. The Company knows of no basis for any other tax or assessment that
could reasonably be expected to have a Material Adverse Effect. The charges,
accruals and reserves on the books of the Company in respect of Federal, state
or other taxes for all fiscal periods are adequate. The Federal income tax
liabilities of the Company have been determined by the Internal Revenue Service
and paid for all fiscal years up to and including the fiscal year ended
December 31, 2003. There are no stamp or other issuance or transfer taxes or
duties or other similar fees or charges required to be paid in connection with
the execution, delivery and performance of this Agreement, the Registration
Rights Agreement or the Disbursing Agency Agreement by the Company or the
issuance, execution and delivery of the Common Stock and the Warrants pursuant
to this Agreement.

12

 

     4.19 Intellectual Property.

     (a) Except as disclosed in the Existing Registration Statement, the
Company either (i) owns or licenses or otherwise has the right to use or (ii)
with respect to intellectual property for use in performing its obligations
under the NextView Contract, intends to acquire, license or develop, all
intellectual property that is necessary for the operation of its business,
without infringement upon or conflict with the rights of any other Person with
respect thereto, except where the failure to so own or license or otherwise
obtain the right to use, individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect or where any such infringement or
conflict, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect. Except as disclosed in the Existing
Registration Statement, to the knowledge of the Company, no slogan or other
advertising device, product, process, method, substance, part or component, or
other material now employed, or now contemplated to be employed, in the
ordinary course of business by the Company infringes upon or conflicts with any
rights owned by any other Person, except where any such infringement or
conflict, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect, and no material claim or litigation regarding
any of the foregoing is pending or threatened.

     (b) Except as disclosed in the Existing Registration Statement, the
Company does not own any material trademarks, patents or copyrights and does
not have any material trademarks, patents or copyrights registered in, or the
subject of pending applications in, the United States Patent and Trademark
Office or any similar office or agency in any other country or any political
subdivision thereof. None of the material patents or copyrights necessary for
the operation of the business of the Company in the reasonable business
judgment of the Company have been abandoned or dedicated, except where such
abandonment or dedication, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.

     4.20 Title to Property; Leases.

     Except as disclosed in the Existing Registration Statement, the Company
has good and sufficient title to or otherwise has the right to use its
properties that individually or in the aggregate are material, including all
such properties reflected in the most recent audited balance sheet contained in
the Existing Registration Statement or purported to have been acquired by the
Company after said date (except as sold or otherwise disposed of in the
ordinary course of business). All leases that individually or in the aggregate
are material are valid and subsisting and are in full force and effect in all
material respects.

     4.21 Existing Indebtedness; Future Liens.

     The Company is not in default and no waiver of default is currently in
effect, in the payment of any principal or interest on any indebtedness of the
Company and no event or condition exists with respect to any indebtedness of
the Company that would permit (or that with notice or the lapse of time, or
both, would permit) one or more Persons to cause such indebtedness to become
due and payable before its stated maturity or before its regularly scheduled
dates of payment.

     4.22 Status under Certain Statutes.

     The Company is not subject to regulation under the Investment Company Act
of 1940, as amended, the Public Utility Holding Company Act of 1935, as
amended, the Interstate Commerce Act, as amended, or the Federal Power Act, as
amended.

13

 

     4.23 Insurance.

     There is in full force and effect one or more policies of insurance issued
by insurers of recognized responsibility, insuring the Company and its
properties and businesses against losses and risks as are customary in the case
of companies of established reputation engaged in the same or similar business
and similarly situated, and in such amount as is required under the Note and
Security Agreement, dated June 30, 2003, in respect of the Company’s Senior
Notes due 2008. The Company has not been refused any insurance coverage sought
or applied for, and the Company has no reason to believe that it will be unable
to renew its existing insurance coverage as and when the same shall expire upon
terms at least as favorable to those presently in effect, other than possible
increases in premiums that do not result from any act or omission of the
Company.

Section 5. Representations and Warranties of the Investor. The Investor
represents and warrants to the Company as of the date hereof as follows:

     5.1 Organization. The Investor is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization.

     5.2 Due Authorization. The Investor has the requisite power and authority
to enter into, execute and deliver this Agreement, the Registration Rights
Agreement and the Disbursing Agency Agreement and to perform its obligations
hereunder and thereunder and has taken all necessary action required for the
due authorization, execution, delivery and performance by it of this Agreement,
the Registration Rights Agreement and the Disbursing Agency Agreement.

     5.3 Due Execution; Enforceability. Each of this Agreement, the
Registration Rights Agreement and the Disbursing Agency Agreement has been duly
and validly executed and delivered by the Investor and constitutes its valid
and binding obligation, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors’ rights and
remedies generally and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).

     5.4 No Registration Under the Securities Act. The Investor understands
that the Common Stock and the Warrants (and the shares of Common Stock issuable
upon exercise of the Warrants) to be purchased by it pursuant to the terms of
this Agreement (the “Securities”) have not been registered, and that except as
provided in the Registration Rights Agreement, the Company shall not be
required to effect any registration, under the Securities Act of 1933, as
amended, or any state securities law and will be issued in reliance upon
exemptions contained in the Securities Act or interpretations thereof and in
the applicable state securities laws, and cannot be offered for sale, sold or
otherwise transferred unless pursuant to a registration statement or in a
transaction exempt from or not subject to registration under the Securities
Act.

14

 

     5.5 Acquisition for Investment. The Securities are being acquired under
this Agreement by the Investor in good faith solely for its own account, for
investment and not with a view toward resale or other distribution within the
meaning of the Securities Act; provided, however, that the disposition of the
Investor’s property shall at all times be under its control. The Securities
will not be offered for sale, sold or otherwise transferred by the Investor
except pursuant to a registration statement or in a transaction exempt from or
not subject to registration under the Securities Act and any applicable state
securities laws.

     5.6 Evaluation of Merits and Risks of Investment. The Investor has such
knowledge and experience in financial and business matters such that it is
capable of evaluating the merits and risks of its investment in the Securities
being acquired hereunder. The Investor is an “accredited investor” within the
meaning of Rule 501(a) under the Securities Act. The Investor understands and
is able to bear any economic risks associated with such investment (including,
without limitation, the necessity of holding the Securities for an indefinite
period of time, inasmuch as the Securities have not been registered under the
Securities Act).

     5.7 Additional Information. Each Investor acknowledges that it has been
afforded the opportunity to ask questions and receive answers concerning the
Company and to obtain additional information that it has requested to verify
the accuracy of the information contained herein. Notwithstanding the
foregoing, nothing contained herein shall operate to modify or limit in any
respect the representations and warranties of the Company or to relieve it from
any obligations to the Investor for breach thereof or the making of misleading
statements or the omission of material facts in connection with the
transactions contemplated herein.

     5.8 U.S. Person. The Investor certifies that (i) it is a natural person
resident in the United States or (ii) it is an entity organized or incorporated
under the laws of any state of the Unites States or the District of Columbia
and having its principle place of business in the United States or (ii) it is
an entity organized or incorporated, and has its principal place of business,
in the jurisdictions set forth in Schedule 5.8 hereto.

Section 6. Additional Covenants. The Company and the Investor hereby agree
to do the following:

     6.1 Listing. So long as the Company has Common Stock listed on any stock
exchange, prior to consummating the Rights Offering, the Company will take all
reasonable steps necessary, and pay all reasonable fees required, to list all
of the shares of Common Stock acquired by the Investor hereunder and the
Investment Units on such stock exchanges in the United States of America on
which the Common Stock is then listed. Following the initial listing of such
shares, the Company, consistent with the Board of Directors’ fiduciary duties,
will use its reasonable best efforts to maintain the listing of such shares
whenever the Common Stock is listed on any such exchange.

     6.2 Cooperation with the Rights Offering. The Investor will cooperate
with the Company and use its reasonable best efforts and take all commercially
reasonable actions in order to facilitate the successful consummation of the
Rights Offering. In particular, the Company is undertaking the Rights Offering
in reliance on the Investor’s commitment under Section 2, 3.1 and 3.2 hereof,
in each case, subject to the terms and conditions set forth in this Agreement,
to provide the Company with its Allocable Percentage of funds up to the
Aggregate Equity Financing Amount. The Company will cooperate with the
Investor and use its reasonable best efforts and take all commercially
reasonable actions in order to facilitate the successful consummation of the
Rights Offering.

     6.3 Legends. The Investor agrees with the Company that the certificates
evidencing the shares of Common Stock to be purchased under Sections 2 and 3.2
will bear the following legends:

15

 

     “THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR
TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SECURITIES OR THE SECURITIES ARE SOLD AND TRANSFERRED IN A
TRANSACTION THAT IS EXEMPT FROM OR NOT SUBJECT TO THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.”

     6.4 Further Assurances. From time to time after the date of this
Agreement, the parties hereto shall execute, acknowledge and deliver to the
other parties such other instruments, documents, and certificates and will take
such other actions as the other parties may reasonably request in order to
consummate the transactions contemplated by this Agreement.

Section 7. Conditions to Closing.

     7.1 Conditions to Private Placement Obligations.

     (a) The obligation of the Investor to purchase the Investment Units as set
forth in Section 2 shall be subject to the satisfaction of each of the
following conditions in each case, on the Private Placement Date:

          (i) NextView Contract. The Company and the U.S. Government shall have
executed and delivered to each other the NextView Contract, and the NextView
Contract shall be in full force and effect prior to the Private Placement Date.

          (ii) Registration Rights Agreement. The Company shall have executed and
delivered a Registration Rights Agreement (the “Registration Rights Agreement”)
in the form of Exhibit A hereto.

          (iii) Disbursing Agency Agreement. The Company and the Disbursing Agent
shall have executed and delivered a Disbursing Agency Agreement in the form of
Exhibit B hereto.

          (iv) Material Adverse Change. No event, development, change, or
circumstance shall have occurred that individually or in the aggregate shall
have had, or that individually or in the aggregate would reasonably be expected
to have, a Material Adverse Effect.

          (v) Required Consents. All approvals necessary for the consummation of
the transactions contemplated by this Agreement, shall have been obtained.

          (vi) Backstop Fee Warrants. The Company shall have issued and delivered
to the Investors the Backstop Fee Warrants, as contemplated by Section 2(d)
hereof.

          (vii) Other Conditions. The Company shall have performed each of its
obligations hereunder required to be performed by it at or prior to the Private
Placement Date, and the representations and warranties of the Company contained
in this Agreement shall be true and correct at and as of the Private Placement
Date as if made at and as of such Private Placement Date.

          (viii) Officer’s Certificate. The Company shall have delivered to the
Investor an officer’s certificate dated as of the Private Placement Date (i)
attaching copies of resolutions duly adopted by the board of directors of the
Company, authorizing and approving its performance of the transaction
contemplated hereby and the execution and delivery of this Agreement and the
Registration Rights

16

 

Agreement and (ii) certifying that the conditions set forth in Section
7.1(a)(i) through (vi) have been satisfied.

          (ix) General Counsel Certificate; Legal Opinion. The Company shall have
delivered a certificate from its General Counsel and shall have caused its
counsel to deliver to the Investor a legal opinion dated as of the Private
Placement Date addressing the matters set forth in Schedule 7.

     (b) The obligation of the Company to issue and sell to the Investors the
Investment Units as set forth in Section 2 shall be subject to the satisfaction
each of the following conditions, in each case, on the Private Placement Date:

          (i) Registration Rights Agreement. The Investors shall have executed and
delivered the Registration Rights Agreement in the form of
Exhibit A hereto.

          (ii) Disbursing Agency Agreement. The Company and the Disbursing Agent
shall have executed and delivered the Disbursing Agency Agreement in the form
of Exhibit B hereto.

     7.2 Conditions to Investor’s Backstop Obligations. The obligation of the
Investor to purchase the Common Stock as set forth in Sections 3.1 and 3.2
shall be subject to the satisfaction of each of the following conditions, in
each case, on the Backstop Purchase Date:

     (a) Private Placement. The Private Placement shall have been consummated;
provided that the Investor may not assert the condition set forth in this
Section 7.2(a) if the failure of such condition to be satisfied resulted
primarily from the failure of the Investor to comply with one or more of its
obligations under this Agreement.

     (b) Material Adverse Change. No event, development, change or
circumstance shall have occurred that individually or in the aggregate shall
have had, or that individually or in the aggregate would reasonably be expected
to have, a Material Adverse Effect.

     (c) Rights Offering. The Company shall have consummated the Rights
Offering.

     (d) Other Conditions. (i) The Company shall have performed each of its
obligations hereunder required to be performed by it at or prior to the
Backstop Purchase Date, and (ii) the representations and warranties of the
Company contained in this Agreement shall be true and correct at and as of the
Backstop Purchase Date as if made at and as of such Backstop Purchase Date,
except for such breaches that individually or in the aggregate shall not have
or would not result in a Material Adverse Effect.

     (e) Officer’s Certificate. The Company shall have delivered to the
Investor an officer’s certificate dated as of the Backstop Purchase Date
certifying that (i) the resolutions duly adopted by the Board of Directors of
the Company, authorizing and approving its performance of the transactions
contemplated hereby and the execution and delivery of this Agreement and the
Registration Rights Agreements remain in full force and effect and (ii) the
conditions set forth in Section 7.2(a) through (d) have been satisfied.

17

 

     (f) General Counsel Certificate; Legal Opinion. The Company shall have
delivered a certificate from its General Counsel and shall have caused its
counsel to deliver to the Investor a legal opinion dated as of the Backstop
Purchase Date addressing the matters set forth in Schedule 7.

     Section 8. Miscellaneous

     8.1 Notices. Any notice or other communication required or which may be
given pursuant to this Agreement will be in writing and either delivered
personally to the addressee, telecopied to the addressee, sent via electronic
mail or mailed, certified or registered mail, postage prepaid, and will be
deemed given when so delivered personally, telecopied, or sent via electronic
mail, or, if mailed, five (5) days after the date of mailing, as follows:

     (i) if to the Investor, to:

          Jones Day

          222 East
41st Street

          New York, NY 10022

          Attention: Kevin D. Cramer

          Facsimile: (212) 755-7306

          Email: kdcramer@jonesday.com

     (ii) if to the Company, to:

          ORBIMAGE Inc.

          21700 Atlantic Boulevard

          Dulles, VA 20166

          Attention: General Counsel

          Facsimile: (703) 480-7544

          Email:warren.william@orbimage.com

     with a copy to:

          Latham & Watkins LLP

          555 Eleventh Street, N.W., Suite 1000

          Washington, DC 20001

          Attn: Bill O’Neill

          Facsimile: 202-637-2201

          Email: bill.o’neill@lw.com

     8.2 Indemnification. The Company will indemnify, save and hold harmless
the Investor, and all of its respective directors, officers, stockholders,
employees, partners, members, managers, representatives, Affiliates, attorneys
and agents and all of its respective heirs, successors, legal administrators
and permitted assigns, each Person who controls such Investor (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agents and employees of any such controlling
Person (the “Indemnitees”), from and against all losses, claims, damages,
liabilities, costs (including, without limitation, the costs of investigation
and reasonable attorneys’ fees) and expenses (collectively, “Losses”), as
incurred by any or all of the Indemnitees in connection with or arising from
the execution, delivery and performance by the Company of this Agreement, the
Rights Offering, the Private Placement and any other related transaction,
except to the extent of any willful misconduct or gross negligence of the
Indemnitees. This indemnification provision

18

 

will be in addition to the rights of each and all of the Indemnitees to
bring an action against the Company for breach of any term of this Agreement.
The Company acknowledges and agrees that each and all of the Indemnitees shall
be treated as third party beneficiaries with rights to bring an action against
the Company under this Section 8.2.

