Document:

TERM LOAN AGREEMENT

      THIS TERM LOAN AGREEMENT, as of November 29, 2001, is by and between
KESTREL ENERGY, INC., a Colorado corporation ("Borrower"), and WELLS FARGO
BANK, N.A., a national banking association ("Wells Fargo").

                                     RECITAL

      A. Borrower and Wells Fargo desire that this Term Loan Agreement be
executed and delivered in order to provide for the terms upon which Wells Fargo
will make a term loan to Borrower and by which such term loan will be governed
and repaid.

      B. The proceeds of the above-described term loan will be used by Borrower
exclusively to pay in full any and all amounts outstanding in connection with
Borrower's existing indebtedness to Wells Fargo (and any and all related costs
and expenses), and, upon such payment in full, the letter agreement dated
February 21, 2000 (the "Prior Credit Agreement") shall be superseded hereby and
terminated.

                                    AGREEMENT

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

                                   ARTICLE I

                           DEFINITIONS AND REFERENCES

      Section 1.1 DEFINED TERMS. As used in this Agreement, each of the
following terms has the meaning given it in this Section 1.1 or in the sections
and subsections referred to below:

      "AFFILIATE" means, as to any Person, each Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person; provided that, for
the purposes of this definition, a Person shall be deemed to control another
entity if the controlling Person possesses, directly or indirectly, the power to
direct or control the direction of the management and policies of such entity,
whether through the ownership of stock, membership interests or other interests
therein, by contract or otherwise, and shall include without limitation any
controlling shareholder, member or owner thereof.

      "AGREEMENT" means this Term Loan Agreement.

      "BORROWER" means Kestrel Energy, Inc., a Colorado corporation.

      "BORROWING BASE" means, at any time prior to the Maturity Date, the
aggregate loan value of all Oil and Gas Interests, as determined by Wells Fargo
in its sole and absolute discretion, using such assumptions as to pricing,
discount factors, discount rates, expenses and other factors as Wells Fargo
customarily uses as to borrowing-base oil and gas loans at the time such
determination is made; provided that the Borrowing Base shall be $1,396,000 for
the time period

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from the date of this Agreement until the first redetermination of the Borrowing
Base pursuant to Section 2.7 below.

      "BORROWING BASE NOTICE" means a written notice sent to Borrower by Wells
Fargo notifying Borrower of the Borrowing Base determined by Wells Fargo for the
upcoming Borrowing Base Period or other period.

      "BORROWING BASE PERIOD" means: (a) the time period from the date of this
Agreement through April 30, 2002; and (b) the time period from May 1, 2002
through the Maturity Date.

      "BUSINESS DAY" means any day which is not a Saturday, a Sunday or a legal
holiday on which commercial banks are authorized or required to be closed in
Denver, Colorado.

      "COLLATERAL" means the Oil and Gas Interests and any and all other
tangible or intangible real or personal property which, at any time or from time
to time hereafter, has been (or is purported to have been) mortgaged, pledged,
encumbered or otherwise dedicated to Wells Fargo in connection with any of the
Obligations.

      "CONSOLIDATED" means, as to any Person, the combined financial statements,
financial position, financial condition, net income, assets, liabilities and
other financial data of such Person and of any and all Affiliates of such Person
that would be considered consolidated Affiliates under GAAP.

      "CUMULATIVE NET INCOME" means, with respect to Borrower, the sum of
Borrower's Consolidated net income, determined in accordance with GAAP or with
another accounting system approved in writing by Wells Fargo, for each completed
Fiscal Quarter after the date from which such calculation is being made;
provided that if Borrower's Consolidated net income is negative for any such
Fiscal Quarter, in computing Cumulative Net Income, Borrower's Consolidated net
income shall be deemed to be zero for that Fiscal Quarter.

      "CURRENT RATIO" means, at any time and from time to time, the ratio of:
(a) Borrower's Consolidated current assets; to (b) Borrower's Consolidated
current liabilities (excluding current maturities of the Loan), all determined
in accordance with GAAP or with another accounting system approved in writing by
Wells Fargo.

      "DEBT" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether primary or secondary, direct or indirect,
absolute or contingent, including without limitation capital lease obligations.

      "DEFAULT" means any Event of Default and any default, event or condition
which would, with the giving of any requisite notice and/or the passage of time,
constitute an Event of Default.

      "DISTRIBUTION" means any distribution payable in cash or property to any
shareholder of Borrower, or any purchase, redemption or retirement of, or other
payment with respect to, any capital stock in Borrower.

      "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.

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      "ERISA PLAN" means any pension benefit plan subject to Title IV of ERISA
maintained by Borrower or any Affiliate of Borrower to which Borrower is
required to contribute.

      "EVENT OF DEFAULT" has the meaning given such term in Section 7.1 below.

      "FISCAL QUARTER" means a three-month period ending on the last day of
March, June, September or December of any year.

      "FISCAL YEAR" means a twelve-month period ending on December 11 of any
year.

      "GAAP" means those generally accepted accounting principles and practices
which are recognized as such by the Financial Accounting Standards Board (or any
generally recognized successor) and which, in the case of Borrower: (a) are
applied for all periods after the date hereof in a manner consistent with the
manner in which such principles and practices were applied to the Initial
Financial Statements, and (b) are consistently applied for all periods after the
date hereof so as to properly reflect the financial condition, and the results
of operations and changes in financial position, of Borrower.

      "HEDGING OBLIGATIONS" means, with respect to any Person, all liabilities
of such Person under commodity hedge, commodity swap, exchange, collar or cap
agreements, fixed price agreements and all other agreements and arrangements
designed to protect such Person against changes in interest rates and currency
exchange rates and fluctuations in the price of oil, gas, hydrocarbons or other
commodities.

      "INITIAL ENGINEERING REPORT" means the report or reports covering the Oil
and Gas Interests dated July 1, 2001, prepared by Sproule Associates, a true and
correct copy of which has been furnished by Borrower to Wells Fargo.

      "INITIAL FINANCIAL STATEMENTS" means the audited annual financial
statements of Borrower dated as of December 31, 2000, and the quarterly
financial statements of Borrower dated as of March 31, 2001 and June 30, 2001,
copies of which Initial Financial Statements have heretofore been delivered by
Borrower to Wells-Fargo.

      "LIEN" means, with respect to any property or assets, any right or
interest therein of a creditor to secure Debt owed to him or any other
arrangement with such creditor which provides for the payment of such Debt out
of such property or assets or which allows him to have such Debt satisfied out
of such property or assets prior to the general creditors of any owner thereof,
including without limitation any lien, mortgage, security interest, pledge,
deposit, production payment, rights of a vendor under any title retention or
conditional sale agreement or lease substantially equivalent thereto, or any
other charge or encumbrance for security purposes, whether arising by law or
agreement or otherwise, but excluding any right of offset which arises without
agreement in the ordinary course of business.

      "LOAN" means the amortizing term loan to be made by Wells Fargo to
Borrower as described in Section 2.1 below.

      "LOAN DOCUMENTS" means this Agreement, the Security Documents, the Note,
agreements under which Borrower, at any time or from time to time, has incurred
or may incur
                                     - 3 -

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Hedging Obligations to Wells Fargo (or any Affiliate of Wells Fargo) and all
other agreements, certificates, legal opinions and other documents, instruments
and writings heretofore or hereafter delivered in connection herewith or
therewith.

      "MATURITY DATE" means the earlier of: (a) November 1, 2002, or (b) such
date on which the Loan is due and payable in full by reason of the occurrence of
an Event of Default, as established pursuant to Section 7.1 below.

      "NOTE" means a Promissory Note in the form of Exhibit A attached hereto
and made a part hereof, duly executed and delivered by Borrower.

      "OBLIGATED PERSON" means Borrower or any other Person hereafter becoming
liable to Wells Fargo for the repayment of all or any part of the Loan.

      "OBLIGATIONS" means all Debt, including without limitation Hedging
Obligations, from time to time owing by Borrower to Wells Fargo (or any
Affiliate of Wells Fargo) under or pursuant to any of the Loan Documents.
"OBLIGATION" means any part of the obligations.