     8.3 Survival of Representations and Warranties etc. All representations
and warranties made in, pursuant to or in connection with this Agreement will
survive the execution and delivery of this Agreement indefinitely,
notwithstanding any investigation at any time made by or on behalf of any party
hereto, except that the representations and warranties made in Sections 4.9
(Licenses), 4.10 (Environmental), and 4.11 (Compliance with Laws and
Regulations), which shall survive the execution and delivery of this Agreement
for a period of two years; and all statements contained in any certificate,
instrument or other writing delivered by or on behalf of any party hereto
required to be made pursuant to the terms of this Agreement or required to be
made in connection with or in contemplation of the transactions contemplated by
this Agreement will constitute representations and warranties by such party
pursuant to this Agreement.

     8.4 Assignment. This Agreement will be binding upon and inure to the
benefit of each and all of the parties to this Agreement, and, except as set
forth below, neither this Agreement nor any of the rights, interests or
obligations hereunder will be assigned by any of the parties to this Agreement
without the prior written consent of the other parties. This Agreement, or the
Investor’s obligations hereunder, may be assigned, delegated or transferred, in
whole or in part, by the Investor to any Affiliate of the Investor over which
the Investor or any of its Affiliates exercises investment authority,
including, without limitation, with respect to voting and dispositive rights;
provided, that any such assignee assumes the obligations of the Investor
hereunder and agrees in writing to be bound by the terms of this Agreement in
the same manner as the Investor. Notwithstanding the foregoing, no such
assignment shall relieve the Investor of its obligations hereunder if such
assignee fails to perform such obligations. Without complying with the
provisions of this Section 8.5, the Investor may satisfy its obligations under
Sections 2, 3.1 or 3.2 hereof by causing an Affiliate of the Investor to
satisfy its obligations under such Sections.

     8.5 Entire Agreement. This Agreement contains the entire agreement by and
between the Company and the Investor with respect to the transactions
contemplated by this Agreement and supersedes all prior agreements and
representations, written or oral, with respect thereto.

     8.6 Waivers and Amendments. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions of
this Agreement may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege pursuant
to this Agreement will operate as a waiver thereof, nor will any waiver on the
part of any party of any right, power or privilege pursuant to this Agreement,
nor will any single or partial exercise of any right, power or privilege
pursuant to this Agreement, preclude any other or further exercise thereof or
the exercise of any other right, power or privilege pursuant to this Agreement.
The rights and remedies provided pursuant to this Agreement are cumulative and
are not exclusive of any rights or remedies which any party otherwise may have
at law or in equity.

     8.7 Governing Law; Jurisdiction; Venue; Process. THIS AGREEMENT WILL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE THAT
WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF NEW YORK. Each party hereby irrevocably submits, for itself and its
property, to the non-exclusive jurisdiction of the Supreme Court of the State
of New York located in New York, New York or the United States District Court
for the Southern District of New

19

 

York, and any appellate court from any such court (as applicable, a “New
York Court”), in any suit, action or proceeding arising out of or relating to
this Agreement, or for recognition or enforcement of any judgment resulting
from any such suit, action or proceeding, and each party hereby irrevocably and
unconditionally agrees that all claims in respect of any such suit, action or
proceeding may be heard and determined in the New York Court. Each party
hereby irrevocably and unconditionally waives, to the fullest extent it may
legally and effectively do so, (i) any objection which it may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement in the New York Court, (ii) the defense of an
inconvenient forum to the maintenance of such suit, action or proceeding in any
such court, and (iii) the right to object, with respect to such suit, action or
proceeding, that such court does not have jurisdiction over such party. Each
party irrevocably consents to service of process in any manner permitted by
law.

     8.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original but all of which
together will constitute one and the same instrument. All such counterparts
will be deemed an original, will be construed together and will constitute one
and the same instrument.

     8.9 Headings. The headings in this Agreement are for reference purposes
only and will not in any way affect the meaning or interpretation of this
Agreement.

     8.10 Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein will not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto will be enforceable to the fullest extent permitted by law.

[Signature Page Follows]

20

 

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

	 	 	 	 	 
	 	 	ORBIMAGE Inc.
	 
	 	 	 	 
	

	 	By:
	 	

	 	 	Name:
	 	 	Title:
	 
	 	 	 	 
	 	 	[Name of Investor]
	 
	 	 	 	 
	

	 	By:
	 	

	 	 	Name:
	 	 	Title:

S-1

 

SCHEDULE 1

ALLOCABLE PERCENTAGE

     The Investor’s Allocable Percentage shall be [   ]%.

 

 

SCHEDULE 4.13

EXCEPTIONS/ADDITIONAL MATTERS NOT DISCLOSED IN FORM 10

	1.	 	NextView Contract; Protest

     The U.S. Government has awarded the NextView Contract, described in the
Recent Developments section of the Company’s Form 10, to the Company and, on
September 30, 2004, the Company and the U.S. Government entered into a
definitive agreement encompassing the terms described in the Recent
Developments section.

     As a result of the entry into the NextView Contract, the Company notes
that, with respect to the text in each of the sections of the Company’s Form 10
entitled “Business—Satellite and Ground System Operations” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Overview,” reading:

	 	 	“We are also exploring the possibility of constructing
and operating a next-generation high-resolution
imagery satellite, which we have designated
OrbView-5.”,

the Company has now affirmatively decided to construct and operate the
OrbView-5 satellite.

     The Company further notes that, on October 20, 2004, New SI, LLC, which
the Company believes is an affiliate of Space Imaging (an unsuccessful
competing bidder for the NextView Contract) filed a protest before the
Government Accountability Office of the award of the NextView Contract to the
Company. NGA has directed the Company to continue working under the contract
awarded during the protest proceeding. The Company believes that the protest
is lacking in merit, and intends to provide assistance to NGA in defense of the
contract award. The Company is confident that it will prevail in retaining the
project award.

     Should the Company be directed to stop work on the contract it expects to
recover its costs of performance of the contract to date, and, in the event the
Government re-bids the award, the Company expects to compete successfully in
any such re-bid.

	2.	 	Compensation/Commission Claim

     The Company has been advised by counsel to a retired employee of its
former parent, Orbital Sciences Corporation (“Orbital”), that his client
intends to file suit against the Company for $150,000 which he claims is owed
as a commission for work done to the Company’s benefit while his client was
employed by Orbital.

 

 

SCHEDULE 5.8

JURISDICTION OF FOREIGN ENTITY

	 	 	 
	Jurisdiction of organization or incorporation
(if other than the United States):

	 	

	 
	 	 
	Principle place of business (if other than
the United States):

	 	

 

 

SCHEDULE 7

GENERAL COUNSEL CERTIFICATE & OPINION MATTERS

I. Matters to be addressed in Certificate of General Counsel of the Company
(subject to usual and customary assumptions and qualifications):

     1. The authorized capital stock of the Company consists of (a) 25,000,000
shares of Common Stock, par value $0.01 per share, of which 6,481,230 shares
are issued and outstanding, and (b) 5,000,000 shares of Preferred Stock, par
value $0.01 per share, none of which are outstanding.

     2. Subject to the registration of the offer and sale of the Registrable
Securities under the Securities Act in accordance with and as contemplated by
the Registration Rights Agreement, the execution, delivery and performance by
the Company of the Transaction Documents, including the issuance of the Common
Stock and Warrants (and the shares of Common Stock issuable upon exercise of
the Warrants) and the consummation of the transactions contemplated by the
Transaction Documents, will not, to my knowledge, (a) conflict with or result
in the breach of the terms, conditions or provisions of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give rise to any right of termination, acceleration or cancellation
under, any material agreement, lease, mortgage, license, indenture, instrument
or other contract to which it is a party or by which any of its properties or
assets are bound, or (b) result in a violation of any law, rule, regulation,
order, judgment or decree (including, without limitation, federal and state
securities laws and regulations) applicable to it or by which any of its
properties or assets are bound or affected.

     3. There are no actions, suits or proceedings pending or, to my knowledge,
threatened against or affecting the Company or any property of the Company in
any court or before any arbitrator of any kind or before or by any Governmental
Authority that questions the validity of the Transaction Documents or the right
of the Company to enter into the Transaction Documents, except, in each case,
any such actions, suits, or proceedings as would not reasonably be expected to
have Material Adverse Effect.

II. Matters to be addressed in Legal Opinion of Company’s Counsel (subject to
usual and customary assumptions and qualifications):

     1. The Company is a corporation under the general corporation law of the
State of Delaware with corporate power and authority to enter into the
Investment Agreement, the Registration Rights Agreement [and the Disbursing
Agency Agreement]1 (the “Transaction Documents”) and to perform its
obligations, including the issuance of the shares of Common Stock and the
Warrants, thereunder and to issue shares of Common Stock issuable upon the
exercise of the Warrants. Based on certificates from public officials, we
confirm that the Company is validly existing and in good standing under the
laws of the State of Delaware.

     2. The shares of Common Stock to be issued and sold by the Company
pursuant to the Investment Agreement have been duly authorized by all necessary
corporate action of the Company and, when issued to and paid for by you in
accordance with the terms of the Investment Agreement, will be validly issued,
fully paid and non-assessable and free of preemptive rights of any or all of
the stockholders of the Company arising from the Governing Documents.

	 	1 	The Disbursing Agency Agreement will be included only in the opinion given in
relation to the Private Placement. It will not be included in the opinion
relating to the Backstop Issuance.

 

 

     3. The Warrants to be issued and sold by the Company pursuant to the
Investment Agreement have been duly authorized by all necessary corporate
action of the Company. The shares of Common Stock issuable upon the exercise
of the Warrants have been duly and validly reserved for issuance and, when
issued to and paid for by you in accordance with the terms of the Warrants,
will be validly issued, fully paid and non-assessable and free of preemptive
rights arising from the Governing Documents.

     4. The execution, delivery and performance of the Transaction Documents
have been duly authorized by all necessary corporate action of the Company, and
the Transaction Documents have been duly executed and delivered by the Company.

     5. The Transaction Documents are the legally valid and binding agreements
of the Company, enforceable against the Company in accordance with their terms.

     6. The execution and delivery of the Transaction Documents and the
consummation of the transactions contemplated thereby (including the issuance
and sale of the shares of Common Stock and the Warrants by the Company to you
pursuant thereto) on the date hereof do not:

          (i) violate the Company’s Governing Documents; or

          (ii) violate any New York State or federal statute, rule or
regulation applicable to the Company; or

          (iii) require any consents, approvals, or authorizations to be
obtained by the Company from, or any registrations, declarations or
filings to be made by the Company with, any governmental authority under
any New York State or federal statute, rule or regulation applicable to
the Company on or prior to the date hereof.

     7. Assuming the truthfulness of the representations of you and the Company
set forth in the Investment Agreement, no registration of the Common Stock or
the Warrants under the Securities Act of 1933, as amended, is required for the
purchase of the Common Stock and the Warrants by you in the manner contemplated
by the Investment Agreement.

 

 

EXHIBIT A

FORM OF REGISTRATION RIGHTS AGREEMENT

 

 

EXHIBIT B

FORM OF DISBURSING AGENCY AGREEMENT

 

 

EXHIBIT C

FORM OF WARRANT<PAGE>
                                                                     EXHIBIT 4.1

                                                               EXECUTION VERSION

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

                                RIGHTS AGREEMENT

                                     BETWEEN

                          ASPECT MEDICAL SYSTEMS, INC.

                                       AND

                         EQUISERVE TRUST COMPANY, N.A.,

                                 AS RIGHTS AGENT

                             DATED NOVEMBER 29, 2004

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

                                Table of Contents

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

Section 2.  Appointment of Rights Agent.......................................................................    6

Section 3.  Issuance of Rights................................................................................    6

Section 4.  Form of Rights Certificates.......................................................................    8

Section 5.  Countersignature and Registration.................................................................    9

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

Section 7.  Exercise of Rights; Purchase Price; Expiration Date of Rights.....................................   11

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

Section 9.  Reservation and Availability of Capital Stock.....................................................   13

Section 10. Preferred Stock Record Date.......................................................................   14

Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights.......................   15

Section 12. Certificate of Adjusted Purchase Price or Number of Shares........................................   22

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

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

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

Section 16. Agreement of Rights Holders.......................................................................   27

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

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

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

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

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

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

Section 23. Redemption; Independent Director Review...........................................................   32
</TABLE>

                                      -i-
<PAGE>

<TABLE>
<S>                                                                                                              <C>
Section 24. Exchange..........................................................................................   33

Section 25. Notice of Certain Events..........................................................................   34

Section 26. Notices...........................................................................................   35

Section 27. Supplements and Amendments........................................................................   36

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

Section 29. Actions by the Board, etc.........................................................................   36

Section 30. Benefits of this Agreement........................................................................   37

Section 31. Severability......................................................................................   37

Section 32. Governing Law.....................................................................................   37

Section 33. Counterparts......................................................................................   37

Section 34. Descriptive Headings..............................................................................   37

Section 35. Force Majeure.....................................................................................   37
</TABLE>

                                      -ii-
<PAGE>

                                RIGHTS AGREEMENT

RIGHTS AGREEMENT, dated November 29, 2004 (the "Agreement"), between Aspect
Medical Systems, Inc., a Delaware corporation (the "Company"), and EquiServe
Trust Company, N.A., a national banking association, as Rights Agent (the
"Rights Agent").

                               W I T N E S S E T H

WHEREAS, on November 29, 2004 the Board of Directors of the Company (the
"Board") authorized and declared a dividend distribution of one Right for each
share of Common Stock (as hereinafter defined) of the Company outstanding at the
close of business on December 10, 2004 (the "Record Date"), and authorized the
issuance of one Right (as such number may hereinafter be adjusted pursuant to
the provisions of Section 11(i) or Section 11(p) hereof) for each share of
Common Stock of the Company issued between the Record Date (whether originally
issued or delivered from the Company's treasury) and the earlier of the
Distribution Date or the Expiration Date, each Right initially representing the
right to purchase one one-thousandth of a share of Series A Junior Participating
Preferred Stock of the Company having the rights, powers and preferences set
forth in the form of Certificate of Designations attached hereto as Exhibit A,
upon the terms and subject to the conditions hereinafter set forth (the
"Rights");

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 who or which, together with
all Affiliates and Associates of such Person, shall be the Beneficial Owner of
17.5% or more of the shares of Common Stock then outstanding, but shall not
include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee
benefit plan of the Company or of any Subsidiary of the Company, (iv) any Person
organized, appointed or established by the Company for or pursuant to the terms
of any such plan, or (v) an Exempted Person. Notwithstanding the foregoing, (x)
no Person shall become an "Acquiring Person" as the result of an acquisition of
Common Stock by the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such Person
to 17.5% or more of the shares of Common Stock of the Company then outstanding;
provided, however that if a Person shall become the Beneficial Owner of 17.5% or
more of the shares of Common Stock of the Company then outstanding as the result
of an acquisition of Common Stock by the Company and shall, following written
notice from, or public disclosure by the Company of such share purchases by the
Company become the Beneficial Owner of any additional Common Stock of the
Company and shall then beneficially own 17.5% or more of the shares of Common
Stock then outstanding, then such Person shall be deemed to be an "Acquiring
Person" and (y) if the Board determines in good faith that a Person who would
otherwise be an "Acquiring Person," as

<PAGE>

defined pursuant to the foregoing provisions of this paragraph (a), has become
such inadvertently, and such Person divests as promptly as practicable (as
determined in good faith by the Board of Directors), but in any event within 15
Business Days, following receipt of written notice from the Company of such
event, of Beneficial Ownership of a sufficient number of shares of Common Stock
so that such Person would no longer be an "Acquiring Person," as defined
pursuant to the foregoing provisions of this paragraph (a), then such Person
shall not be deemed to be an "Acquiring Person" for any purposes of this
Agreement unless and until such Person shall again become an "Acquiring Person."