      "OIL AND GAS INTERESTS" means any and all interests of Borrower, whether
now owned or hereafter acquired, in any and all oil and/or gas wells, reserves
and other interests (including without limitation coalbed methane wells,
reserves and other interests), leases, facilities and other related rights and
assets which Wells Fargo now or hereafter evaluates in connection with the Loan.

      "PAYMENT DATE" means the last day of each calendar month, commencing
November 30, 2001, until the Maturity Date, and the Maturity Date.

      "PERMITTED INVESTMENT" means:

      (a) Any evidence of indebtedness issued or guaranteed by the United States
Government, maturing not more than one year after the date of acquisition by
Borrower; or

      (b) Commercial paper, maturing not more than nine months from the date of
issuance thereof, which is issued by a corporation (other than an Affiliate of
Borrower) organized under the laws of any state of the United States or of the
District of Columbia and carrying one of the two highest ratings by Standard &
Poor's Corporation or Moody's Investors Service, Inc.; or

      (c) Any certificate of deposit, maturing not more than 90 days from the
date of issuance thereof, which is issued by a commercial banking institution
that is a member of the Federal Reserve System and has a combined capital and
surplus and undivided profits of not less than U.S. $250,000,000; or

      (d) Any deposit account at a commercial banking institution that is a
member of the Federal Reserve System and has a combined capital and surplus and
undivided profits of not less than U.S. $250,000,000; or

      (e)   Hedging Obligations of Borrower.

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      "PERSON" means an individual, corporation, partnership, association,
joint-stock company, trust or trustee thereof, estate or executor thereof,
limited liability company, unincorporated organization or joint venture, court
or governmental unit or any agency or subdivision thereof, or any other legally
recognizable entity.

      "PRIME RATE" means a fluctuating index rate which Wells Fargo establishes
and quotes from time to time for pricing certain of its loans. Information on
the index rate currently in effect is announced publicly and can be obtained by
contacting Wells Fargo. The Prime Rate is not necessarily the lowest rate
charged to customers of Wells Fargo, and Wells Fargo may make loans at, above or
below this stated index rate.

      "PRINCIPAL PAYMENT AMOUNT" means: (a) as to any Payment Date prior to the
Maturity Date, the amount shown on Exhibit C attached hereto and made a part
hereof for that date; and (b) as to the Maturity Date, the entire outstanding
principal balance of the Loan.

      "SECURITY DOCUMENTS" means all security agreements, deeds of trust,
mortgages, chattel mortgages, pledges, guaranties, financing statements,
continuation statements, extension agreements and other agreements or
instruments now, heretofore, or hereafter delivered by any or all of the
Obligated Persons or any other person to Wells Fargo in connection with this
Agreement or any transaction contemplated hereby, to secure or guaranty the
payment of any part of the Obligations or the performance of any other duties
and obligations of any or all of the Obligated Persons under the Loan Documents,
whenever made or delivered.

      "SHAREHOLDERS' EQUITY" means, as to any Person, the equity in such Person
owned by the shareholders, partners, members or other owners of such Person,
determined in accordance with GAAP or with another accounting system approved in
writing by Wells Fargo.

      "TANGIBLE NET WORTH" means, at any time, as to any Person: (a) the
Shareholders' Equity owned in such Person by the shareholders, partners, members
or other owners of such Person at that time, less (b) goodwill and any and all
other intangible assets of such Person, determined in accordance with GAAP or
with another accounting system approved in writing by Wells Fargo.

      "TERMINATION EVENT" means: (a) the occurrence with respect to any ERISA
Plan of (1) a reportable event described in Section 4043(b)(5) of ERISA or (2)
any other reportable event described in Section 4043 of ERISA other than a
reportable event not subject to the provision for 30-day notice to the Pension
Benefit Guaranty Corporation under such regulations, or (b) the withdrawal of
Borrower or of any Affiliate of Borrower from an ERISA Plan during a plan year
in which it was a "substantial employer" as defined in Section 4001(a)(2) of
ERISA or (c) the filing of a notice of intent to terminate any ERISA Plan or the
treatment of any ERISA Plan amendment as a termination under Section 4041 of
ERISA, or (d) the institution of proceedings to terminate any ERISA Plan by the
Pension Benefit Guaranty Corporation under Section 4042 of ERISA, or (e) any
other event or condition which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
ERISA Plan.

     Section 1.2 INCORPORATION OF EXHIBITS. All Exhibits attached to this
Agreement are a part hereof for all purposes.

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     Section 1.3 AMENDMENT OF DEFINED INSTRUMENTS. Unless the context otherwise
requires or unless otherwise provided herein, the terms defined in this
Agreement which refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions and modifications of such
agreement, instrument or document, provided that nothing contained in this
section shall be construed to authorize any such renewal, extension or
modification.

     Section 1.4 REFERENCES AND TITLES. All references in this Agreement to
Exhibits, Schedules, articles, sections, subsections and other subdivisions
refer to the Exhibits, Schedules, articles, sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any subdivisions are for convenience only and do
not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions. The words "this
Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The phrases "this section"
and "this subsection" and similar phrases refer only to the sections or
subsections hereof in which such phrases occur. The word "or" has the inclusive
meaning frequently identified by the phrase "and/or". Pronouns in masculine,
feminine and neuter genders shall be construed to include any other gender, and
words in the singular form shall be construed to include the plural and vice
versa, unless the context otherwise requires.

     Section 1.5 CALCULATIONS AND DETERMINATIONS. All interest and fees accruing
under the Loan Documents shall be calculated on the basis of actual days elapsed
(including the first day but excluding the last) and a year of 360 days. Unless
otherwise expressly provided herein or unless Wells Fargo otherwise consents,
all financial statements and reports furnished to Wells Fargo hereunder shall be
prepared and all financial computations and determinations pursuant hereto shall
be made in accordance either with GAAP or with another accounting system agreed
to in writing by Wells Fargo.

                                   ARTICLE II

                                    THE LOAN

     Section 2.1 THE LOAN. Subject to the other terms and conditions of this
Agreement, Wells Fargo agrees to make a $1,396,000 term loan to Borrower on or
about November 30, 2001 for the purpose of repaying any and all amounts payable
under or in connection with the Prior Credit Agreement.

     Section 2.2 THE NOTE; INTEREST.

            (a)  Borrower's obligation to repay the Loan, with interest thereon,
shall be evidenced by the Note. In the event any provision contained in the Note
conflicts with a provision contained in this Agreement, the provisions of this
Agreement shall control.

            (b)  Except as otherwise provided in (2) below, interest on the Loan
shall accrue at a fluctuating annual rate equal to the Prime Rate plus one and
three-quarters percentage points per annum.

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                 (2) From and after the occurrence, and during the continuance,
            of any Event of Default hereunder (including without limitation
            any failure by Borrower to pay the entire outstanding principal
            balance of the Loan, together with all accrued interest, fees and
            other amounts payable in connection therewith on or before the
            Maturity Date), interest on the Loan shall accrue, from the date
            of occurrence of the Event of Default until the date the Event of
            Default is cured, at a fluctuating annual rate equal to the Prime
            Rate plus four percentage points per annum.

            (c)  Interest accrued on the Loan shall be due and payable on each
Payment Date. All accrued and unpaid interest shall be due and payable not later
than the Maturity Date.

            (d)  Wells Fargo shall have no obligation to make any advance on the
Loan other than the initial advance hereunder, and amounts borrowed and repaid
hereunder may not be re-borrowed.

     Section 2.3 MANDATORY PRINCIPAL PAYMENTS.

            (a)  On each Payment Date, Borrower shall make a principal payment
to Wells Fargo in an amount equal to the Principal Payment Amount for that
Payment Date.

            (b)  If, by reason of any redetermination of the Borrowing Base
pursuant to Section 2.7 below or for any other reason, the aggregate outstanding
principal balance of the Loan shall at any time exceed the Borrowing Base,
Borrower shall, not later than 30 days after written notice thereof from Wells
Fargo, pay the excess to Wells Fargo in a lump sum.

            (c)  The entire outstanding principal balance of the Loan, together
with all accrued interest and other amounts payable to Wells Fargo hereunder,
shall be due and payable, if not previously paid, on the Maturity Date.

     Section 2.4 VOLUNTARY PREPAYMENTS. Borrower shall have the right to prepay
the Loan at any time, in whole or in part, without penalty or premium. Any
voluntary principal prepayment shall be applied first against the next
installment then due and next against future installments in the inverse order
of approaching maturities.