      (b) "Act" shall mean the Securities Act of 1933, as amended.

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

      (d) "Adjustment Shares" shall have the meaning set forth in Section
11(a)(ii).

      (e) 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, owns or 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 (other than customary
agreements with and between underwriters and selling group members with respect
to a bona fide public offering of securities), whether or not in writing, or
upon the exercise of conversion rights, exchange rights, other rights, warrants
or options, or otherwise; provided, however, that a Person shall not be deemed
the "Beneficial Owner" of, or to "beneficially own," (A) securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange, or (B) securities issuable upon exercise of
Rights at any time prior to the occurrence of a Triggering Event, or (C)
securities issuable upon exercise of Rights from and after the occurrence of a
Triggering Event which Rights were acquired by such Person or any of such
Person's Affiliates or Associates prior to the Distribution Date or pursuant to
Section 3(a) or Section 22 hereof (the "Original Rights") or pursuant to Section
11(i) hereof in connection with an adjustment made with respect to any Original
Rights;

            (ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of or has
"beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General
Rules and Regulations under the Exchange Act, or any comparable or successor
rule), including pursuant to any agreement, arrangement or understanding (other
than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities), whether or
not in writing; provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security under this
subparagraph (ii) as a result of an agreement,

                                      -2-
<PAGE>

arrangement or understanding to vote such security if such agreement,
arrangement or understanding: (A) arises solely from a revocable proxy or
consent given in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable provisions of the General
Rules and Regulations under the Exchange Act, and (B) is not then reportable by
such Person 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 (other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of securities)
whether or not in writing, for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the proviso to
subparagraph (ii) of this paragraph (e)) or disposing of any voting securities
of the Company.

For all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(l)(i) of the General Rules and Regulations
under the Exchange Act.

      (f) "Board" shall have the meaning set forth in the WHEREAS clause at the
beginning of this Agreement.

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

      (h) "Close of business" on any given date shall mean 5:00 p.m., Boston
time, on such date; provided, however, that if such date is not a Business Day
it shall mean 5:00 p.m., Boston time, on the next succeeding Business Day.

      (i) "Common Stock" shall mean the common stock, $0.01 par value, of the
Company, except that "Common Stock" when used with reference to any Person other
than the Company shall mean the capital stock of such Person with the greatest
voting power, or the equity securities or other equity interest having power to
control or direct the management, of such Person.

      (j) "Common stock equivalents" shall have the meaning set forth in Section
11(a)(iii) hereof.

      (k) "Company" shall have the meaning set forth in the introductory
paragraph hereof.

      (l) "Current market price" shall have the meaning set forth in Section
11(d)(i) hereof.

                                      -3-
<PAGE>

      (m) "Current Value" shall have the meaning set forth in Section 11(a)(iii)
hereof.

      (n) "Distribution Date" shall have the meaning set forth in Section 3(a)
hereof.

      (o) "Equivalent Preferred Stock" shall have the meaning set forth in
Section 11(b) hereof.

      (p) "Exchange Act" shall have the meaning set forth in Section 1(c)
hereof.

      (q) "Exchange Ratio" shall have the meaning set forth in Section 24(a)
hereof.

      (r) "Exempted Person" shall mean Boston Scientific Corporation, a Delaware
corporation ("Boston Scientific"), which as of the date hereof, beneficially
owns an aggregate of 4,985,730 shares of the Company's Common Stock,
representing approximately 24% of the Common Stock outstanding as of the date
hereof, unless and until such time as Boston Scientific, together with its
Affiliates and Associates, directly or indirectly, becomes the Beneficial Owner
of more than 27.5% of the Common Stock then outstanding (other than under
circumstances described in the second sentence of Section 1(a) hereof (replacing
for this purpose all references in Section 1(a) to 17.5% with 27.5%)), in which
event, Boston Scientific immediately shall cease to be an Exempted Person.

      (s) "Expiration Date" shall have the meaning set forth in Section 7(a)
hereof.

      (t) "Final Expiration Date" shall mean the close of business on November
29, 2014.

      (u) "Permitted Offer" shall mean a tender offer or an exchange offer for
all outstanding shares of Common Stock at a price and on terms determined, prior
to the consummation of such tender offer or exchange offer, by directors
constituting at least 75% of all of the members of the Board, after receiving
advice from a nationally recognized investment banking firm selected by the
Board, to be (a) at a price that is fair to stockholders (taking into account
all factors which such members of the Board deem relevant including, without
limitation, prices which could reasonably be achieved if the Company or its
assets were sold on an orderly basis designed to realize maximum value) and (b)
otherwise in the best interests of the Company and its stockholders.

      (v) "Person" shall mean any individual, firm, corporation, partnership,
trust, association, limited liability company or other entity.

      (w) "Preferred Stock" shall mean shares of Series A Junior Participating
Preferred Stock, $0.01 par value, of the Company having the rights and
preferences set forth in the form of Certificate of Designations attached to
this Agreement as Exhibit A and, to the extent that there is not a sufficient
number of shares of Series A Junior Participating Preferred Stock authorized to
permit the full exercise of the Rights, any other series of Preferred Stock,
$0.01 par value, of the Company designated for such purpose containing terms
substantially similar to the terms of the Series A Junior Participating
Preferred Stock.

                                      -4-
<PAGE>

      (x) "Principal Party" shall have the meaning set forth in Section 13(b)
hereof.

      (y) "Purchase Price" shall have the meaning set forth in Section 4(a)
hereof.

      (z) "Record Date" shall have the meaning set forth in the WHEREAS clause
at the beginning of this Agreement.

      (aa) "Redemption Date" shall have the meaning set forth in Section 7(a)
hereof.

      (bb) "Redemption Price" shall have the meaning set forth in Section 23(a)
hereof.

      (cc) "Rights" shall have the meaning set forth in the WHEREAS clause at
the beginning of this Agreement.

      (dd) "Rights Agent" shall have the meaning set forth in the introductory
paragraph hereof.

      (ee) "Rights Certificates" shall have the meaning set forth in Section
3(a) hereof.

      (ff) "Section 11(a)(ii) Event" shall mean an acquisition of Common Stock
described in the first sentence of Section 11(a)(ii) hereof.

      (gg) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth in
Section 11(a)(iii) hereof.

      (hh) "Section 13 Event" shall mean any event described in clauses (x), (y)
or (z) of Section 13(a) hereof.

      (ii) "Spread" shall have the meaning set forth in Section 11(a)(iii)
hereof.

      (jj) "Stock Acquisition Date" shall mean the later of (i) the first date
of public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such or (ii) the first date on which an executive officer of the Company has
actual knowledge that an Acquiring Person has become such; provided, however
that, if such Person is deemed not to be an Acquiring Person pursuant to clause
(y) of Section 1(a) hereof, no Stock Acquisition Date shall be deemed to have
occurred.

      (kk) "Subsidiary" shall mean, with reference to any Person, any
corporation or other entity of which an amount of voting securities sufficient
to elect at least a majority of the directors (or comparable body) of such
corporation or other entity is beneficially owned, directly or indirectly, by
such Person, or otherwise controlled by such Person.

      (ll) "Substitution Period" shall have the meaning set forth in Section
11(a)(iii) hereof.

      (mm) "Trading Day" shall have the meaning set forth in Section 11(d)(i)
hereof.

                                      -5-
<PAGE>

      (nn) "Transfer Agency and Service Agreement" shall mean the Transfer
Agency and Service Agreement by and between the Company, EquiServe, Inc. and the
Rights Agent.

      (oo) "Triggering Event" shall mean any Section 11(a)(ii) Event or any
Section 13 Event.

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

      Section 3. Issuance of Rights.

      (a) Until the earlier of (i) the close of business on the tenth Business
Day (or such later date as may be determined by the Board) after the Stock
Acquisition Date (or, if the tenth Business Day after the Stock Acquisition Date
occurs before the Record Date, the close of business on the Record Date), or
(ii) the close of business on the tenth Business Day (or such later date as may
be determined by action of the Board) after the date that a tender or exchange
offer (other than a Permitted Offer) by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any Person organized, appointed or established by
the Company for or pursuant to the terms of any such plan) is first published or
sent or given within the meaning of Rule 14d-2 of the General Rules and
Regulations under the Exchange Act, if upon consummation thereof, such Person
would be the Beneficial Owner of 17.5% or more of the shares of Common Stock
then outstanding, or, in the case of an Exempted Person, 27.5% or more of the
shares of Common Stock then outstanding, (the earlier of (i) and (ii) being
herein referred to as the "Distribution Date"), (x) the Rights will be evidenced
by the certificates for the Common Stock registered in the names of the holders
of the Common Stock (which certificates for Common Stock shall be deemed also to
be certificates for Rights) and not by separate certificates, and (y) the Rights
will be transferable only in connection with the transfer of the underlying
shares of Common Stock (including a transfer to the Company). 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 the Common
Stock as of the close of business on the Distribution Date, at the address of
such holder shown on the records of the Company, one or more rights
certificates, in substantially the form of Exhibit B hereto (the "Rights
Certificates"), evidencing one Right for each share of Common Stock so held,
subject to adjustment as provided herein. With respect to certificates for the
Common Stock outstanding as of the close of business on the Record Date, until
the Distribution Date, the Rights will be evidenced by such certificates for the
Common Stock and the registered holders of the Common Stock shall also be the
registered holders of the associated Rights. In addition, in connection with the
issuance or sale of shares of Common Stock following the

                                      -6-
<PAGE>

Distribution Date and prior to the redemption or expiration of the Rights, the
Company (i) shall, with respect to shares of Common Stock so issued or sold
pursuant to the exercise of stock options or under any employee benefit plan or
arrangement, or upon the exercise, conversion or exchange of securities granted
or issued by the Company prior to the Distribution Date, and (ii) may, in any
other case, if deemed necessary or appropriate by the Board, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (x) no such Rights Certificate
shall be issued if, and to the extent that, the Company shall be advised by
counsel that such issuance would create a significant risk of material adverse
tax consequences to the Company or the Person to whom such Rights Certificate
would be issued, and (y) no such Rights Certificate shall be issued if, and to
the extent that, appropriate adjustment shall otherwise have been made in lieu
of the issuance thereof. In the event that an adjustment in the number of Rights
per share of Common Stock has been made pursuant to Sections 11(i) or 11(p)
hereof, at the time of distribution of the Rights Certificates, the Company
shall make the necessary and appropriate rounding adjustments (in accordance
with Section 14(a) hereof) so that Rights Certificates representing only whole
numbers of Rights are distributed and cash is paid in lieu of any fractional
Rights. As of and after the Distribution Date, the Rights will be evidenced
solely by such Rights Certificates.

      (b) As promptly as practicable following the Record Date, the Company will
send a copy of a Summary of Rights to Purchase Preferred Stock, in substantially
the form attached hereto as Exhibit C, by first-class, postage prepaid mail, to
each record holder of the Common Stock as of the close of business on the Record
Date, at the address of such holder shown on the records of the Company. The
failure to send a copy of the Summary of Rights shall not affect the
enforceability of any part of this Rights Agreement or the rights of any holder
of the Rights.

      (c) Rights shall be issued (i) in respect of all shares of Common Stock
that are issued (either as an original issuance or from the Company's treasury)
after the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date and (ii) in connection with the issuance or sale of shares of
Common Stock following the Distribution Date and prior to the redemption or
expiration of the Rights (x) with respect to shares of Common Stock so issued or
sold pursuant to the exercise of stock options or under any employee benefit
plan or arrangement, or upon the exercise, conversion or exchange of securities,
granted or issued by the Company prior to the Distribution Date and (y) with
respect to shares of Common Stock so issued or sold in any other case, if deemed
necessary or appropriate by the Board. Certificates representing such shares of
Common Stock (including, without limitation, certificates issued upon transfer
or exchange of Common Stock) shall also be deemed to be certificates for Rights,
and shall bear the following legend:

            This certificate also evidences and entitles the holder hereof to
            certain Rights as set forth in the Rights Agreement between Aspect
            Medical Systems, Inc. (the "Company") and EquiServe Trust Company,
            N.A. (the "Rights Agent") dated November 29, 2004, as the same may
            be amended, restated or renewed from time to time (the "Rights
            Agreement"), the terms of which are hereby

                                      -7-
<PAGE>

            incorporated herein by reference and a copy of which is on file at
            the principal offices of the Company. Under certain circumstances,
            as set forth in the Rights Agreement, such Rights will be evidenced
            by separate certificates and will no longer be evidenced by this
            certificate. The Company will mail to the holder of this certificate
            a copy of the Rights Agreement, as in effect on the date of mailing,
            without charge promptly after receipt of a written request therefor.
            Under certain circumstances set forth in the Rights Agreement,
            Rights issued to, or held by, any Person who is, was or becomes an
            Acquiring Person or any Affiliate or Associate thereof (as such
            terms are defined in the Rights Agreement), whether currently held
            by or on behalf of such Person or by any subsequent holder, may
            become null and void.

With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date and (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights. Notwithstanding
this Section 3(c), the omission of a legend shall not affect the enforceability
of any part of this Rights Agreement or the rights of any holder of the Rights.

      (d) Until the earlier of the Distribution Date and the Expiration Date,
the transfer of any certificates representing shares of Common Stock in respect
of which Rights have been issued shall also constitute the transfer of the
Rights associated with such shares of Common Stock. In the event that the
Company purchases or acquires any shares of Common Stock after the Record Date
but prior to the Distribution Date, any Rights associated with such shares of
Common Stock shall be deemed cancelled and retired so that the Company shall not
be entitled to exercise any Rights associated with the shares of Common Stock
which are no longer outstanding.

      Section 4. Form of Rights Certificates.

      (a) The Rights Certificates (and the forms of election to purchase,
certification and assignment to be printed on the reverse thereof) shall each be
substantially in the form set forth in Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or over-the-counter market on which the
Rights may from time to time be listed, or to conform to usage. Subject to the
provisions of Sections 7, 11 and 22 hereof, the Rights Certificates, whenever
distributed, shall entitle the holders thereof to purchase such number of one
one-thousandths of a share of Preferred Stock as shall be set forth therein at
the price set forth therein (such exercise price per one one-thousandth of a
share, the "Purchase

                                      -8-
<PAGE>

Price"), but the amount and type of securities purchasable upon the exercise of
each Right and the Purchase Price thereof shall be subject to adjustment as
provided herein.

      (b) Any Rights Certificate issued pursuant to Section 3, Section 11(i) or
Section 22 hereof that represents Rights beneficially owned by persons known to
be: (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 Person (or of any 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 such Acquiring Person has any
continuing agreement, arrangement or understanding (whether or not in writing)
regarding the transferred Rights or (B) a transfer which the Board has
determined is part of a plan, arrangement or understanding (whether or not in
writing) that has as a primary purpose or effect avoidance of Section 7(e)
hereof, and any Rights Certificate issued pursuant to Section 6 or Section 11
hereof upon transfer, exchange, replacement or adjustment of any other Rights
Certificate referred to in this sentence, shall contain (to the extent feasible)
the following legend:

            The Rights represented by this Rights 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 Rights
            Certificate and the Rights represented hereby may become null and
            void in the circumstances specified in Section 7(e) of such
            Agreement.

The provisions of Section 7(e) hereof shall be operative whether or not the
foregoing legend is contained on any such Rights Certificate.

      Section 5. Countersignature and Registration.

      (a) The Rights 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 shall 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 Rights
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 Rights Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Rights Certificates, nevertheless,
may be countersigned by the Rights Agent and issued and delivered by the Company
with the same force and effect as though the person who signed such Rights
Certificates had not ceased to be such officer of the Company; and any Rights
Certificates may be signed on behalf of the Company by any person who, at the
actual date of the execution of such

                                      -9-
<PAGE>

Rights Certificate, shall be a proper officer of the Company to sign such Rights
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.

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

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

      (a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14
hereof, at any time after the close of business on the Distribution Date, and at
or prior to the close of business on the Expiration Date, any Rights Certificate
or Certificates (other than Rights Certificates representing Rights that have
become void pursuant to Section 7(e) hereof or that have been exchanged pursuant
to Section 24 hereof) may be transferred, split up, combined or exchanged for
another Rights Certificate or Certificates, entitling the registered holder to
purchase a like number of one one-thousandths of a share of Preferred Stock (or,
following a Triggering Event, Common Stock, other securities, cash or other
assets, as the case may be) as the Rights Certificate or Certificates
surrendered then entitled such holder (or former holder in the case of a
transfer) to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Rights Certificate or Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Rights
Certificate or Certificates to be transferred, split up, combined or exchanged,
with the form of assignment and certificate appropriately executed, at the
office of the Rights Agent designated for such purpose. Neither the Rights Agent
nor the Company shall be obligated to take any action whatsoever with respect to
the transfer of any such surrendered Rights Certificate until the registered
holder shall have completed and signed the certificate contained in the form of
assignment on the reverse side of such Rights Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request. Thereupon the Rights Agent shall, subject to Section
4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person
entitled thereto a Rights Certificate or Rights 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 Rights Certificates.

      (b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and 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 Rights Certificate if
mutilated, the Company will execute and deliver a new Rights Certificate of like
tenor to the

                                      -10-
<PAGE>

Rights Agent for countersignature and delivery to the registered owner in lieu
of the Rights Certificate so lost, stolen, destroyed or mutilated.

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

      (a) Subject to Section 7(e) hereof, the registered holder of any Rights
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23
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 and
the certificate on the reverse side thereof duly executed, to the Rights Agent
at the office of the Rights Agent designated for such purpose, together with
payment of the aggregate Purchase Price with respect to the total number of one
one-thousandths of a share of Preferred Stock (or other shares, securities, cash
or other assets, as the case may be) as to which such surrendered Rights are
then exercisable, at or prior to the earliest of (i) the Final Expiration Date,
(ii) the time at which the Rights expire as provided in Section 13(d) hereof,
(iii) the time at which the Rights are redeemed as provided in Section 23 hereof
(the "Redemption Date") and (iv) the time at which such Rights are exchanged as
provided in Section 24 hereof (the earliest of (i), (ii), (iii) and (iv) being
herein referred to as the "Expiration Date").

      (b) The Purchase Price for each one one-thousandth of a share of Preferred
Stock pursuant to the exercise of a Right shall initially be $150.00 and shall
be subject to adjustment from time to time as provided in Sections 11 and 13(a)
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 Rights Certificate representing exercisable Rights,
with the form of election to purchase and the certificate duly executed,
accompanied by payment, with respect to each Right so exercised, of the Purchase
Price per one one-thousandth of a share of Preferred Stock (or other shares,
securities, cash or other assets, as the case may be) to be purchased and an
amount equal to any applicable transfer tax, the Rights Agent shall, subject to
Section 20(k) hereof, thereupon promptly (i) (A) requisition from any transfer
agent of the shares of Preferred Stock (or make available, if the Rights Agent
is the transfer agent for such shares) certificates for the total number of one
one-thousandths of a share of Preferred Stock to be purchased and the Company
hereby authorizes its transfer agent to comply with such requests, or (B) if the
Company shall have elected to deposit the total number of shares of Preferred
Stock issuable upon exercise of the Rights hereunder with a depositary agent,
requisition from the depositary agent depositary receipts representing such
number of one one-thousandths of a share of Preferred Stock as are to be
purchased (in which case certificates for the shares of Preferred Stock
represented by such receipts shall be deposited by the transfer agent with the
depositary agent) and the Company hereby directs the depositary agent to comply
with such requests, (ii) requisition from the Company the amount of cash, if
any, to be paid in lieu of fractional shares in accordance with Section 14
hereof, (iii) after receipt of such certificates or depositary receipts, cause
the same to be delivered to or upon the order of the registered holder of such
Rights Certificate, registered in such name or names as may be designated by
such holder, and

                                      -11-
<PAGE>

(iv) after receipt thereof, deliver such cash, if any, to or upon the order of
the registered holder of such Rights Certificate. The payment of the Purchase
Price (as such amount may be reduced pursuant to Section 11(a)(iii) hereof) may
be made in cash or by certified bank check or money order payable to the order
of the Company. In the event that the Company is obligated to issue other
securities (including Common Stock) of the Company, pay cash and/or distribute
other property pursuant to Section 11(a) hereof, the Company shall make all
arrangements necessary so that such other securities, cash and/or other property
are available for distribution by the Rights Agent, if and when appropriate.

      (d) In case the registered holder of any Rights Certificate shall exercise
less than all the Rights evidenced thereby, a new Rights Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent and delivered to, or upon the order of, the registered holder of
such Rights Certificate, registered in such name or names as may be designated
by such holder, subject to the provisions of Section 14 hereof.

      (e) Notwithstanding anything in this Agreement to the contrary, from and
after the first occurrence of a Section 11(a)(ii) 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 Person (or of any 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
(whether or not in writing) regarding the transferred Rights or (B) a transfer
which the Board has determined is part of a plan, arrangement or understanding
(whether or not in writing) that has as a primary purpose or effect avoidance of
this Section 7(e), shall become null and void without any further action and no
holder of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise. No Rights
Certificate shall be issued at any time upon the transfer of any Rights to an
Acquiring Person whose Rights would be void pursuant to the preceding sentence
or any Associate or Affiliate thereof or to any nominee of such Acquiring
Person, Associate or Affiliate; and any Rights Certificate delivered to the
Rights Agent for transfer to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence shall be cancelled. The Company shall use all
reasonable efforts to insure 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 Rights 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 transfer or
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate following the form of assignment or
election to purchase set forth on the reverse side of the Rights Certificate

                                      -12-
<PAGE>

surrendered for such assignment or exercise, and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
any Affiliates or Associates thereof as the Company shall reasonably request.

      Section 8. Cancellation and Destruction of Rights Certificates. All Rights
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or 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 Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Rights Certificates to the Company, or shall, at the written request
of the Company, destroy such cancelled Rights Certificates, and in such case
shall deliver a certificate of destruction thereof to the Company.

      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 shares of Preferred Stock
(and, following the occurrence of a Triggering Event, out of its authorized and
unissued shares of Common Stock and/or other securities or out of its authorized
and issued shares held in its treasury), the number of shares of Preferred Stock
(and, following the occurrence of a Triggering Event, Common Stock and/or other
securities) that, as provided in this Agreement including Section 11(a)(iii)
hereof, will be sufficient to permit the exercise in full of all outstanding
Rights.

      (b) So long as the shares of Preferred Stock (and, following the
occurrence of a Section 11(a)(ii) Event, Common Stock and/or other securities)
issuable and deliverable upon the exercise of the Rights may be listed on any
national securities exchange or automated quotation system, the Company shall
use its best efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be so listed 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 earliest date after the first occurrence of a Section
11(a)(ii) Event on which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iii)
hereof, or as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under 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, (iii) cause such registration statement to remain effective
(with a prospectus at all times meeting the requirements of the Act) until the
earlier of (A) the date as of which the Rights are no longer exercisable for
such securities, and (B) the Expiration Date, and (iv) obtain such other
regulatory approvals as may be necessary for it to issue securities purchasable
upon the exercise of the Rights. The Company will also take such action as may
be appropriate under, or to ensure compliance with, the securities or "blue

                                      -13-
<PAGE>

sky" laws of the various states in connection with the exercisability of the
Rights. The Company may temporarily suspend, for a period of time not to exceed
ninety (90) days after the date set forth in clause (i) of the first sentence of
this Section 9(c), the exercisability of the Rights in order to prepare and file
such registration statement and permit it to become effective or to obtain any
other required regulatory approval in connection with the exercisability of the
Rights. Upon any such suspension, the Company shall issue a public announcement
stating that the exercisability of the Rights has been temporarily suspended, as
well as a public announcement at such time as the suspension is no longer in
effect. Notwithstanding any provision of this Agreement to the contrary, the
Rights shall not be exercisable in any jurisdiction unless the requisite
registration or qualification in such jurisdiction shall have been effected or
obtained.

      (d) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all one one-thousandths of a share of Preferred
Stock (and, following the occurrence of a Triggering Event, Common Stock and/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 that may be
payable in respect of the issuance or delivery of the Rights Certificates and of
any certificates for a number of one one-thousandths of a share of Preferred
Stock (or Common Stock and/or other securities, as the case may be) upon the
exercise of Rights. The Company shall not, however, be required (i) to pay any
transfer tax that may be payable in respect of any transfer or delivery of
Rights Certificates to a Person other than, or the issuance or delivery of a
number of one one-thousandths of a share of Preferred Stock (or Common Stock
and/or other securities, as the case may be) in respect of a name other than
that of, the registered holder of the Rights Certificate evidencing Rights
surrendered for exercise or (ii) to issue or deliver any certificates for a
number of one one-thousandths of a share of Preferred Stock (or Common Stock
and/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 Rights 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. Preferred Stock Record Date. Each Person in whose name any
certificate for a number of one one-thousandths of a share of Preferred Stock
(or Common Stock and/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 such fractional shares of Preferred Stock (or Common Stock and/or
other securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered with the forms of election and
certification duly executed and payment of the Purchase Price (and all
applicable transfer taxes) was made; provided, however, that if the date of such
surrender and payment is a date upon which the Preferred Stock (or Common Stock
and/or other securities, as the case may be) transfer books of the Company are
closed, such

                                      -14-
<PAGE>

Person shall be deemed to have become the record holder of such shares
(fractional or otherwise) on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Stock (or Common Stock and/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 Rights
Certificate, as such, shall not be entitled to any rights of a stockholder of
the Company with respect to securities 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 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 Preferred Stock payable in shares of
Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine the
outstanding Preferred Stock into a smaller number of shares, or (D) issue any
shares of its capital stock in a reclassification of the Preferred Stock
(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) hereof, 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 Preferred Stock or capital stock, as the case may
be, issuable on such date, shall be proportionately adjusted so that the holder
of any Right exercised after such time shall be entitled to receive, upon
payment of the Purchase Price then in effect, the aggregate number and kind of
shares of Preferred Stock or capital stock, as the case may be, which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Stock transfer books of the Company were open, he would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification. If an event occurs that would
require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii)
hereof, the adjustment provided for in this Section 11(a)(i) shall be in
addition to, and shall be made prior to, any adjustment required pursuant to
Section 11(a)(ii) hereof.

            (ii) Subject to Section 24 of this Agreement, in the event that any
Person, alone or together with its Affiliates or Associates, becomes an
Acquiring Person (other than pursuant to a Permitted Offer), then, promptly
following the first occurrence of such event, proper provision shall be made so
that each holder of a Right (except as provided below and in Section 7(e)
hereof) shall thereafter have the right to receive (subject to the last sentence
of Section 23(a)), upon exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, in lieu of a number of one
one-thousandths of a share of Preferred Stock, such number of shares of Common
Stock of the Company that equals the result obtained by (x) multiplying the then
current Purchase Price by the then number of one one-thousandths of

                                      -15-
<PAGE>

a share of Preferred Stock for which a Right was exercisable immediately prior
to the first occurrence of a Section 11(a)(ii) Event, and (y) dividing that
product (which, following such first occurrence, shall thereafter be referred to
as the "Purchase Price" for each Right and for all purposes of this Agreement)
by 50% of the current market price (determined pursuant to Section 11(d) hereof)
per share of Common Stock on the date of such first occurrence (such number of
shares, the "Adjustment Shares").

            (iii) In the event that the number of shares of Common Stock that
are authorized by the Company's Certificate of Incorporation but not outstanding
or reserved for issuance for purposes other than upon exercise of the Rights are
not sufficient to permit the exercise in full of the Rights in accordance with
the foregoing subparagraph (ii) of this Section 11(a), the Company shall: (A)
determine the excess of (1) the value of the Adjustment Shares issuable upon the
exercise of a Right (the "Current Value") over (2) the Purchase Price (such
excess, the "Spread"), and (B) with respect to each Right, make adequate
provision to substitute for the Adjustment Shares, upon payment of the
applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3)
Common Stock or other equity securities of the Company (including, without
limitation, shares, or units of shares, of preferred stock which the Board has
deemed to have the same value as shares of Common Stock (such shares of
preferred stock, "common stock equivalents")), (4) debt securities of the
Company, (5) other assets, or (6) any combination of the foregoing, having an
aggregate value equal to the Current Value, where such aggregate value has been
determined by the Board based upon the advice of a nationally recognized
investment banking firm selected by the Board; provided, however, if the Company
shall not have made adequate provision to deliver value pursuant to clause (B)
above within thirty (30) days following the later of (x) the first occurrence of
a Section 11(a)(ii) Event and (y) the date on which the Company's right of
redemption pursuant to Section 23(a) expires (the later of (x) and (y) being
referred to herein as the "Section 11(a)(ii) Trigger Date"), then the Company
shall be obligated to deliver, upon the surrender for exercise of a Right and
without requiring payment of the Purchase Price, shares of Common Stock (to the
extent available) and then, if necessary, cash, which shares and/or cash have an
aggregate value equal to the Spread. If the Board shall determine in good faith
that it is likely that sufficient additional shares of Common Stock could be
authorized for issuance upon exercise in full of the Rights, the thirty (30) day
period set forth above may be extended to the extent necessary, but not more
than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that
the Company may seek shareholder approval for the authorization of such
additional shares (such period, as it may be extended, the "Substitution
Period"). To the extent that the Company determines that some action need be
taken pursuant to the first and/or second sentences of this Section 11(a)(iii),
the Company (x) shall provide, subject to Section 7(e) hereof, that such action
shall apply uniformly to all outstanding Rights, and (y) may suspend the
exercisability of the Rights until the expiration of the Substitution 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 sentence 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, as well as a public announcement at such time as
the suspension is no longer in effect. For purposes of this Section 11(a)(iii),
the value of the Common Stock shall be the current market

                                      -16-
<PAGE>

price (as determined pursuant to Section 11(d) hereof) per share of the Common
Stock on the Section 11(a)(ii) Trigger Date and the value of any "common stock
equivalent" shall be deemed to have the same value as the Common Stock on such
date.