     Section 2.5 PAYMENTS TO WELLS FARGO. Borrower will pay to Wells Fargo each
payment which Borrower owes under the Loan Documents not later than 12:00 noon,
Denver time, on the due date, in lawful money of the United States of America
and in immediately available funds. Any payment received after such time will be
deemed to have been made on the next following Business Day. Should any such
payment become due and payable on a day other than a Business Day, the maturity
of such payment shall be extended to the next succeeding Business Day, and, in
the case of a payment of principal or past due interest, interest shall accrue
and be due and payable thereon for the period of such extension. Each payment
under a Loan Document shall be due and payable at the place provided therein or,
if no specific place of payment is provided, shall be due and payable at the
place of payment of the Note. With respect to any regularly scheduled payment of
principal, interest, fees or other amounts due and payable hereunder, Borrower
hereby authorizes Wells Fargo to debit any deposit account of Borrower with
Wells Fargo in the amount of the payment then due. If there are insufficient
funds in such

                                     - 7 -

<PAGE>

deposit accounts to pay in full the amounts then due, such debits
will be reversed (in whole or in part, at Wells Fargo's sole discretion) and
such amount not debited shall be deemed to be unpaid. No such debit under this
Section 2.5 shall be deemed a setoff.

     Section 2.6 USE OF PROCEEDS. In no event shall the Loan proceeds be used
directly or indirectly for the purpose, whether immediate, incidental or
ultimate, of purchasing, acquiring or carrying any "margin stock" (as such term
is defined in Regulation U promulgated by the Board of Governors of the Federal
Reserve System) or to extend credit to others directly or indirectly for the
purpose of purchasing or carrying any such margin stock or margin securities.
Borrower represents and warrants to Wells Fargo that Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit to others for the purpose of purchasing or carrying such margin stock.
Borrower will use the Loan proceeds solely for the purpose of repaying any and
all amounts payable under or in connection with the Prior Credit Agreement.

     Section 2.7 BORROWING BASE PROCEDURES. The Borrowing Base will be
redetermined by Wells Fargo as of May 1, 2002, and at such other times as Wells
Fargo may determine, based upon such information and data as Wells Fargo deems
relevant. Wells Fargo shall advise Borrower of the redetermination of the
Borrowing Base by providing to Borrower a Borrowing Base Notice approximately
five days prior to the effectiveness of the redetermined Borrowing Base;
provided that if, due to any failure by Borrower to submit in a timely manner
any information required to be submitted by Borrower hereunder or, if requested
by Wells Fargo, any additional information or data needed in connection with a
redetermination of the Borrowing Base or due to any other reason beyond the
control of Wells Fargo, Wells Fargo does not provide a Borrowing Base Notice at
the time described above, then, unless Wells Fargo gives notice to the contrary
to Borrower, the Borrowing Base from the previous period shall be carried over
into the new period until a Borrowing Base Notice has been sent to Borrower by
Wells Fargo.

                                   ARTICLE III

                                  SECURITY; FEE

     Section 3.1 THE SECURITY. The Obligations will be secured by the Security
Documents and any additional Security Documents hereafter delivered by any
Obligated Person and accepted by Wells Fargo.

     Section 3.2 PERFECTION AND PROTECTION OF SECURITY INTERESTS AND LIENS.
Borrower will from time to time deliver to Wells Fargo any amendments, financing
statements, continuation statements, extension agreements and other documents,
properly completed and executed (and acknowledged when required) by Borrower, in
form and substance reasonably satisfactory to Wells Fargo, which Wells Fargo may
request for the purpose of perfecting, confirming or protecting Wells Fargo's
Liens and other rights in the Collateral.

     Section 3.3 BANK ACCOUNTS AND OFFSET. To secure the repayment of the
Obligations, Borrower hereby grants to Wells Fargo (and each Affiliate of Wells
Fargo) a security interest, a lien, and a right of offset, each of which shall
be upon and against: (a) any and all moneys, securities or other property (and
the proceeds therefrom) of Borrower now or hereafter held or received by or in
transit to Wells Fargo (or any Affiliate of Wells Fargo) from or for the account

                                     - 8 -

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of Borrower, whether for safekeeping, custody, pledge, transmission, collection
or otherwise, (b) any and all deposits (general or special, time or demand,
provisional or final) of Borrower with Wells Fargo (or any Affiliate of Wells
Fargo), and (c) any other credits and claims of Borrower at any time existing
against Wells Fargo (or any Affiliate of Wells Fargo), including without
limitation claims under certificates of deposit. Upon the occurrence of any
Event of Default, Wells Fargo and each Affiliate of Wells Fargo are hereby
authorized to foreclose upon, offset, appropriate, and apply, at any time and
from time to time, without notice to Borrower, any and all items hereinabove
referred to against the Obligations (whether or not such obligations are then
due and payable).

     Section 3.4 FEE. Borrower shall pay to Wells Fargo, upon the execution and
delivery of this Agreement, a loan fee in the amount of $5,000 and an
engineering fee in the amount of $1,500.

                                   ARTICLE IV

                          CONDITIONS PRECEDENT TO LOAN

     Section 4.1 CONDITIONS PRECEDENT TO THE LOAN. Wells Fargo shall have no
obligation to make the Loan unless Wells Fargo shall have received all of the
following at its office in Denver, Colorado, duly executed and delivered and in
form, substance and date satisfactory to Wells Fargo:

            (a)  The Note.

            (b)  An "Omnibus Certificate" of an officer of Borrower, which shall
contain the names and signatures of the officers of Borrower authorized to
execute Loan Documents and which shall certify to the truth, correctness and
completeness of the following exhibits attached thereto: (1) a copy of the
articles of incorporation of Borrower and all amendments thereto, (2) a copy of
the bylaws of Borrower and all amendments thereto, and (3) a copy of the
resolutions of the Board of Directors of Borrower, if necessary, authorizing
this Agreement and the transactions contemplated hereby.

            (c)  A "Compliance Certificate" of an officer of Borrower in which
such person certifies to the satisfaction of the conditions set out in
subsections (a), (b), and (c) of Section 4.2. below.

            (d)  The Security Documents.

            (e)  Such title opinions, supplemental title opinions, UCC searches
and other title information concerning Borrower's title to the Oil and Gas
Interests or any portions thereof as may be satisfactory to Wells Fargo.

            (f)  Evidence satisfactory to Wells Fargo that Wells Fargo has been
named as a beneficiary and an additional loss payee on Borrower's insurance
policies as required by Section 6.1(h) below.

            (g)  The loan fees described in Section 3.4 above.

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            (h)  Any and all other Loan Documents.

     Section 4.2 ADDITIONAL CONDITIONS PRECEDENT. Wells Fargo shall have no
obligation to make the Loan unless the following conditions precedent have been
satisfied:

            (a)  All representations and warranties made by any Obligated
Person in any Loan Document shall be true on and as of the date of the Loan as
if such representations and warranties had been made as of the date hereof.

            (b)  No Default shall exist as of the date of the Loan.

            (c)  Each Obligated Person shall have performed and complied with
all agreements and conditions herein required to be performed or complied with
by it on or prior to the date of the Loan.

            (d)  The making of the Loan shall not be prohibited by any law or
any regulation or order of any court or governmental agency or authority and
shall not subject Wells Fargo to any penalty or other onerous condition under or
pursuant to any such law, regulation or order.

                                   ARTICLE V

                         REPRESENTATIONS AND WARRANTIES

     Section 5.1 BORROWER'S REPRESENTATIONS AND WARRANTIES. To induce Wells
Fargo to enter into this Agreement and to make the Loan, Borrower represents and
warrants to Wells Fargo (which representations and warranties shall survive the
delivery of the Note and shall be deemed to be continuing representations and
warranties until repayment in full of the Note) that:

            (a)  NO DEFAULT. Borrower is not in default in any material respect
in the performance of any of the covenants and agreements contained herein. No
event has occurred and is continuing which constitutes a Default.

            (b)  ORGANIZATION AND GOOD STANDING. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado, having all powers required to carry on its business and enter into and
carry out the transactions contemplated hereby. Borrower is duly qualified, in
good standing, and authorized to do business in all other jurisdictions wherein
the character of the properties owned or held by it or the nature of the
business transacted by it makes such qualification necessary.

            (c)  AUTHORIZATION. Borrower has duly taken all action necessary to
authorize the execution and delivery by it of the Loan Documents and to
authorize the consummation of the transactions contemplated thereby and the
performance of its obligations thereunder.

            (d)  NO CONFLICTS OR CONSENTS. The execution and delivery by the
various Obligated Persons of the Loan Documents to which each is a party, the
performance by each of its obligations under such Loan Documents, and the
consummation of the transactions contemplated by the various Loan Documents, do
not and will not: (1) conflict with any

                                     - 10 -

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provision of: (A) any domestic or foreign law, statute, rule or regulation, (B)
the governing documents of Borrower, or (C) any agreement, judgment, license,
order or permit applicable to or binding upon any Obligated Person, (2) result
in the acceleration of any Debt owed by any Obligated Person, or (3) result in
or require the creation of any Lien upon any assets or properties of any
Obligated Person except as expressly contemplated in the Loan Documents. Except
as expressly contemplated in the Loan Documents, no consent, approval,
authorization or order of, and no notice to or filing with, any court or
governmental authority or third party is required in connection with the
execution, delivery or performance by any Obligated Person of any Loan Document
or to consummate any transactions contemplated by the Loan Documents.

            (e)  ENFORCEABLE OBLIGATIONS. This Agreement is, and the other Loan
Documents when duly executed and delivered will be, legal and binding
obligations of each Obligated Person which is a party hereto or thereto,
enforceable in accordance with their respective terms, except as limited by
bankruptcy, insolvency or similar laws of general application relating to the
enforcement of creditors' rights and as limited by general equitable principles.

            (f)  INITIAL FINANCIAL STATEMENTS. The Initial Financial Statements
fairly present Borrower's financial position at the date thereof. Since the date
of the Initial Financial Statements, no material adverse change has occurred in
Borrower's financial condition or business. All Initial Financial Statements
were prepared in accordance either with GAAP or with another accounting system
agreed to in writing by Wells Fargo.

            (g)  OTHER OBLIGATIONS. Borrower has no outstanding Debt of any kind
(including contingent obligations, tax assessments, and unusual forward or
long-term commitments) which is not shown in the Initial Financial Statements or
which has not been previously disclosed in writing to Wells Fargo.

            (h)  FULL DISCLOSURE. No certificate, statement or other information
delivered herewith or heretofore by Borrower to Wells Fargo in connection with
the negotiation of this Agreement or in connection with any transaction
contemplated hereby contains any untrue statement of a material fact or omits to
state any material fact known to Borrower necessary to make the statements
contained herein or therein not misleading in any material respect as of the
date made or deemed made. At the date of this Agreement, Borrower is not aware
of any material fact that has not been disclosed to Wells Fargo in writing which
could materially and adversely affect Borrower's properties, businesses,
prospects or condition (financial or otherwise). To the best of Borrower's
knowledge, the Initial Engineering Report is based upon complete and accurate
factual information in all material respects.

            (i)  LITIGATION. Except as disclosed in the Initial Financial
Statements or as otherwise previously disclosed in writing by Borrower to Wells
Fargo: (1) there are no actions, suits or legal, equitable, arbitrative or
administrative proceedings pending, or to the knowledge of Borrower threatened,
against any Obligated Person before any federal, state, municipal other court,
department, commission, body, board, bureau, agency, or instrumentality,
domestic or foreign, which do or may materially and adversely affect any
Obligated Person, any Affiliate controlled by Borrower, any Obligated Person's
ownership or use of any of its assets or properties, its business or financial
condition or prospects, or the right or ability of any Obligated

                                     - 11 -

<PAGE>

Person to enter into the Loan Documents or perform its obligations thereunder
and (2) there are no outstanding judgments, injunctions, writs, rulings or
orders by any such governmental entity against any Obligated Person which have
or may have any such effect.

            (j)  TITLE TO PROPERTIES. Borrower has good and defensible title to
the Oil and Gas Interests, free and clear of all liens, encumbrances and defects
of title, except for covenants, restrictions, rights, easements, liens,
encumbrances and minor irregularities in title which do not materially interfere
with the occupation, use and enjoyment of such Oil and Gas Interests in the
normal course of business as presently conducted or materially impair the value
thereof for such business. Borrower enjoys peaceful and undisturbed possession
under all material leases under which it operates, and all such leases are valid
and subsisting, with no material default existing thereunder.

            (k)  TAXES. All tax returns required to be filed by Borrower in any
jurisdiction prior to the date hereof have been filed; all taxes, assessments,
fees and other governmental charges upon Borrower or upon any of its properties,
income or franchises, which are due and payable have been paid, or adequate
reserves have been provided for payment thereof.

                                   ARTICLE VI

                              COVENANTS OF BORROWER

     Section 6.1 AFFIRMATIVE COVENANTS. Borrower warrants, covenants and agrees
that until the full and final payment of the Obligations and the termination of
this Agreement, unless Wells Fargo has previously agreed otherwise in writing:

            (a)  PAYMENT AND PERFORMANCE. Borrower will pay all amounts due
under the Loan Documents in accordance with the terms thereof and will in all
material respects observe, perform and comply with every covenant, term and
condition express or implied in the Loan Documents.

            (b)  BOOKS, FINANCIAL STATEMENTS AND RECORDS. Borrower will at all
times maintain full and accurate books of account and records, will maintain a
standard system of accounting and will furnish the following statements and
reports to Wells Fargo at Borrower's expense:

                 (1) As soon as available, and in any event within 90 days after
            the end of each Fiscal Year, complete audited Consolidated
            financial statements of Borrower, prepared in reasonable detail
            and in accordance with GAAP or with another accounting system
            approved in writing by Wells Fargo. These financial statements
            shall contain at least a balance sheet as of the end of such
            Fiscal Year and a statement of earnings and cash flow, setting
            forth in comparative form the corresponding figures for the
            preceding Fiscal Year and shall be accompanied by an opinion of a
            firm of independent certified public accountants chosen by
            Borrower and reasonably acceptable to Wells Fargo, which opinion
            shall be unqualified and shall state that said financial
            statements have been prepared in accordance with GAAP or with
            another accounting system approved in writing by

                                     - 12 -

<PAGE>

            Wells Fargo and fairly present in all material respects the
            financial positions and the results of operations of Borrower as of
            the end of and for such Fiscal Year;

                 (2) As soon as available and in any event within 60 days after
            the end of each Fiscal Quarter (except the last Fiscal Quarter of
            each Fiscal Year), complete Consolidated financial statements of
            Borrower for such Fiscal Quarter and for the then-current Fiscal
            Year, prepared in reasonable detail and in accordance with GAAP
            or with another accounting system approved in writing by Wells
            Fargo. These financial statements shall contain at least a
            balance sheet as of the end of such Fiscal Quarter and a
            statement of earnings and cash flow for the Fiscal Quarter and
            for the Fiscal Year to date, setting forth in comparative form
            the corresponding figures for comparable periods during the
            preceding Fiscal Year;

                 (3) At the time of submission of any and all financial
            statements furnished pursuant to clause (1) or (2) above, a
            Compliance Certificate signed by the president or chief financial
            officer of Borrower, in the form of Exhibit B attached hereto and
            made a part hereof; and

                 (4) As soon as available, and in any event within.60 days after
            the end of each Fiscal Quarter, commencing with the Fiscal
            Quarter ending December 31, 2001, a report describing, for each
            calendar month during such Fiscal Quarter, the gross volume of
            production and sales attributable to production (and the prices
            at which such sales were made and the revenues derived from such
            sales) for each such calendar month from the Oil and Gas
            Interests, and describing the related ad valorem, severance and
            production taxes and lease operating expenses attributable
            thereto and incurred for each such calendar month.

            (c)  OTHER INFORMATION AND INSPECTIONS. Each Obligated Person will
furnish to Wells Fargo any information which Wells Fargo may from time to time
request concerning any covenant, provision or condition of the Loan Documents or
any matter in connection with the Obligated Persons' businesses and operations.
Each Obligated Person will permit representatives appointed by Wells Fargo,
including independent accountants, agents, attorneys, appraisers and any other
persons, to visit and inspect, at their sole risk, any of such Obligated
Person's property, including its books of account, other books and records, and
any facilities or other business assets, and to make extra copies therefrom and
photocopies and photographs thereof, and to write down and record any
information such representatives obtain, and each Obligated Person shall permit
Wells Fargo or its representatives to investigate and verify the accuracy of the
information furnished to Wells Fargo in connection with the Loan Documents and
to discuss all such matters with its officers, managers, employees and
representatives.