      (b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them to
subscribe for or purchase (for a period expiring within forty-five (45) calendar
days after such record date) Preferred Stock (or shares having the same rights,
privileges and preferences as the shares of Preferred Stock ("equivalent
preferred stock")) or securities convertible into Preferred Stock or equivalent
preferred stock at a price per share of Preferred Stock or per share of
equivalent preferred stock (or having a conversion price per share, if a
security convertible into Preferred Stock or equivalent preferred stock) less
than the current market price (as determined pursuant to Section 11(d) hereof)
per share of Preferred Stock 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 shares of Preferred Stock outstanding
on such record date, plus the number of shares of Preferred Stock which the
aggregate offering price of the total number of shares of Preferred Stock and/or
equivalent preferred stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price, and the denominator of which shall be the number
of shares of Preferred Stock outstanding on such record date, plus the number of
additional shares of Preferred Stock and/or equivalent preferred stock to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible). In case such subscription price may
be paid by delivery of consideration part or all of which may be in a form other
than cash, the value of such consideration shall be as determined in good faith
by the Board, whose determination shall be described in a statement filed with
the Rights Agent and shall be conclusive for all purposes. Shares of Preferred
Stock 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 a distribution to all
holders of Preferred Stock (including any such distribution made in connection
with a consolidation or merger in which the Company is the continuing
corporation) of evidences of indebtedness, cash (other than a regular quarterly
cash dividend out of the earnings or retained earnings of the Company), assets
(other than a dividend payable in Preferred Stock, but including any dividend
payable in stock other than Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the current market price (as determined pursuant to
Section 11(d) hereof) per share of Preferred Stock on such record date, less the
fair market value (as determined in good faith by the Board, whose determination
shall be described in a statement filed with the Rights Agent and shall be
conclusive for all purposes) of the portion of the cash,

                                      -17-
<PAGE>

assets or evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to a share of Preferred Stock and the denominator
of which shall be such current market price (as determined pursuant to Section
11(d) hereof) per share of Preferred Stock on such record date. 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 be
adjusted to be the Purchase Price which would have been 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) hereof, the "current market
price" per share of Common Stock on any date shall be deemed to be the average
of the daily closing prices per share of such Common Stock for the thirty (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) hereof, the "current market price" per share of Common Stock on any
date shall be deemed to be the average of the daily closing prices per share of
such Common Stock for the ten (10) consecutive Trading Days immediately
following such date; provided, however, that in the event that the current
market price per share of the Common Stock is determined during a period
following the announcement by the issuer of such Common Stock of (A) a dividend
or distribution on such Common Stock payable in shares of such Common Stock or
securities convertible into shares of such Common Stock (other than the Rights),
or (B) any subdivision, combination or reclassification of such Common Stock,
and prior to the expiration of the requisite thirty (30) Trading Day or ten (10)
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 occurs, then, and in each such case, the "current market
price" shall be properly adjusted to take into account ex-dividend or post
record date 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 principal national securities
exchange on which the shares of Common Stock are listed or admitted to trading
or, if the shares of Common Stock 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 the low asked prices in the over-the-counter market,
as reported by The Nasdaq Stock Market, Inc. ("Nasdaq") or such other system
then in use, or, if on any such date the shares of Common Stock 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 Stock
selected by the Board. All references in this Section to closing prices, last
quoted prices or other stock prices mean prices during regular trading hours,
without giving effect to any after-hours or extended hours trading. If on any
such date no market maker is making a market in the Common Stock, the fair value
of such shares on such date shall be as determined in good faith by the Board,
whose determination shall be described in a statement filed with the Rights
Agent and shall be conclusive for all purposes. The term "Trading Day" shall
mean a day on which Nasdaq or any national securities exchange on which the
shares of Common Stock are listed or admitted to trading is open for the
transaction of business or, if the shares of Common Stock are not listed or
admitted to trading on Nasdaq or any national securities exchange, a Business
Day. If the Common Stock is not publicly held or not so listed

                                      -18-
<PAGE>

or traded, "current market price" per share shall mean the fair value per share
as determined in good faith by the Board, whose determination shall be described
in a statement filed with the Rights Agent and shall be conclusive for all
purposes.

            (ii) For the purpose of any computation hereunder, the "current
market price" per share of Preferred Stock shall be determined in the same
manner as set forth above for the Common Stock in clause (i) of this Section
11(d) (other than the last sentence thereof). If the current market price per
share of Preferred Stock cannot be determined in the manner provided above or if
the Preferred Stock is not publicly held or listed or traded in a manner
described in clause (i) of this Section 11(d), the "current market price" per
share of Preferred Stock shall be conclusively deemed to be an amount equal to
1,000 (as such number may be appropriately adjusted for such events as stock
splits, stock dividends and recapitalizations with respect to the Common Stock
occurring after the date of this Agreement) multiplied by the current market
price per share of the Common Stock. If neither the Common Stock nor the
Preferred Stock is publicly held or so listed or traded, "current market price"
per share of the Preferred Stock shall mean the fair value per share as
determined in good faith by the Board, which determination shall be described in
a statement filed with the Rights Agent and shall be conclusive for all
purposes. For all purposes of this Agreement, the "current market price" of one
one-thousandth of a share of Preferred Stock shall be equal to the "current
market price" of one share of Preferred Stock divided by 1,000.

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

      (f) If as a result of an adjustment made pursuant to Section 11(a)(ii) or
Section 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any securities other than Preferred Stock, thereafter the
number of such other securities so receivable upon exercise of any Right and the
Purchase Price thereof shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Stock contained in Sections 11(a), (b), (c), (e), (g),
(h), (i), (j), (k) and (m), and the provisions of Sections 7, 9, 10, 13 and 14
hereof with respect to the Preferred Stock shall apply on like terms to any such
other securities; provided, however, that the Company shall not be liable for
its inability to reserve and keep available for issuance upon exercise of the
Rights pursuant to Section 11(a)(ii) a number of shares of Common Stock greater
than the number then authorized by the Company's Certificate of Incorporation
but not outstanding or reserved for other purposes.

                                      -19-
<PAGE>

      (g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
share of Preferred Stock 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 Sections 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 one one-thousandths of
a share of Preferred Stock (calculated to the nearest ten-millionth) obtained by
(i) multiplying (x) the number of one one-thousandths of a share covered by a
Right immediately prior to this adjustment, by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price, and (ii) dividing
the product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.

      (i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in lieu of any adjustment in the
number of one one-thousandths of a share of Preferred Stock purchasable upon the
exercise of a Right. Each of the Rights outstanding after the adjustment in the
number of Rights shall be exercisable for the number of one one-thousandths of a
share of Preferred Stock for which a Right was exercisable immediately prior to
such adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the nearest
one-hundred- thousandth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price in
effect immediately after adjustment of the Purchase Price. The Company shall
make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least ten (10) days later than the
date of the public announcement. If Rights Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights 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 Rights
Certificates on the record date specified in the public announcement.

      (j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-thousandths of a share of Preferred Stock issuable upon the
exercise of the Rights, the

                                      -20-
<PAGE>

Rights Certificates theretofore and thereafter issued may continue to express
the Purchase Price per one one-thousandth of a share and the number of one
one-thousandths of a share which were expressed in the initial Rights
Certificates issued hereunder.

      (k) Before taking any action that would cause an adjustment reducing the
Purchase Price below the then par value, if any, of the number of one
one-thousandths of a share of Preferred 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 such number of one one-thousandths of a share of fully paid and
nonassessable Preferred 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
issuance to the holder of any Right exercised after such record date the number
of one one-thousandths of a share of Preferred Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of one one-thousandths of a share of Preferred Stock 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 (fractional or otherwise) or securities 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 in their good faith judgment the Board shall determine to be
advisable in order that any (i) consolidation or subdivision of the Preferred
Stock, (ii) issuance wholly for cash of any shares of Preferred Stock at less
than the current market price, (iii) issuance wholly for cash of shares of
Preferred Stock or securities which by their terms are convertible into or
exchangeable for shares of Preferred Stock, (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 Preferred Stock shall not be taxable to such
stockholders.

      (n) The Company covenants and agrees that it shall not, at any time after
the Distribution Date, (i) consolidate with any other Person (other than a
Subsidiary of the Company in a transaction that complies with Section 11(o)
hereof), (ii) merge with or into any other Person (other than a Subsidiary of
the Company in a transaction which complies with Section 11(o) hereof), or (iii)
sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related 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 other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), if (x) at the time of or immediately after
such consolidation, merger or sale there are any charter or bylaw provisions or
any rights, warrants or other instruments or securities outstanding or
agreements in effect that would substantially

                                      -21-
<PAGE>

diminish or otherwise eliminate the benefits intended to be afforded by the
Rights or (y) prior to, simultaneously with or immediately after such
consolidation, merger or sale, the stockholders of the Person who constitutes,
or would constitute, the "Principal Party" for purposes of Section 13(a) hereof
shall have received a distribution of Rights previously owned by such Person or
any of its Affiliates or Associates. The Company shall not consummate any
consolidation, merger, sale or transfer described in clause (i), (ii) or (iii)
of the prior sentence unless prior thereto the Company and such other Person
shall have executed and delivered to the Rights Agent a supplemental agreement
evidencing compliance with this Section 11(n).

      (o) The Company covenants and agrees that, after the Distribution Date, it
will not, except as permitted by Section 23, Section 24 or Section 27 hereof,
take (or permit any Subsidiary to take) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish substantially
or otherwise eliminate the benefits intended to be afforded by the Rights.

      (p) 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 or pay any dividend on the outstanding shares of
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
shares of Common Stock, or (iii) combine the outstanding shares of Common Stock
into a smaller number of shares, the number of Rights associated with each share
of Common Stock then outstanding, or issued or delivered thereafter but prior to
the Distribution Date, shall be proportionately adjusted so that the number of
Rights thereafter associated with each share of Common Stock following any such
event shall equal the result obtained by multiplying the number of Rights
associated with each share of Common Stock immediately prior to such event by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the occurrence of such event and the
denominator of which shall be the number of shares of Common Stock 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 Section 11 or Section 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent, and with each transfer agent for the Preferred
Stock and the Common Stock, a copy of such certificate, and (c) mail a brief
summary thereof to each holder of a Rights Certificate (or, if prior to the
Distribution Date, to each holder of a certificate representing shares of Common
Stock) in accordance with Section 26 hereof. The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment therein
contained and shall not be deemed to have knowledge of any adjustment unless and
until it shall have received such certificate.

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

      (a) In the event that, at any time after a Person has become an Acquiring
Person, (x) the Company shall consolidate with, or merge with and into, any
other Person (other than a Subsidiary of the Company in a transaction that
complies with Section 11(o) hereof), and the

                                      -22-
<PAGE>

Company shall not be the continuing or surviving corporation of such
consolidation or merger, (y) any Person (other than a Subsidiary of the Company
in a transaction that complies with Section 11(o) hereof) 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 and, in
connection with such consolidation or merger, all or part of the outstanding
shares of Common Stock 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 transaction or a series of related 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 in one or more
transactions each of which complies with Section 11(o) hereof), then, and in
each such case and except as contemplated by Section 13(d) hereof, 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,
non-assessable and freely tradeable shares of Common Stock of the Principal
Party (as such term is hereinafter defined), which shall not be subject to any
liens, encumbrances, rights of first refusal or other adverse claims, as shall
be equal to the result obtained by (1) multiplying the then current Purchase
Price by the number of one one-thousandths of a share of Preferred Stock for
which a Right is exercisable immediately prior to the first occurrence of a
Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the
first occurrence of a Section 13 Event, multiplying the number of such one
one-thousandths of a share for which a Right was exercisable immediately prior
to the first occurrence of a Section 11(a)(ii) Event by the Purchase Price in
effect immediately prior to such first occurrence), and (2) dividing that
product (which, following the first occurrence of a Section 13 Event, shall be
referred to as the "Purchase Price" for each Right and for all purposes of this
Agreement) by 50% of the current market price (determined pursuant to Section
11(d)(i) hereof) per share of the Common Stock of such Principal Party on the
date of consummation of such Section 13 Event; (ii) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such Section 13 Event,
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, subject to clause (v) below, the provisions
of Section 11 hereof shall apply only to such Principal Party following the
first occurrence of a Section 13 Event; (iv) such Principal Party shall take
such steps (including, but not limited to, the reservation of a sufficient
number of shares of its Common Stock) in 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
shares of Common Stock thereafter deliverable upon the exercise of the Rights;
and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect
following the first occurrence of any Section 13 Event.

      (b) "Principal Party" shall mean

                                      -23-
<PAGE>

            (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 shares of Common Stock of the Company 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 Stock of such Person
is not at such time and has not been continuously over the preceding twelve (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 Stock of which is
and has been so registered, "Principal Party" shall refer to such other Person;
(2) in case such Person is a Subsidiary, directly or indirectly, of more than
one Person, the Common Stocks 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 Stock having the greatest aggregate market value; and (3)
in case such Person is owned, directly or indirectly, by a joint venture formed
by two or more Persons that are not owned, directly or indirectly, by the same
Person, the rules set forth in (1) and (2) above shall apply to each of the
chains of ownership having an interest in such joint venture as if such party
were a "Subsidiary" of both or all of such joint ventures and the Principal
Parties in each such chain shall bear the obligations set forth in this Section
13 in the same ratio as their direct or indirect interests in such Person bear
to the total of such interests.

      (c) The Company shall not consummate any such consolidation, merger, sale
or transfer unless the Principal Party shall have a sufficient number of
authorized shares of its Common Stock which have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and 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

            (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;

            (ii) use its best efforts to qualify or register the Rights and the
securities purchasable upon exercise of the Rights under the blue sky laws of
such jurisdictions as may be necessary or appropriate; and

                                      -24-
<PAGE>

            (iii) deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates that 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 a Section 13 Event
shall occur at the same time as, or at any time after, the occurrence of a
Section 11(a)(ii) Event, the Rights which have not theretofore been exercised
shall thereafter become exercisable in the manner described in Section 13(a).

      (d) Notwithstanding anything in this Agreement to the contrary, Section 13
shall not be applicable to a transaction described in subparagraphs (x) and (y)
of Section 13(a) if (i) such transaction is consummated with a Person or Persons
(or a wholly owned subsidiary of any such Person or Persons) who acquired shares
of Common Stock pursuant to a Permitted Offer, (ii) the price per share of
Common Stock paid in such transaction is not less than the price per share of
Common Stock paid to all holders of shares of Common Stock whose shares were
purchased pursuant to such Permitted Offer, and (iii) the form of consideration
paid in such transaction is the same as the form of consideration paid pursuant
to such Permitted Offer. Upon consummation of any such transaction contemplated
by this Section 13(d), all Rights hereunder shall expire.