            (d)  NOTICE OF MATERIAL EVENTS. Borrower will promptly notify Wells
Fargo: (1) of any material adverse change in the financial condition of any
Obligated Person, (2) of the occurrence of any Default, (3) of the acceleration
of the maturity of any Debt owed by any Obligated Person or of any default by
any Obligated Person under any indenture, mortgage, agreement, contract or other
instrument to which any of them is a party or by which any of them or any of
their properties is bound, (4) of any uninsured claim of $100,000 or more
asserted

                                     - 13 -

<PAGE>

against any Obligated Person or any of its properties, (5) of the filing of any
suit or proceeding against any Obligated Person (or the occurrence of any
material development in any such suit or proceeding) in which an adverse
decision could have a material adverse effect upon any Obligated Person's
financial condition, business or operations (or could result in a judgment not
covered by insurance of $100,000 or more against any Obligated Person), (6) of
the merger or consolidation of Borrower with any other business entity, and (7)
of the sale, transfer, lease, exchange or disposal by Borrower of any material
assets or properties or any assets or properties with a value in excess of
$100,000, except sales of already-severed hydrocarbons and other products in the
ordinary course of Borrower's business. Borrower will also notify Wells Fargo in
writing at least twenty Business Days prior to the date that Borrower changes
its name, furnishing with such notice any necessary financing statement
amendments or requesting Wells Fargo and its counsel to prepare the same.

            (e)  MAINTENANCE OF EXISTENCE AND QUALIFICATIONS. Borrower will
maintain and preserve its existence and its rights and franchises in full force
and effect and will qualify to do business in all states or jurisdictions where
required by applicable law, except where the failure so to qualify will not have
any material adverse effect on Borrower.

            (f)  MAINTENANCE OF PROPERTIES. Borrower will in all material
respects maintain, preserve, protect and keep all property used or useful in the
conduct of its business in accordance with the standards of a reasonable and
prudent operator.

            (g)  PAYMENT OF TRADE DEBT, TAXES, ETC. Each Obligated Person will:
(1) timely file all required tax returns; (2) timely pay all taxes, assessments,
and other governmental charges or levies imposed upon it or upon its income,
profits or property; (3) pay all Debt owed by it on ordinary trade terms to
vendors, suppliers and other Persons providing goods and services used by it in
the ordinary course of its business; and (4) maintain appropriate accruals and
reserves for all of the foregoing Debt in accordance with its present system of
accounting. Each Obligated Person will pay and discharge in all material
respects, when due, all other Debt, taxes or assessments now or hereafter owed
by it. Each Obligated Person may, however, delay paying or discharging any such
Debt so long as it is in good faith contesting the validity thereof by
appropriate proceedings and has set aside on its books adequate reserves
therefor.

            (h)  INSURANCE. Borrower will maintain with financially sound and
reputable insurance companies, insurance with respect to its business,
operations and properties in at least such amounts and against at least such
risks as are usually insured against in the same general area by companies of
established repute engaged in the same or a similar business. Borrower will
cause Wells Fargo to be named as a beneficiary and an additional loss payee on
all such insurance policies.

            (i)  PAYMENT OF EXPENSES. Borrower will promptly (and in any event
within 30 days after any invoice or other statement or notice) pay all
reasonable costs and expenses incurred by or on behalf of Wells Fargo (including
attorneys' fees) in connection with: (1) the preparation, execution and delivery
of the Loan Documents (including without limitation this Agreement, the Security
Documents and any and all future amendments or supplements thereto or
restatements thereof), and any and all consents, waivers or other documents or
instruments

                                     - 14 -

<PAGE>

relating thereto, (2) the filing, recording, refiling and re-recording of any
Security Documents and any other documents or instruments or further assurances
required to be filed or recorded or refiled or re-recorded by the terms of any
Loan Document, (3) the examination of Borrower's title to the Collateral, and
(4) the enforcement, after the occurrence of a Default or an Event of Default,
of the Loan Documents.

            (j)  PERFORMANCE ON BORROWER'S BEHALF. If any Obligated Person fails
to pay any taxes, insurance premiums or other amounts it is required to pay
under any Loan Document, Wells Fargo may pay the same. Borrower shall
immediately reimburse Wells Fargo for any such payments and each amount paid
shall constitute a part of the Obligations, shall be secured by the Security
Documents and shall bear interest at the rate described in Section 2.2(b)(2)
above, from the date such amount is paid by Wells Fargo until the date such
amount is repaid to Wells Fargo.

            (k)  COMPLIANCE WITH AGREEMENTS AND LAW. Borrower will perform all
material obligations it is required to perform under the terms of each
indenture, mortgage, deed of trust, security agreement, lease, franchise,
agreement, contract or other instrument or obligation to which it is a party or
by which it or any of its properties is bound in such a way that they result in
no material adverse effect upon the Oil and Gas Interests or Borrower's ability
to perform its obligations under this Agreement. Borrower will in all material
respects conduct its business and affairs in compliance with all laws,
regulations, and orders applicable thereto (including those relating to
pollution and other environmental matters).

            (l)  ADDITIONAL SECURITY DOCUMENTS. Promptly after a request
therefor by Wells Fargo at any time and from time to time, Borrower will execute
and deliver to Wells Fargo such additional Security Documents and/or amendments
to existing Security Documents as Wells Fargo may deem necessary or appropriate
in order to grant to Wells Fargo a perfected lien on and security interest in
any or all oil and/or gas interests owned by Borrower.

            (m)  ERISA LIABILITIES. Borrower shall comply with ERISA in all
material respects. Borrower shall continue not to be required to contribute to,
nor to have any other absolute or contingent liability in respect of, any
"multiemployer plan" as defined in Section 4001 of ERISA.

     Section 6.2 NEGATIVE COVENANTS. Borrower warrants, covenants and agrees
that until the full and final payment of the Obligations and the termination of
this Agreement, unless Wells Fargo has previously agreed otherwise in writing:

            (a)  FINANCIAL COVENANTS.

                 (1) The Consolidated Current Ratio of Borrower will not, at any
            time after the date hereof, be less than 1.0:1.0.

                 (2) The Consolidated Tangible Net Worth of Borrower will not,

            at any time after the date hereof, be less than: (A) $10,000,000,
            plus (B) 50 percent of the Cumulative Net Income of Borrower for
            all Fiscal Quarters ending after June 30, 2001.

                                     - 15 -

<PAGE>

            (b)  LIMITATION ON LIENS. No Obligated Person will create, assume or
permit to exist any mortgage, deed of trust, pledge, encumbrance, lien or charge
of any kind (including any security interest in or vendor's lien on property
purchased under conditional sales or other title retention agreements and
including any lease intended as security or in the nature of a title retention
agreement) upon any of such Obligated Person's properties or assets, whether now
owned or hereafter acquired, except:

                 (1) Liens at any time existing in favor of Wells Fargo;

                 (2) statutory Liens for taxes, statutory or contractual
            mechanics' and materialmen's Liens incurred in the ordinary
            course of business, and other similar Liens incurred in the
            ordinary course of business, provided such Liens secure only Debt
            which is not delinquent or which is being contested as provided
            in Section 6.1(g) above; and

                 (3) purchase-money security interests granted by any obligated
            Person on office equipment, vehicles and other personal property
            acquired by such Obligated Person in the ordinary course of
            business; provided that the aggregate amount secured by all such
            security interests outstanding at any one time shall not exceed
            $50,000.

            (c)  ADDITIONAL DEBT. No Obligated Person will create, incur, assume
or permit to exist Debt except: (1) the Loan, (2) trade debt owed to suppliers,
pumpers, mechanics, materialmen and others furnishing goods or services to such
Obligated Person in the ordinary course of such Obligated Person's business, (3)
Hedging Obligations of any Obligated Person to the extent permitted pursuant to
Section 6.2(m) below, (4) Debt of the types permitted to be secured by the
security interests described in Section 6.2(b)(4) above (provided that the
amount of such Debt does not exceed the limits set forth in said Section), and
(5) other unsecured Debt in an aggregate amount not in excess of $100,000.

            (d)  LIMITATION ON SALES OF PROPERTY. No Obligated Person will sell,
transfer, lease, exchange, alienate or dispose of any of the Oil and Gas
Interests except as follows (and the following exceptions shall be subject to
any limitations contained in the Security Documents):

                 (1) equipment which is worthless or obsolete, which is replaced

            by equipment of equal suitability and value or which is salvaged
            from wells which have been plugged and abandoned by or on behalf
            of such Obligated Person;

                 (2) inventory (including oil and gas sold as produced) which is
            sold in the ordinary course of business; and

                 (3) personal property located on oil and gas properties
            operated by third parties, the sale of which personal property
            cannot be prevented by such Obligated Person.

            (e)  LIMITATION ON CREDIT EXTENSIONS. No Obligated Person will
extend credit, make advances or make loans other than normal and prudent
extensions of credit to customers buying goods and services in the ordinary
course of business, which extensions shall not be for

                                     - 16 -

<PAGE>

longer periods than those extended by similar businesses operated in a normal
and prudent manner.

            (f)  FISCAL YEAR. No Obligated Person will change its fiscal year.

            (g)  AMENDMENT OF CONTRACTS. No Obligated Person will amend or
permit any amendment to any contract which could reasonably be foreseen to
release, qualify, limit, make contingent or otherwise detrimentally affect, in
any material way, the rights and benefits of Wells Fargo under or acquired
pursuant to any of the Security Documents.

            (h)  LIMITATION ON GUARANTIES. No Obligated Person will assume,
guaranty, endorse or be or become secondarily liable for any Debt which is the
primary obligation of any other Person.

            (i)  ERISA PLANS. No Obligated Person will incur any obligation to
contribute to any "multiemployer plan" as defined in Section 4001 of ERISA.

            (j)  DISTRIBUTIONS. No Obligated Person will make any Distribution.

            (k)  REORGANIZATIONS; COMBINATIONS. No Obligated Person will change
its name or the nature of its business, reorganize, liquidate, dissolve or enter
into any merger, joint venture, partnership or other combination.

            (l)  INVESTMENTS. No Obligated Person will purchase, acquire, hold
or otherwise invest in, or deposit any money into, any stock, bond, evidence of
indebtedness, deposit account or other security or investment other than any
Permitted Investment and investments in the capital stock of Victoria Petroleum,
NL in existence on the date of this Agreement.

            (m)  HEDGING TRANSACTIONS. No Obligated Person will at any time
enter into or become a party to any one or more hedging transactions with
respect to its oil and gas production: (1) covering in excess of 70 percent of
the volume of such obligated Person's proved, developed, producing reserves
expected to be produced in the succeeding two-year period, according to the then
most recent engineering report submitted pursuant to Section 6.1(b) above, or
(2) applicable to any time period occurring later than two years from the date
of measurement.

                                  ARTICLE VII

                         EVENTS OF DEFAULT AND REMEDIES

     Section 7.1 EVENTS OF DEFAULT. Each of the following events constitutes an
Event of Default under this Agreement:

            (a)  Borrower fails to pay any Obligation when due and payable,
whether at a date for the payment of a fixed installment or contingent or other
payment to Wells Fargo or as a result of acceleration or otherwise; or

                                     - 17 -

<PAGE>

            (b)  Any "default" or "event of default" occurs under any Loan
Document which defines either term; or

            (c)  Any Obligated Person fails to duly observe, perform or comply
with any covenant, agreement, condition or provision of any Loan Document; or

            (d)  Any representation or warranty previously, presently or
hereafter made in writing by or on behalf of any Obligated Person in connection
with any Loan Document shall prove to have been false or incorrect in any
material respect on any date on or as of which made; or

            (e)  Any Obligated Person:

                 (1) suffers the entry against it of a judgment, decree or order
            for relief by a court of competent jurisdiction in an involuntary
            proceeding commenced under any applicable bankruptcy, insolvency or
            other similar law of any jurisdiction now or hereafter in effect,
            including the federal Bankruptcy Code, as from time to time amended,
            or has any such proceeding commenced against it which remains
            undismissed for a period of 60 days; or

                 (2) suffers the appointment of a receiver, liquidator,
            assignee, custodian, trustee, sequestrator or similar official
            for a substantial part of its assets or for any part of the Oil
            and Gas Interests in a proceeding brought against or initiated by
            it, and such appointment is neither made ineffective nor
            discharged within 30 days after the making thereof, or such
            appointment is consented to, requested by, or acquiesced to by
            it; or

                 (3) commences a voluntary case under any applicable bankruptcy,
            insolvency or similar law now or hereafter in effect, including
            the federal Bankruptcy Code, as from time to time amended; or
            applies for or consents to the entry of an order for relief in an
            involuntary case under any such law or to the appointment of or
            taking possession by a receiver, liquidator, assignee, custodian,
            trustee, sequestrator or other similar official of all or any
            part of the Oil and Gas Interests; or makes general assignment
            for the of benefit of creditors; or fails generally to pay (or
            admits in writing its inability to pay) its debts as such debts
            become due; or takes action in furtherance of any of the
            foregoing; or

                 (4) suffers the entry against it of a final judgment for the
            payment of money in excess of $100,000 (not covered by
            insurance), unless the same is discharged within 30 days after
            the date of entry thereof or an appeal or appropriate proceeding
            for review thereof is taken within such period and a stay of
            execution pending such appeal is obtained; or

                 (5) suffers the entry of an order issued by any court or
            tribunal taking, seizing or apprehending all or any part of the
            Oil and Gas Interests and bringing the same into the custody of
            such Court or tribunal, and such order is not stayed or released
            within thirty days after the entry thereof; or

                                     - 18 -

<PAGE>

            (f)  Either: (1) any "accumulated funding deficiency" (as defined
in Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess of
$10,000 exists with respect to any ERISA Plan, whether or not waived by the
Secretary of the Treasury or his delegate, or (2) any Termination Event occurs
with respect to any ERISA Plan and the then current value of such ERISA Plan's
benefits guaranteed under Title IV of ERISA exceeds the then current value of
such ERISA Plan's assets available for the payment of such benefits by more than
$10,000 (or in the case of a Termination Event involving the withdrawal of a
substantial employer, the withdrawing employer's proportionate share of such
excess exceeds such amount); or

            (g)  Any default, including the expiration of any applicable period
of grace, occurs with respect to any other indebtedness owed by any Obligated
Person to any Person.

Upon the occurrence of an Event of Default described in subsection (e)(1),
(e)(2) or (e)(3) of this section, all of the Obligations shall thereupon be
immediately due and payable, without presentment, demand, protest, notice of
protest, declaration or notice of acceleration or intention to accelerate, or
any other notice or declaration of any kind, all of which are hereby expressly
waived by Borrower. During the continuance of any other Event of Default, Wells
Fargo at any time and from time to time (unless all Events of Default have
theretofore been remedied) may declare any or all of the Obligations immediately
due and payable, and all such Obligations shall thereupon be immediately due and
payable.

     Section 7.2 REMEDIES. If any Event of Default shall occur, Wells Fargo may
protect and enforce its rights under the Loan Documents by any appropriate
proceedings, including proceedings for specific performance of any covenant or
agreement contained in any Loan Document, and Wells Fargo may enforce the
payment of any Obligations due or enforce any other legal or equitable right.
All rights, remedies and powers conferred upon Wells Fargo under the Loan
Documents shall be deemed cumulative and not exclusive of any other rights,
remedies or powers available under the Loan Documents or at law or in equity.