      Section 14. 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(i) or (p) hereof, or to
distribute Rights Certificates that evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders of the Rights
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For purposes of this Section 14(a), the current market
value of a whole Right shall be the closing price of the Rights for the Trading
Day immediately prior to the date on which such fractional Rights would have
been otherwise issuable. The closing price of the Rights 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 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 not so quoted, the average of the high
bid and the 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. All references in this Section to closing prices, last
quoted prices or other stock prices means prices during regular trading hours,
without giving effect to any after-hours or extended hours trading. 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 shall be

                                      -25-
<PAGE>

used, which determination shall be described in a statement filed with Rights
Agent and shall be conclusive for all purposes.

      (b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates that evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock). Fractional shares of Preferred Stock in integral
multiples of one one-thousandth of a share of Preferred Stock may, at the
election of the Company, be evidenced by depositary receipts; provided, however,
that holders of such depositary receipts shall have all of the designations and
the powers, preferences and rights, and the qualifications, limitations and
restrictions to which they are entitled as beneficial owners of the shares of
Preferred Stock represented by such depositary receipts. In lieu of fractional
shares of Preferred Stock (other than fractions which are integral multiples of
one one-thousandth of a share of Preferred Stock), the Company shall pay to the
registered holders of Rights Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of one one-thousandth of a share of Preferred Stock. For purposes
of this Section 14(b), the current market value of one one-thousandth of a share
of Preferred Stock shall be one one-thousandth of the closing price of a share
of Preferred Stock (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 shares of Common Stock upon exercise of the
Rights or to distribute certificates which evidence fractional shares of Common
Stock. In lieu of fractional shares of Common Stock, the Company shall pay to
the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market price of one (1) share of Common Stock (as determined pursuant to
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 such Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as permitted by this Section 14.

      Section 15. Rights of Action. All rights of action in respect of this
Agreement, except the rights of action expressly given to the Rights Agent in
Section 18 hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Rights Certificate in the manner provided
in such Rights Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights

                                      -26-
<PAGE>

would not have an adequate remedy at law for any breach of this Agreement and
shall be entitled to specific performance of the obligations hereunder and
injunctive relief against actual or threatened violations of the obligations
hereunder of any Person subject to this Agreement.

      Section 16. Agreement of Rights 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 Stock;

      (b) after the Distribution Date, the Rights Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the office of
the Rights Agent designated for such purposes, duly endorsed or accompanied by a
proper instrument of transfer and with the appropriate forms and certificates
duly completed and fully executed;

      (c) subject to Section 6(a) and Section 7(f) hereof, the Company and the
Rights Agent may deem and treat the person in whose name a Rights Certificate
(or, prior to the Distribution Date, the associated Common Stock certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Rights
Certificates or the associated Common Stock certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent, subject to the penultimate sentence of Section
7(e) hereof, shall be required to be affected by any notice to the contrary; and

      (d) notwithstanding anything in this Agreement to the contrary, neither
the Company nor the Rights Agent shall have any liability to any holder of a
Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to prevent the issuance of any such order, decree or ruling and to have
any such order, decree or ruling lifted or otherwise overturned as soon as
possible.

      Section 17. Rights Certificate Holder Not Deemed a Stockholder. No holder,
as such, of any Rights Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the number of one one-thousandths of
a share of Preferred Stock 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 Rights Certificate be construed to
confer upon the holder of any Rights Certificate, as such, any of the rights of
a stockholder of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to give
or withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in

                                      -27-
<PAGE>

Section 25 hereof), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by such Rights Certificate shall
have been exercised in accordance with the provisions hereof.

      Section 18. Concerning the Rights Agent.

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

      (b) The Rights Agent shall be protected and shall incur no liability for
or in respect of any action taken, suffered or omitted by it in connection with
its administration of this Agreement in reliance upon any Rights Certificate or
certificate for Common Stock 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, or otherwise upon the
advice of counsel as set forth in Section 20 hereof.

      Section 19. Merger or Consolidation or Change of Name of Rights Agent.

      (a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
corporate trust or stock transfer business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, however, that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement, any of the Rights Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of a predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.

                                      -28-
<PAGE>

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

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

      (a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the 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
(including, without limitation, the identity of any Acquiring Person and the
determination of "current market price") 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 the
Chairman of the Board, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant 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 gross
negligence, bad faith or willful misconduct.

      (d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Rights
Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), 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 Rights 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 Rights Certificate; nor shall it
be responsible for any adjustment required under the provisions of Section 11,
Section 13 or Section 24 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 Rights Certificates after receipt of a certificate describing

                                      -29-
<PAGE>

any such adjustment, delivered pursuant to Section 12); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Common Stock or Preferred Stock to
be issued pursuant to this Agreement or any Rights Certificate or as to whether
any shares of Common Stock or Preferred Stock 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.

      (g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant 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. Any
application by the Rights Agent for written instructions from the Company may,
at the option of the Rights Agent, set forth in writing any action proposed to
be taken or omitted by the Rights Agent with respect to its duties or
obligations under this Rights Agreement and the date on and/or after which such
action shall be taken or omitted and the Rights Agent shall not be liable for
any action taken or omitted in accordance with a proposal included in any such
application on or after the date specified therein (which date shall not be less
than five Business Days after the date any such officer actually receives such
application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking or omitting any such action, the Rights
Agent has received written instructions in response to such application
specifying the action to be taken or omitted.

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

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

      (j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that

                                      -30-
<PAGE>

repayment of such funds or adequate indemnification against such risk or
liability is not reasonably assured to it.

      (k) If, with respect to any Rights Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has not been
completed, the Company and the Rights Agent will deem the beneficial owner of
the rights evidenced by such Rights Certificate to be an Acquiring Person or an
Affiliate or Associate thereof and such assignment or election to purchase will
not be honored.

      Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company, and to each
transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Common Stock
and Preferred Stock, by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. In the event that either party
terminates the Transfer Agency and Service Agreement pursuant to Section 15
thereof, the Rights Agent will be deemed to resign automatically on the
effective date of such termination and any notice required to be delivered
pursuant to this Section 21 will be sent to the Company. 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 thirty (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
Rights Certificate (who shall, with such notice, submit his Rights Certificate
for inspection by the Company), then any registered holder of any Rights
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) in good standing, which is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or
examination by federal or state authority and which has 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. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment, the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Stock
and the Preferred Stock, and mail a notice thereof in writing to the registered
holders of the Rights Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect

                                      -31-
<PAGE>

therein, shall not affect the legality or validity of the resignation or removal
of the Rights Agent or the appointment of the successor Rights Agent, as the
case may be.

      Section 22. Issuance of New Rights Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Rights Certificates evidencing Rights in such form
as may be approved by the Board to reflect any adjustment or change in the
Purchase Price and the number or kind or class of shares or other securities or
property purchasable under the Rights Certificates made in accordance with the
provisions of this Agreement.

      Section 23. Redemption; Independent Director Review.

      (a) The Board may, at its option, at any time prior to the earlier of (i)
the close of business on the tenth Business Day (or such later date as may be
determined by the Board pursuant to clause (i) of the first sentence of Section
3(a) with respect to the Distribution Date) following the Stock Acquisition Date
(or, if the Stock Acquisition Date shall have occurred prior to the Record Date,
the close of business on the tenth Business Day following the Record Date) and
(ii) the Final Expiration Date, redeem all but not less than all the then
outstanding Rights at a redemption price of $0.001 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"). The redemption of the Rights
by the Board may be made effective at such time, on such basis and with such
conditions as the Board in its sole discretion may establish. The Company may,
at its option, pay the Redemption Price in cash, shares of Common Stock (based
on the "current market price," as defined in Section 11(d)(i) hereof, of the
Common Stock at the time of redemption) or any other form of consideration, or
any combination of any of the foregoing, deemed appropriate by the Board.
Notwithstanding anything contained in this Agreement to the contrary, the Rights
shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event
until such time as the Company's right of redemption hereunder has expired.

      (b) Immediately upon the action of the Board ordering the redemption of
the Rights, evidence of which shall have been filed with the Rights Agent and
without any further action and without any notice, the right to exercise the
Rights shall terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price for each Right so held. Promptly after
the action of the Board ordering the redemption of the Rights, the Company shall
give notice of such redemption to the Rights Agent and the holders of the then
outstanding Rights by mailing such notice to all such holders at each holder's
last address as it appears upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the Transfer Agent for the
Common Stock. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made.

      (c) In the event of a redemption of the Rights in accordance with this
Agreement, the Company may, at its option, discharge all of its obligations with
respect to the Rights by (i)

                                      -32-
<PAGE>

issuing a press release announcing the manner of redemption of the Rights in
accordance with this Agreement and (ii) mailing payment of the Redemption Price
to the registered holders of the Rights at their last addresses as they appear
on the registry books of the Rights Agent or, prior to the Distribution Date, on
the registry books of the Transfer Agent of the Common Stock, and upon such
action, all outstanding Rights and Right Certificates shall be null and void
without any further action by the Company.

      (d) At least once every three years a committee of directors who are
independent of the management of the Company and free from any relationship
that, in the opinion of the Board would interfere with their exercise of
independent judgment, shall review and evaluate this Rights Agreement in order
to consider whether the maintenance of this Rights Agreement continues to be in
the interests of the Company and its stockholders. Following each such review,
the committee will communicate its conclusions to the full Board, including any
recommendation in light thereof as to whether this Rights Agreement should be
modified or the Rights should be redeemed.

      Section 24. Exchange.

      (a) The Board may, at its option, at any time after a Section 11(a)(ii)
Event, exchange all or part of the then outstanding and exercisable Rights
(which (i) shall not include Rights that have become void pursuant to the
provisions of Section 7(e) hereof, and (ii) shall include, without limitation,
any Rights issued after the Distribution Date) for shares of Common Stock at an
exchange ratio of one share of Common Stock per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such exchange ratio being hereinafter referred to as the
"Exchange Ratio"). Notwithstanding the foregoing, the Board shall not be
empowered to effect such exchange at any time after any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or any such Subsidiary, or any entity holding Common Stock for or pursuant to
the terms of any such plan), together with all Affiliates and Associates of such
Person, becomes the Beneficial Owner of 50% or more of the shares of Common
Stock then outstanding.

      (b) Immediately upon the action of the Board ordering the exchange of any
Rights pursuant to subsection (a) of this Section 24, evidence of which shall
have been filed with the Rights Agent, and without any further action and
without any notice, the right to exercise such Rights shall terminate and the
only right thereafter of a holder of such Rights shall be to receive that number
of shares of Common Stock equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. The Company shall promptly give public notice
of any such exchange; provided, however, that the failure to give, or any defect
in, such notice shall not affect the validity of such exchange. The Company
promptly shall mail a notice of any such exchange to all of the holders of such
Rights at their last addresses as they appear upon the registry books of the
Rights Agent. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
exchange shall state the method by which the exchange of shares of Common Stock
for Rights will be effected and, in the event of any partial exchange, the
number of Rights which will be

                                      -33-
<PAGE>

exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 7(e) hereof) held by each holder of Rights.

      (c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute Preferred Stock (or equivalent preferred stock, as such
term is defined in Section 11(b) hereof) for shares of Common Stock exchangeable
for Rights, at the initial rate of one one-thousandth of a share of Preferred
Stock (or equivalent preferred stock) for each share of Common Stock, as
appropriately adjusted to reflect adjustments in the voting rights of the
Preferred Stock pursuant to Section 3(A) of the Certificate of Designations
attached hereto as Exhibit A, so that the fraction of a share of Preferred Stock
(or equivalent preferred stock) delivered in lieu of each share of Common Stock
shall have the same voting rights as one share of Common Stock.

      (d) In the event that there shall not be sufficient shares of Common Stock
or Preferred Stock issued but not outstanding or authorized but unissued to
permit any exchange of Rights as contemplated in accordance with this Section
24, the Company shall take all such action as may be necessary to authorize
additional shares of Common Stock or Preferred Stock for issuance upon exchange
of the Rights.

      (e) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of such fractional shares of Common Stock, there shall be
paid to the registered holders of the Right Certificates with regard to which
such fractional shares of Common Stock would otherwise be issuable, an amount in
cash equal to the same fraction of the current market value of a whole share of
Common Stock. For the purposes of this subsection (e), the current market value
of a whole share of Common Stock shall be the closing price per share of Common
Stock (as determined pursuant to the second sentence of Section 11(d)(i) hereof)
for the Trading Day immediately prior to the date of exchange pursuant to this
Section 24.

      Section 25. Notice of Certain Events.

      (a) In case the Company shall propose, at any time after the Distribution
Date, (i) to pay any dividend payable in stock of any class to the holders of
Preferred Stock or to make any other distribution to the holders of Preferred
Stock (other than a regular quarterly cash dividend out of earnings or retained
earnings of the Company), or (ii) to offer to the holders of Preferred Stock
rights or warrants to subscribe for or to purchase any additional shares of
Preferred Stock or shares of stock of any class or any other securities, rights
or options, or (iii) to effect any reclassification of its Preferred Stock
(other than a reclassification involving only the subdivision of outstanding
shares of Preferred Stock), or (iv) to effect any consolidation or merger into
or with any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof), 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 transaction or a series of related 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 Persons (other than the Company and/or

                                      -34-
<PAGE>

any of its Subsidiaries in one or more transactions each of which complies with
Section 11(o) hereof), or (v) 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 Rights Certificate, to the extent feasible and 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 shares of Preferred Stock,
if any such date is to be fixed, and such notice shall be so given in the case
of any action covered by clause (i) or (ii) above at least twenty (20) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action, at
least twenty (20) days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the shares of Preferred
Stock, whichever shall be the earlier.

      (b) In case a Section 11(a)(ii) Event shall occur, then, in any such case,
(i) the Company shall as soon as practicable thereafter give to each holder of a
Rights Certificate, to the extent feasible and 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 Preferred Stock
shall be deemed thereafter to refer also to Common Stock and/or, if appropriate,
other securities; provided that the failure to give such notice shall not affect
the validity of such consent.

      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 Rights 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:

                      Aspect Medical Systems, Inc.
                      141 Needham Street
                      Newton, Massachusetts 02464
                      Attention: Chief Executive Officer

                      with a copy to:

                      Wilmer Cutler Pickering Hale and Dorr LLP
                      60 State Street
                      Boston, Massachusetts 02109
                      Attention: Susan W. Murley, Esq.

Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
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:

                                      -35-
<PAGE>

                      EquiServe Trust Company, N.A.
                      250 Royall Street
                      Canton, Massachusetts 02021
                      Attention: Client Administration

Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) 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. Except as provided in the
penultimate sentence of this Section 27, for so long as the Rights are then
redeemable, the Company may, in its sole and absolute discretion, and the Rights
Agent shall, if the Company so directs, supplement or amend any provision of
this Agreement in any respect without the approval of any holders of the Rights.
At any time when the Rights are no longer redeemable, except as provided in the
penultimate sentence of this Section 27, the Company may, by approval of at
least 75% of the members of the Board, and the Rights Agent shall, if the
Company so directs, supplement or amend this Agreement without the approval of
any holders of Rights in order (i) to cure any ambiguity or (ii) to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, provided that no such supplement or amendment
shall adversely affect the interests of the holders of Rights as such (other
than an Acquiring Person or an Affiliate or Associate of an Acquiring Person).
Upon the delivery of a certificate from an appropriate officer of the Company
which states that the proposed supplement or amendment is in compliance with the
terms of this Section 27, the Rights Agent shall execute such supplement or
amendment. Any supplement or amendment that the Rights Agent is required to sign
pursuant to this Section 27 shall be effective upon execution by the Company
(whether or not then executed by the Rights Agent or the certificate referred to
in the immediately preceding sentence has been delivered). Notwithstanding
anything contained in this Agreement to the contrary, no supplement or amendment
shall be made which changes the Redemption Price. Prior to the Distribution
Date, the interests of the holders of Rights shall be deemed coincident with the
interests of the holders of Common Stock.

      Section 28. 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 29. Actions by the Board, etc. The Board shall have the exclusive
power and authority to administer this Agreement and to exercise all rights and
powers specifically granted to the Board or to 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 this Agreement). All such actions, calculations,
interpretations and determinations

                                      -36-
<PAGE>

(including, for purposes of clause (y) below, all omissions with respect to the
foregoing) which are done or made by the Board in good faith, shall (x) be
final, conclusive and binding on the Company, the Rights Agent, the holders of
the Rights and all other parties, and (y) not subject the Board to any liability
to the holders of the Rights.

      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 Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock) 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 Rights Certificates (and, prior to the Distribution Date,
registered holders of the Common Stock).

      Section 31. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board determines
in its good faith judgment that severing the invalid, void or unenforceable
language from this Agreement would adversely affect the purpose or effect of
this Agreement, the right of redemption set forth in Section 23 hereof shall be
reinstated and shall not expire until the close of business on the tenth day
following the date of such determination by the Board.

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

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

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

      Section 35. Force Majeure. Notwithstanding anything to the contrary
contained herein, Rights Agent shall not be liable for any delays or failures in
performance resulting from acts beyond its reasonable control including, without
limitation, acts of God, terrorist acts, shortage of supply, breakdowns or
malfunctions, interruptions or malfunction of computer facilities, or loss of
data due to power failures or mechanical difficulties with information storage
or retrieval systems, labor difficulties, war, or civil unrest.

                                      -37-
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.

Attest:                                  ASPECT MEDICAL SYSTEMS, INC.

By: /s/ Susan M. Callahan                By: /s/ Nassib Chamoun
   ---------------------------------        ------------------------------------
Name: Susan M. Callahan                  Name: Nassib Chamoun
     -------------------------------          ----------------------------------
Title: Assistant                         Title: President and CEO
      ------------------------------           ---------------------------------

Attest:                                  EQUISERVE TRUST COMPANY, N.A.

By: /s/ Monique Hughes                   By: /s/ Carol Mulvey-Eori
   ---------------------------------        ------------------------------------
Name: Monique Hughes                     Name: Carol Mulvey-Eori
     -------------------------------          ----------------------------------
Title: Account Manager                   Title: Managing Director
      ------------------------------           ---------------------------------

                                      -38-
<PAGE>

                                     FORM OF

                           CERTIFICATE OF DESIGNATIONS

                                       OF

                  SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

                                       OF

                          ASPECT MEDICAL SYSTEMS, INC.

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

Aspect Medical Systems, Inc., a corporation organized and existing under the
laws of the State of Delaware (hereinafter called the "Corporation"), hereby
certifies that the following resolution was adopted by the Board of Directors of
the Corporation at a meeting duly called and held on November 29, 2004:

RESOLVED: That pursuant to the authority granted to and vested in the Board of
Directors of the Corporation (hereinafter called the "Board") in accordance with
the provisions of the Certificate of Incorporation, as amended, the Board hereby
creates a series of Preferred Stock, $0.01 par value per share (the "Preferred
Stock"), of the Corporation and hereby states the designation and number of
shares, and fixes the relative rights, preferences and limitations thereof as
follows:

      SERIES A JUNIOR PARTICIPATING PREFERRED STOCK:

      Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be sixty thousand (60,000). Such number of shares may be increased
or decreased by resolution of the Board prior to issuance; provided, that no
decrease shall reduce the number of shares of Series A Preferred Stock to a
number less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Series A Preferred Stock.

      Section 2. Dividends and Distributions.

      (A) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the Series
A Preferred Stock with respect to dividends, the holders of shares of Series A
Preferred Stock, in preference to the holders of Common Stock, par value $0.01
per share (the "Common Stock"), of the Corporation, and of any other junior
stock, shall be entitled to receive, when, as and if declared by the Board out
of funds of the Corporation legally available for the payment of dividends,
quarterly dividends payable in

                                      A-1
<PAGE>

cash on the last day of each fiscal quarter of the Corporation in each year
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a) $10
or (b) subject to the provision for adjustment hereinafter set forth, 1,000
times the aggregate per share amount of all cash dividends, and 1,000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision, combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event. In the event the Corporation shall at any time declare or pay any
dividend on the Series A Preferred Stock payable in shares of Series A Preferred
Stock, or effect a subdivision, combination or consolidation of the outstanding
shares of Series A Preferred Stock (by reclassification or otherwise than by
payment of a dividend in shares of Series A Preferred Stock) into a greater or
lesser number of shares of Series A Preferred Stock, then in each such case the
amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (b) of the first sentence of this
Section 2(A) shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Series A Preferred Stock that were
outstanding immediately prior to such event and the denominator of which is the
number of shares of Series A Preferred Stock outstanding immediately after such
event.

      (B) The Corporation shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) of this Section immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock) and the Corporation shall pay such
dividend or distribution on the Series A Preferred Stock before the dividend or
distribution declared on the Common Stock is paid or set apart; provided that,
in the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $10 per share on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.

      (C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue

                                      A-2
<PAGE>

from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board may fix a record date
for the determination of holders of shares of Series A Preferred Stock entitled
to receive payment of a dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date fixed for the payment
thereof.

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

      (A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the stockholders of the Corporation.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. In the event the Corporation shall
at any time declare or pay any dividend on the Series A Preferred Stock payable
in shares of Series A Preferred Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Series A Preferred Stock (by
reclassification or otherwise than by payment of a dividend in shares of Series
A Preferred Stock) into a greater or lesser number of shares of Series A
Preferred Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Series A Preferred Stock that were
outstanding immediately prior to such event and the denominator of which is the
number of shares of Series A Preferred Stock outstanding immediately after such
event.

      (B) Except as otherwise provided herein, in the Certificate of
Incorporation or by law, the holders of shares of Series A Preferred Stock and
the holders of shares of Common Stock and any other capital stock of the
Corporation having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.

      (C) (i) If at any time dividends on any Series A Preferred Stock shall be
in arrears in an amount equal to six quarterly dividends thereon, the holders of
the Series A Preferred Stock, voting as a separate series from all other series
of Preferred Stock and classes of capital stock, shall be entitled to elect two
members of the Board in addition to any Directors elected by

                                      A-3
<PAGE>

any other series, class or classes of securities and the authorized number of
Directors will automatically be increased by two. Promptly thereafter, the Board
of the Corporation shall, as soon as may be practicable, call a special meeting
of holders of Series A Preferred Stock for the purpose of electing such members
of the Board. Such special meeting shall in any event be held within 45 days of
the occurrence of such arrearage.

            (ii) During any period when the holders of Series A Preferred Stock,
voting as a separate series, shall be entitled and shall have exercised their
right to elect two Directors, then, and during such time as such right
continues, (a) the then authorized number of Directors shall be increased by
two, and the holders of Series A Preferred Stock, voting as a separate series,
shall be entitled to elect the additional Directors so provided for, and (b)
each such additional Director shall not be a member of any existing class of the
Board, but shall serve until the next annual meeting of stockholders for the
election of Directors, or until his successor shall be elected and shall
qualify, or until his right to hold such office terminates pursuant to the
provisions of this Section 3(C).

            (iii) A Director elected pursuant to the terms hereof may be removed
with or without cause by the holders of Series A Preferred Stock entitled to
vote in an election of such Director.

            (iv) If, during any interval between annual meetings of stockholders
for the election of Directors and while the holders of Series A Preferred Stock
shall be entitled to elect two Directors, there is no such Director in office by
reason of resignation, death or removal, then, promptly thereafter, the Board
shall call a special meeting of the holders of Series A Preferred Stock for the
purpose of filling such vacancy and such vacancy shall be filled at such special
meeting. Such special meeting shall in any event be held within 45 days of the
occurrence of such vacancy.

            (v) At such time as the arrearage is fully cured, and all dividends
accumulated and unpaid on any shares of Series A Preferred Stock outstanding are
paid, and, in addition thereto, at least one regular dividend has been paid
subsequent to curing such arrearage, the term of office of any Director elected
pursuant to this Section 3(C), or his successor, shall automatically terminate,
and the authorized number of Directors shall automatically decrease by two, the
rights of the holders of the shares of the Series A Preferred Stock to vote as
provided in this Section 3(C) shall cease, subject to renewal from time to time
upon the same terms and conditions, and the holders of shares of the Series A
Preferred Stock shall have only the limited voting rights elsewhere herein set
forth.

      (D) Except as set forth herein, or as otherwise provided by law, holders
of Series A Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.

      Section 4. Certain Restrictions.

      (A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued

                                      A-4
<PAGE>

and unpaid dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:

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

            (ii) declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled;

            (iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding up)
to the Series A Preferred Stock; or

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

      (B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.

      Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.

      Section 6. Liquidation, Dissolution or Winding Up.

      (A) Upon any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (1) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received $1,000 per

                                      A-5
<PAGE>

share, plus an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, provided that the
holders of shares of Series A Preferred Stock shall be entitled to receive an
aggregate amount per share, subject to the provision for adjustment hereinafter
set forth, equal to 1,000 times the aggregate amount to be distributed per share
to holders of shares of Common Stock, or (2) to the holders of shares of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except distributions made ratably
on the Series A Preferred Stock and all such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.

      (B) Neither the consolidation, merger or other business combination of the
Corporation with or into any other corporation nor the sale, lease, exchange or
conveyance of all or any part of the property, assets or business of the
Corporation shall be deemed to be a liquidation, dissolution or winding up of
the Corporation for purposes of this Section 6.

      (C) In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision, combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the aggregate amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under the proviso
in clause (1) of paragraph (A) of this Section 6 shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. In the event the Corporation shall
at any time declare or pay any dividend on the Series A Preferred Stock payable
in shares of Series A Preferred Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Series A Preferred Stock (by
reclassification or otherwise than by payment of a dividend in shares of Series
A Preferred Stock) into a greater or lesser number of shares of Series A
Preferred Stock, then in each such case the aggregate amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such event
under the proviso in clause (1) of paragraph (A) of this Section 6 shall be
adjusted by multiplying such amount by a fraction, the numerator of which is the
number of shares of Series A Preferred Stock that were outstanding immediately
prior to such event and the denominator of which is the number of shares of
Series A Preferred Stock outstanding immediately after such event.

      Section 7. Consolidation, Merger, etc. Notwithstanding anything to the
contrary contained herein, in case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case each share of Series A
Preferred Stock shall at the same time be similarly exchanged or changed into an
amount per share, subject to the provision for adjustment hereinafter set forth,
equal to 1,000 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision, combination or

                                      A-6
<PAGE>

consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event. In the event the Corporation shall at any time declare or
pay any dividend on the Series A Preferred Stock payable in shares of Series A
Preferred Stock, or effect a subdivision, combination or consolidation of the
outstanding shares of Series A Preferred Stock (by reclassification or otherwise
than by payment of a dividend in shares of Series A Preferred Stock) into a
greater or lesser number of shares of Series A Preferred Stock, then in each
such case the amount set forth in the first sentence of this Section 7 with
respect to the exchange or change of shares of Series A Preferred Stock shall be
adjusted by multiplying such amount by a fraction, the numerator of which is the
number of shares of Series A Preferred Stock that were outstanding immediately
prior to such event and the denominator of which is the number of shares of
Series A Preferred Stock outstanding immediately after such event.

      Section 8. No Redemption. The shares of Series A Preferred Stock shall not
be redeemable.

Section 9. Rank. The Series A Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all series of any
other class of the Preferred Stock issued either before or after the issuance of
the Series A Preferred Stock, unless the terms of any such series shall provide
otherwise.

      Section 10. Amendment. At such time as any shares of Series A Preferred
Stock are outstanding, the Certificate of Incorporation, as amended, of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.

      Section 11. Fractional Shares. Series A Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and have the benefit of all other rights of holders
of Series A Preferred Stock.

                                      A-7
<PAGE>

      IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Corporation by its President and Chief Executive Officer this 29th day of
November, 2004.

                                    ASPECT MEDICAL SYSTEMS, INC.

                                    By:_________________________________________
                                    Name:  Nassib G. Chamoun
                                    Title: President and Chief Executive Officer

                                      A-8
<PAGE>

                          [Form of Rights Certificate]

Certificate No. R-                                              ______ Rights

NOT EXERCISABLE AFTER NOVEMBER 29, 2014 OR EARLIER IF REDEEMED OR EXCHANGED BY
THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $0.001 PER RIGHT AND TO
EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS
DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS 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 RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF SUCH AGREEMENT.]*

                          ASPECT MEDICAL SYSTEMS, INC.

                               Rights Certificate

This certifies that ____________, or registered assigns, is the registered owner
of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated November 29, 2004 (the "Rights Agreement"), between Aspect
Medical Systems, Inc., a Delaware corporation (the "Company"), and EquiServe
Trust Company, N.A. (the "Rights Agent"), to purchase from the Company after the
Distribution Date (as such term is defined in the Rights Agreement) and at any
time prior to 5:00 p.m. Boston time) on November 29, 2014 at the office of the
Rights Agent designated for such purpose, or its successors as Rights Agent, one
one-thousandth of a fully paid, non-assessable share of Series A Junior
Participating Preferred Stock (the "Preferred Stock") of the Company, $0.01 par
value per share, at a purchase price of $150.00 in cash per one one-thousandth
of a share (the "Purchase Price"), upon presentation and surrender of this
Rights Certificate with the Form of Election to Purchase and related Certificate
duly executed. The number of Rights evidenced by this Rights Certificate (and
the number of one one-thousandth of a share of Preferred Stock which may be
purchased upon exercise hereof) set forth above, and the Purchase Price set
forth above, are the number and Purchase Price as of the close of business on
December 10, 2004, based on the Preferred Stock as constituted at such date.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed to such terms in the Rights Agreement.

Upon the occurrence of a Section 11(a)(ii) Event, if the Rights evidenced by
this Rights Certificate are beneficially owned by (i) an Acquiring Person or an
Affiliate or Associate of any

-----------

* The portion of the legend in brackets shall be inserted only if applicable and
shall replace the preceding sentence.

                                      B-1
<PAGE>

such Acquiring Person (as such terms are defined in the Rights Agreement), (ii)
a transferee of any such Acquiring Person, Associate or Affiliate who becomes a
transferee after the Acquiring Person becomes an Acquiring Person, or (iii)
under certain circumstances specified in the Rights Agreement, a transferee of a
person who, concurrently with or 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 such Section 11(a)(ii) Event.

As provided in the Rights Agreement, the Purchase Price and the number and kind
of shares of Preferred Stock or other securities which may be purchased upon the
exercise of the Rights evidenced by this Rights Certificate are subject to
modification and adjustment upon the happening of certain events, including
Section 11(a)(ii) Events.

This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal offices of the
Company and are available upon written request to the Company.

This Rights Certificate, with or without other Rights Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, with
the Form of Election and Certificate set forth on the reverse side duly
executed, may be exchanged for another Rights Certificate or Rights Certificates
of like tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of one one-thousandths of a share of Preferred Stock as the
Rights evidenced by the Rights Certificate or Rights Certificates surrendered
shall have entitled such holder to purchase. If this Rights Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender hereof
another Rights Certificate or Rights Certificates for the number of whole Rights
not exercised.

Subject to the provisions of the Rights Agreement, the Rights evidenced by this
Certificate may be redeemed by the Company at its option at a redemption price
of $0.001 per Right at any time prior to the earlier of (i) the close of
business on the tenth Business Day (or such later date as may be determined by
the Board pursuant to clause (i) of the first sentence of Section 3(a) with
respect to the Distribution Date) following the Stock Acquisition Date (or, if
the Stock Acquisition Date shall have occurred prior to the Record Date, the
close of business on the tenth Business Day following the Record Date) and (ii)
the Final Expiration Date.

Subject to the provisions of the Rights Agreement, the Company may, at its
option, at any time after a Section 11(a)(ii) Event, exchange all or part of the
Rights evidenced by this Certificate for shares of the Company's Common Stock or
for Preferred Stock (or shares of a class or series of the Company's preferred
stock having the same rights, privileges and preferences as the Preferred
Stock).

                                      B-2
<PAGE>

No fractional shares of Preferred Stock will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-thousandth of a share of Preferred Stock, which may, at the
election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.

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

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

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

Dated as of _______________

ATTEST:                                             ASPECT MEDICAL SYSTEMS, INC.

___________________________________                 By:_________________________
Secretary                                           Name:_______________________
                                                    Title:______________________

COUNTERSIGNED:

EQUISERVE TRUST COMPANY, N.A.,
as Rights Agent

By:________________________________
   Authorized Signature

                                      B-3
<PAGE>

                  [Form of Reverse Side of Rights Certificate]

                               FORM OF ASSIGNMENT

                (To be executed by the registered holder if such

               holder desires to transfer the Rights Certificate.)

FOR VALUE RECEIVED _____________________________________________ hereby sells,
assigns and transfers unto _____________________________________________
________________________________________________________________________________

                  (Please print name and address of transferee)

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

Dated: ________________

                                        _____________________________
                                        Signature

Signature Guaranteed:

                                        Certificate

The undersigned hereby certifies that the Rights evidenced by this Rights
Certificate are not beneficially owned by, or being assigned to, an Acquiring
Person or an Affiliate or Associate thereof (as such terms are defined pursuant
to the Rights Agreement).

Dated: ______________

                                        _____________________________
                                        Signature
Signature Guaranteed:

                                        NOTICE

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

                                      B-4
<PAGE>

                          FORM OF ELECTION TO PURCHASE

                  (To be executed if holder desires to exercise

                 Rights represented by the Rights Certificate.)

To: EquiServe Trust Company, N.A.

The undersigned hereby irrevocably elects to exercise ___________ Rights
represented by this Rights Certificate to purchase the shares of Preferred Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of
and delivered to:

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 Rights
Certificate, a new Rights Certificate for the balance 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 Guaranteed:

                                      B-5
<PAGE>

                                   Certificate

      The undersigned hereby certifies by checking the appropriate boxes that:

      (1) the Rights evidenced by this Rights 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 thereof (as such terms are defined pursuant to the
Rights Agreement);

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

Dated: _______________

                                           ______________________________
                                           Signature

Signature Guaranteed:

                                           NOTICE

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

                                      B-6
<PAGE>

                              SUMMARY OF RIGHTS TO

                            PURCHASE PREFERRED STOCK

On November 29, 2004, the Board of Directors of Aspect Medical Systems, Inc.
(the "Company"), declared a dividend of one preferred stock purchase right
(collectively, the "Rights") for each outstanding share of the Company's common
stock, $0.01 par value per share (the "Common Stock"), to stockholders of record
at the close of business on December 10, 2004 (the "Record Date"). Each Right
entitles the registered holder to purchase from the Company one one-thousandth
of a share of Series A Junior Participating Preferred Stock, $0.01 par value per
share (the "Series A Junior Participating Preferred Stock"), at a purchase price
of $150.00 in cash, subject to adjustment (the "Purchase Price"). The
description and terms of the Rights are set forth in a Rights Agreement dated
November 29, 2004 (the "Rights Agreement") between the Company and EquiServe
Trust Company, N.A., as Rights Agent.

Initially, the Rights are not exercisable and will be attached to all
certificates representing outstanding shares of Common Stock (the "Common Stock
Certificates"), and no separate certificates representing the Rights (the
"Rights Certificates") will be distributed. The Rights will separate from the
Common Stock, and the "Distribution Date" will occur upon the earlier of (i) 10
business days following the later of (a) the first date of a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired, or obtained the right to acquire, beneficial ownership of
17.5% or more of the outstanding shares of Common Stock (other than Boston
Scientific Corporation, which will have the right to acquire beneficial
ownership of up to 27.5% of the Company's Common Stock), or (b) the first date
on which an executive officer of the Company has actual knowledge that an
Acquiring Person has become such (the "Stock Acquisition Date"), or (ii) 10
business days following the commencement of a tender offer or exchange offer
that would result in a person or group beneficially owning 17.5% or more of the
outstanding shares of Common Stock (other than Boston Scientific Corporation,
which will have the right to acquire beneficial ownership of up to 27.5% of the
Company's Common Stock). The Distribution Date may be deferred by the Board of
Directors. In addition, certain inadvertent acquisitions will not trigger the
occurrence of the Distribution Date. Until the Distribution Date (or earlier
redemption or expiration of the Rights), (i) the Rights will be evidenced by the
Common Stock Certificates outstanding on the Record Date, together with this
Summary of Rights, or by new Common Stock Certificates issued after the Record
Date which contain a notation incorporating the Rights Agreement by reference,
(ii) the Rights will be transferred with and only with such Common Stock
Certificates; and (iii) the surrender for transfer of any certificates for
Common Stock outstanding (with or without a copy of this Summary of Rights or
such notation) will also constitute the transfer of the Rights associated with
the Common Stock represented by such certificate.

The Rights will not be exercisable until the Distribution Date and will expire
upon the close of business on November 29, 2014 (the "Final Expiration Date")
unless earlier redeemed or exchanged as described below. As soon as practicable
after the Distribution Date, separate Rights Certificates will be mailed to
holders of record of the Common Stock as of the close of

                                      C-1
<PAGE>

business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, and except for shares of Common Stock issued upon
exercise, conversion or exchange of then outstanding options, convertible or
exchangeable securities or other contingent obligations to issue shares or
pursuant to any employee benefit plan or arrangement, only shares of Common
Stock issued prior to the Distribution Date will be issued with Rights.

In the event that any Person becomes an Acquiring Person, unless the event
causing the 17.5% threshold to be crossed is a Permitted Offer (as defined in
the Rights Agreement), then, promptly following the first occurrence of such
event, each holder of a Right (except as provided below and in Section 7(e) of
the Rights Agreement) shall thereafter have the right to receive, upon exercise,
that number of shares of Common Stock of the Company (or, in certain
circumstances, cash, property or other securities of the Company) which equals
the exercise price of the Right divided by 50% of the Current Market Price (as
defined in the Rights Agreement) per share of Common Stock at the date of the
occurrence of such event. However, Rights are not exercisable following such
event until such time as the Rights are no longer redeemable by the Company as
described below. Notwithstanding any of the foregoing, following the occurrence
of such event, all Rights that are, or (under certain circumstances specified in
the Rights Agreement) were, beneficially owned by any Acquiring Person will be
null and void. The event summarized in this paragraph is referred to as a
"Section 11(a)(ii) Event."

For example, at an exercise price of $150 per Right, each Right not owned by an
Acquiring Person (or by certain related parties) following a Section 11(a)(ii)
Event would entitle its holder to purchase for $150 such number of shares of
Common Stock (or other consideration, as noted above) as equals $150 divided by
one-half of the Current Market Price of the Common Stock. Assuming that the
Common Stock had a market price of $25 per share at such time, the holder of
each valid Right would be entitled to purchase twelve shares of Common Stock,
having a market value of 12 x $25, or $300, for $150.

In the event that, at any time after any Person becomes an Acquiring Person, (i)
the Company is consolidated with, or merged with and into, another entity and
the Company is not the surviving entity of such consolidation or merger (other
than a consolidation or merger which follows a Permitted Offer) or if the
Company is the surviving entity, but shares of its outstanding Common Stock are
changed or exchanged for stock or securities (of any other person) or cash or
any other property, or (ii) more than 50% of the Company's assets or earning
power is sold or transferred, each holder of a Right (except Rights which
previously have been voided as set forth above) shall thereafter have the right
to receive, upon exercise, that number of shares of common stock of the
acquiring company which equals the exercise price of the Right divided by 50% of
the current market price (as defined in the Rights Agreement) of such common
stock at the date of the occurrence of the event. The events summarized in this
paragraph are referred to as "Section 13 Events." A Section 11(a)(ii) Event and
Section 13 Events are collectively referred to as "Triggering Events."

For example, at an exercise price of $150 per Right, each valid Right following
a Section 13 Event would entitle its holder to purchase for $150 such number of
shares of common stock of the acquiring company as equals $150 divided by
one-half of the current market price (as defined

                                      C-2
<PAGE>

in the Rights Agreement) of such common stock. Assuming that such common stock
had a market price of $50 per share at such time, the holder of each valid Right
would be entitled to purchase six shares of common stock of the acquiring
company, having a market value of 6 x $50, or $300, for $150.

At any time after the occurrence of a Section 11(a)(ii) Event, when no person
owns a majority of the Common Stock, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by such Acquiring Person which have
become void), in whole or in part, at an exchange ratio of one share of Common
Stock, or one one-thousandth of a share of Series A Junior Participating
Preferred Stock (or of a share of a class or series of the Company's preferred
stock having equivalent rights, preferences and privileges), per Right (subject
to adjustment).

The Purchase Price payable, and the number of units of Series A Junior
Participating Preferred Stock 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 Series A Junior Participating Preferred Stock, (ii)
if holders of the Series A Junior Participating Preferred Stock are granted
certain rights or warrants to subscribe for Series A Junior Participating
Preferred Stock or convertible securities at less than the then-current market
price (as defined in the Rights Agreement) of the Series A Junior Participating
Preferred Stock, or (iii) upon the distribution to holders of the Series A
Junior Participating Preferred Stock of evidences of indebtedness or assets
(excluding regular periodic cash dividends paid out of earnings or retained
earnings) or of subscription rights or warrants (other than those referred to
above). The number of Rights associated with each share of Common Stock is also
subject to adjustment in the event of a stock split of the Common Stock or a
stock dividend on the Common Stock payable in Common Stock or subdivisions,
consolidations or combinations of the Common Stock occurring, in any such case,
prior to the Distribution Date.

With certain exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments amount to at least 1% of the Purchase Price. No
fractional shares of Series A Junior Participating Preferred Stock (other than
fractions which are integral multiples of one one-thousandth of a share of
Series A Junior Participating Preferred Stock) will be issued and, in lieu
thereof, an adjustment in cash will be made based on the market price of the
Series A Junior Participating Preferred Stock on the last trading date prior to
the date of exercise.

Series A Junior Participating Preferred Stock purchasable upon exercise of the
Rights will not be redeemable. Each share of Series A Junior Participating
Preferred Stock will be entitled to receive, when, as and if declared by the
Board of Directors, a minimum preferential quarterly dividend payment of $10 per
share or, if greater, an aggregate dividend of 1,000 times the dividend declared
per share of Common Stock. In the event of liquidation, the holders of the
Series A Junior Participating Preferred Stock will be entitled to a minimum
preferential liquidation payment of $1,000 per share, plus an amount equal to
accrued and unpaid dividends, and will be entitled to an aggregate payment of
1,000 times the payment made per share of Common Stock. Each share of Series A
Junior Participating Preferred Stock will have 1,000 votes, voting together with
the Common Stock. In the event of any merger, consolidation or other transaction
in which Common Stock is changed or exchanged, each share of Series A

                                      C-3
<PAGE>

Junior Participating Preferred Stock will be entitled to receive 1,000 times the
amount received per share of Common Stock. These rights are protected by
customary antidilution provisions. Because of the nature of the Series A Junior
Participating Preferred Stock's dividend, liquidation and voting rights, the
value of one one-thousandth of a share of Series A Junior Participating
Preferred Stock purchasable upon exercise of each Right should approximate the
value of one share of Common Stock.

At any time prior to the earlier of (i) the tenth Business Day (or such later
date as may be determined by the Board of Directors of the Company) after the
Stock Acquisition Date, or (ii) the Final Expiration Date, the Company may
redeem the Rights in whole, but not in part, at a price of $0.001 per Right (the
"Redemption Price"), payable in cash or stock. Immediately upon the redemption
of the Rights or such earlier time as established by the Board of Directors in
the resolution ordering the redemption of the Rights, the Rights will terminate
and the only right of the holders of Rights will be to receive the Redemption
Price. The Rights may also be redeemable following certain other circumstances
specified in the Rights Agreement.

At least once every three years a committee of independent directors will
evaluate the Rights Agreement in order to consider whether the maintenance of
the Rights Agreement continues to be in the interests of the Company and its
stockholders.

Until a Right is exercised, the holder thereof, as such, will have no rights as
a stockholder of the Company, including, without limitation, the right to vote
or to receive dividends. Although the distribution of the Rights should not be
taxable to stockholders or to the Company, stockholders may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company or for
common stock of the acquiring company as set forth above.

Any provision of the Rights Agreement, other than the redemption price, may be
amended by the Board of Directors prior to such time as the Rights are no longer
redeemable. Once the Rights are no longer redeemable, the Board of Directors'
authority to amend the Rights is limited to correcting ambiguities or defective
or inconsistent provisions in a manner that does not adversely affect the
interest of holders of Rights.

The Rights are intended to protect the stockholders of the Company in the event
of an unfair or coercive offer to acquire the Company and to provide the Board
of Directors with adequate time to evaluate unsolicited offers. The Rights may
have anti-takeover effects. The Rights will cause substantial dilution to a
person or group that attempts to acquire the Company without conditioning the
offer on a substantial number of Rights being acquired. The Rights, however,
should not affect any prospective offeror willing to make an offer at a fair
price and otherwise in the best interests of the Company and its stockholders,
as determined by a majority of the Board of Directors. The Rights should not
interfere with any merger or other business combination approved by the Board of
Directors.

A copy of the Rights Agreement has been filed with the Securities and Exchange
Commission as an Exhibit to the Company's Current Report on Form 8-K dated
November __, 2004. A copy of the Rights Agreement is available free of charge
from the Company. This summary description

                                      C-4
<PAGE>

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.

                                      C-5

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