     Section 7.3 INDEMNITY. Borrower hereby agrees to indemnify, defend and hold
harmless Wells Fargo and its agents, affiliates, officers, directors, and
employees from and against any and all claims, losses, demands, actions, causes
of action, and liabilities whatsoever (including without limitation reasonable
attorney's fees and expenses, and costs and expenses reasonably incurred in
investigating, preparing or defending against any litigation or claim, action,
suit, proceeding or demand of any kind or character) arising out of or resulting
from: (a) the Loan Documents (including without limitation the enforcement
thereof), except to the extent such claims, losses, and liabilities are
proximately caused by a Wells Fargo's gross negligence or willful misconduct,
(b) the contamination of any of the Oil and Gas Interests by any hazardous
substance or environmental pollutant, or (c) the violation of any federal, state
or local environmental statute, rule, regulation or ordinance, including without
limitation violation of the Comprehensive Environmental Response, Compensation
and Liability Act, as amended from time to time, or of the Resource Conservation
and Recovery Act, as amended from time to time. The indemnity forth in this
Section 7.3 shall survive the termination of this Agreement.

                                     - 19 -

<PAGE>

                                  ARTICLE VIII

                                  MISCELLANEOUS

     Section 8.1 WAIVER AND AMENDMENT. No failure or delay by Wells Fargo in
exercising any right, power or remedy which it may have under any of the Loan
Documents shall operate as a waiver thereof or of any other right, power or
remedy, nor shall any single or partial exercise by Wells Fargo of any such
right, power or remedy preclude any other or further exercise thereof or of any
other right, power or remedy. No waiver of any provision of any Loan Document
and no consent to any departure therefrom shall ever be effective unless it is
in writing and signed by Wells Fargo, and then such waiver or consent shall be
effective only in the specific instances and for the purposes for which given
and to the extent specified in such writing. No notice to or demand on any
Obligated Person shall in any case of itself entitle any Obligated Person to any
other or further notice or demand in similar or other circumstances. No
modification or amendment of or supplement to this Agreement or the other Loan
Documents shall be valid or effective unless the same is in writing and signed
by the party against whom it is sought to be enforced.

     Section 8.2 SURVIVAL OF AGREEMENTS; CUMULATIVE NATURE. All of the Obligated
Persons' various representations, warranties, covenants and agreements in the
Loan Documents shall survive the execution and delivery of this Agreement and
the other Loan Documents and the performance hereof and thereof, including
without limitation the making or granting of the Loan and the delivery of the
Note and the other Loan Documents, and shall further survive until all of the
Obligations are paid in full to Wells Fargo and all of Wells Fargo's obligations
to Borrower are terminated. All statements and agreements contained in any
certificate or other instrument delivered to Wells Fargo under any Loan Document
shall be deemed representations and warranties by Borrower to Wells Fargo and/or
agreements and covenants of Borrower under this Agreement. The representations,
warranties, and covenants made by the Obligated Persons in the Loan Documents,
and the rights, powers, and privileges granted to Wells Fargo in the Loan
Documents, are cumulative, and no Loan Document shall be construed in the
context of another to diminish, nullify, or otherwise reduce the benefit to
Wells Fargo of any such representation, warranty, covenant, right, power or
privilege. In particular and without limitation, no exception set out in this
Agreement to any representation, warranty or covenant herein contained shall
apply to any similar representation, warranty or covenant contained in any other
Loan Document, and each such similar representation, warranty or covenant shall
be subject only to those exceptions which are expressly made applicable to it by
the terms of the various Loan Documents.

                                     - 20 -

<PAGE>

     Section 8.3 NOTICES. All notices, requests, consents, demands and other
communications required or permitted under any Loan Document shall be in writing
and, unless otherwise specifically provided in such Loan Document, shall be
deemed sufficiently given or furnished if delivered by personal delivery, by
expedited delivery service with proof of delivery, or by registered or certified
United States mail, return receipt requested, postage prepaid, at the addresses
specified below (unless changed by similar notice in writing given by the
particular Person whose address is to be changed). Any such notice or
communication shall be deemed to have been given upon receipt:

Borrower's address:                      999 18th Street, Suite 2490
                                         Denver, Colorado 80202
                                         Attention:  Barry D. Lasker

Wells Fargo's address:                   MAC #C7301-046
                                         1740 Broadway
                                         Denver, Colorado 80274
                                         Attention:  Denver Energy Group

     Section 8.4 JOINT AND SEVERAL LIABILITY; PARTIES IN INTEREST. All
obligations of the Obligated Persons hereunder shall be the joint and several,
and not merely joint, obligations of each Obligated Person. All grants,
covenants and agreements contained in the Loan Documents shall bind and inure to
the benefit of the parties thereto and their respective successors and assigns;
provided, however, that no Obligated Person may assign or transfer any of its
rights or delegate any of its duties or obligations under any Loan Document
without the prior consent of Wells Fargo.

     Section 8.5 GOVERNING LAW. The Loan Documents shall be deemed contracts and
instruments made under the laws of the State of Colorado and shall be construed
and enforced in accordance with and governed by the laws of the State of
Colorado and the laws of the United States of America, except (a) to the extent
that the law of another jurisdiction is expressly elected in a Loan Document,
and (b) with respect to specific Liens, or the perfection thereof, evidenced by
Security Documents covering real or personal property which by the laws
applicable thereto are required to be construed under the laws of another
jurisdiction. Borrower hereby irrevocably submits itself to the non-exclusive
jurisdiction of the state and federal courts of the State of Colorado.

     Section 8.6 LIMITATION ON INTEREST. Wells Fargo and the Obligated Persons
intend to contract in strict compliance with applicable usury law from time to
time in effect. In furtherance thereof such persons stipulate and agree that
none of the terms and provisions contained in the Loan Documents shall ever be
construed to create a contract to pay, for the use, forbearance or detention of
money, interest in excess of the maximum amount of interest permitted to be
charged by applicable law from time to time in effect. Neither any Obligated
Person nor any present or future guarantors, endorsers, or other Persons
hereafter becoming liable for payment of any Obligation shall ever be liable for
unearned interest thereon or shall ever be required to pay interest thereon in
excess of the maximum amount that may be lawfully charged under applicable law
from time to time in effect. and the provisions of this section shall control
over all other provisions of the Loan Documents which may be in conflict or
apparent

                                     - 21 -

<PAGE>

conflict herewith. Wells Fargo expressly disavows any intention to charge or
collect excessive unearned interest or finance charges in the event the maturity
of any Obligation is accelerated. If (a) the maturity of any obligation is
accelerated for any reason, (b) any Obligation is prepaid and as a result any
amounts held to constitute interest are determined to be in excess of the legal
maximum, or (c) Wells Fargo or any other holder of any or all of the Obligations
shall otherwise collect moneys which are determined to constitute interest which
would otherwise increase the interest on any or all of the Obligations to an
amount in excess of that permitted to be charged by applicable law then in
effect, then all such sums determined to constitute interest in excess of such
legal limit shall, without penalty, be promptly applied to reduce the then
outstanding principal of the related Obligations or, at Wells Fargo's option,
promptly returned to Borrower or the other payor thereof upon such
determination.

     Section 8.7 SEVERABILITY. If any term or provision of any Loan Document
shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable law.

     Section 8.8 COUNTERPARTS. This Agreement may be separately executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Agreement.

     Section 8.9 CONFLICTS. To the extent of any irreconcilable conflicts
between the provisions of this Agreement and the provisions of any of the Loan
Documents, the provisions of this Agreement shall prevail.

     Section 8.10 ENTIRE AGREEMENT. This Agreement, the Note, the Security
Documents and the other Loan Documents from time to time executed in connection
herewith state the entire agreement between the parties with respect to the
subject matter hereof.

     Section 8.11 WAIVER OF JURY TRIAL. EACH OBLIGATED PERSON AND WELLS FARGO
HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION: (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR (B) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM IN RESPECT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
EACH OBLIGATED PERSON AND WELLS FARGO HEREBY AGREE THAT THE OTHER MAY FILE A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHTS TO TRIAL BY JURY.

     Section 8.12 ARBITRATION.

            (a)  Subject to the provisions of Section 8.12(b) below, Wells Fargo
and Borrower agree to submit to binding arbitration any and all claims, disputes
and controversies between them (and their respective employees, officers,
directors, attorneys and other agents), whether in tort, contract or otherwise,
arising out of or in any way relating to this Agreement, the Note, the Security
Documents, the other Loan Documents, the Loan and the negotiation,

                                     - 22 -

<PAGE>

execution, administration, collateralization, repayment, modification,
extension, collection, enforcement, default or termination thereof. Such
arbitration shall proceed in Denver, Colorado, shall be governed by Colorado law
(including without limitation the provisions of CRS 13-21-102(5) and all
applicable statutes of limitation) and shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the
"AAA"). Any award entered in an arbitration, whether on motions or at a hearing,
with or without testimony from witnesses, shall be made by a written opinion
stating the reasons for the award made. The decision of any arbitration pursuant
to this Agreement shall be made based upon Colorado law without reference to any
choice of law rules. Judgment on any award hereunder may be entered in any court
having jurisdiction.

            (b)  Nothing in the preceding paragraph, nor the exercise of any
right to arbitrate thereunder, shall limit the right of any party hereto: (1) to
foreclose against any real or personal property collateral by the exercise of
the power of sale under a deed of trust, mortgage, or other security agreement
or instrument or applicable law; (2) to exercise self-help remedies such as
setoff or repossession; or (3) to obtain provisional or ancillary remedies such
as replevin, injunctive relief, attachment or appointment of a receiver from a
court having jurisdiction, before, during or after the pendency of any
arbitration proceeding. The institution and maintenance of any action for such
judicial relief, or pursuit of provisional or ancillary remedies, or exercise of
self-help remedies shall not constitute a waiver of the right or obligation of
any party to submit any claim or dispute to arbitration, including those claims
or disputes arising from exercise of any judicial relief, or pursuit of
provisional or ancillary remedies or exercise of self-help remedies.

            (c)  If the amount in dispute is $500,000 or more, arbitration
hereunder shall be before a three-person panel of neutral arbitrators,
consisting of one person from each of the following categories: (1) an attorney
who has practiced in the area of commercial law for at least eight years or a
retired judge at the Colorado or United States District Court or an appellate
court level, (2) a person with at least eight years experience in commercial
lending, and (3) a person with at least eight years experience in the petroleum
industry. The parties to the dispute or their representatives shall obtain from
the AAA a list of persons meeting the criteria outlined above for each category
of arbitrator, and the parties shall select one person from each category in the
manner established by the AAA.

            (d)  If the amount in dispute is less than $500,000, the arbitration
shall be conducted before one arbitrator, who shall be an attorney who has
practiced in the area of commercial law for at least eight years or a retired
judge at the Colorado or United States District Court or an appellate court
level. The parties to the dispute or their representatives shall obtain from the
AAA a list of persons meeting the criteria outlined above, and the parties shall
select the person in the manner established by the AAA.

            (e)  In any arbitration hereunder: (1) the arbitrator(s) shall
decide (by documents only or with a hearing, at the arbitrators' discretion) any
pre-hearing motions which are substantially similar to pre-hearing motions to
dismiss for failure to state a claim or motions for summary adjudication; (2)
discovery shall be permitted, but shall be limited as provided in Rule 26.1(o)
of the Colorado Rules of Civil Procedure, and shall be subject to the scheduling
by the

                                     - 23 -

<PAGE>

arbitrator(s), and any discovery disputes shall be subject to final
determination by the arbitrator(s); and (3) the arbitrator(s) shall award costs
and expenses of the arbitration proceeding in accordance with the provisions of
this Agreement, the Note and/or the other Loan Documents.

     Section 8.13 SUPERSESSION. Upon the repayment of all amounts due under or
in connection with the Prior Credit Agreement, the terms and provisions of this
Agreement shall be deemed to supersede the terms and provisions of the Prior
Credit Agreement in their entirety.

     IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.

                                          KESTREL ENERGY, INC.

                                          By: /s/Barry D. Lasker
                                              Barry D. Lasker,
                                              President

                                          WELLS FARGO BANK, N.A.

                                          By: /s/Duc Duong
                                              Duc Duong,
                                              Assistant Vice President

                                     - 24 -

<PAGE>

                                    EXHIBIT A

                                 PROMISSORY NOTE

$1,396,000                                                  November 29, 2001
                                                            Denver, Colorado

      FOR VALUE RECEIVED, KESTREL ENERGY, INC., a Colorado corporation
("Borrower"), promises to pay to the order of WELLS FARGO BANK, N.A. ("Payee"),
the principal sum of $1,396,000 (or so much thereof as may be borrowed
hereunder), together with interest on the outstanding unpaid balance of such
principal amount at the rates-provided below.

      This Note is issued pursuant to, and is subject to the terms and
provisions of, the Term Loan Agreement of even date herewith, between Borrower
and Payee, as now in effect or as the same may hereafter be amended, restated,
extended, renewed or otherwise modified (the "Term Loan Agreement"). Except as
otherwise defined herein, terms defined in the Term Loan Agreement shall have
the same meanings when used herein.

      The outstanding principal amount of this Note shall be due and payable as
provided in the Term Loan Agreement. Any then-unpaid principal balance of this
Note shall be due and payable on the Maturity Date (unless due and payable
sooner pursuant to the terms of the Term Loan Agreement).

      Interest shall accrue daily on the unpaid principal balance of this Note
as described in the Term Loan Agreement, shall be due and payable at, such times
as may be provided in the Term Loan Agreement and at the maturity of this Note,
and shall be calculated on the basis of a 360-day year, and the actual number of
days elapsed.

      All payments of principal and interest hereon shall be made at Payee's
offices at 1740 Broadway, Denver, Colorado 80274 (or at such other place as
Payee shall have designated to Borrower in writing) on the date due in
immediately available funds and without set-off or counterclaim or deduction of
any kind. All payments received hereunder shall be applied first to costs of
collection, second to accrued interest as of the-date of payment and third to
the outstanding principal balance of this Note, in accordance with the terms of
the Term Loan Agreement.

      Notwithstanding anything to the contrary contained in this Note, from and
after the expiration of any applicable period of grace provided for in the Term
Loan Agreement, overdue principal, and (to the extent permitted under applicable
law) overdue interest, whether caused by acceleration of maturity or otherwise,
shall bear interest at a fluctuating rate, adjustable the day of any change in
such rate, equal to four percentage points above the Prime Rate, until paid, and
shall be due and payable monthly or, at the option of the holder hereof, on
demand.

      This Note is secured by, and the holder of this Note is entitled to the
benefits of, the Security Documents. Reference is made to the Security Documents
for a description of the property covered thereby and the rights, remedies and
obligations of the holder hereof in respect thereto.

                                     A-1

<PAGE>

      Subject to the expiration of any applicable period of grace provided for
in the Term Loan Agreement, in the event of: (a) any default in any payment of
the principal of or interest on this Note when due and payable, or (b) any other
Event of Default (as defined in the Term Loan Agreement), then the whole
principal sum of this Note plus accrued interest and all other obligations of
Borrower to holder, direct or indirect, absolute or contingent, now existing or
hereafter arising, shall, at the option of Payee, become immediately due and
payable, and any or all of the rights and remedies provided herein and in the
Term Loan Agreement and the Security Documents, as they may be amended, modified
or supplemented from time to time may be exercised by Payee.

      If Borrower fails to pay any amount due under this Note and Payee has to
take any action to collect the amount due or to exercise its rights under the
Security Documents, including without limitation retaining attorneys for
collection of this Note, or if any suit or proceeding is brought for the
recovery of all or any part of or for protection of the indebtedness or to
foreclose the Security Documents or to enforce Payee's rights under the Security
Documents, then Borrower agrees to pay on demand all reasonable costs and
expenses of any such action to collect, suit or proceeding, or any appeal of any
such suit or proceeding, incurred by Payee, including without limitation the
reasonable fees and disbursements of Payee's attorneys and their staff.

      Borrower waives presentment, notice of dishonor and protest, and assents
to any extension of time with respect to any payment due under this Note, to any
substitution or release of collateral and to the addition or release of any
party, except as provided in the Term Loan Agreement. No waiver of any payment
or other right under this Note shall operate as a waiver of any other payment or
right.

      If any provision in this Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provisions shall not be in any way affected or impaired in any
other jurisdiction.

      No delay or failure of the holder of this Note in the exercise of any
right or remedy provided for hereunder shall be deemed a waiver of such right by
the holder hereof, and no exercise of any right or remedy shall be deemed a
waiver of any other right or remedy that the holder may have.

      All notices given hereunder shall be given as provided in the Term Loan
Agreement.

      At the option of the holder hereof, an action may be brought to enforce
this Note-in the District Court in and for the City and County of Denver, State
of Colorado, in the United States District Court for the District of Colorado or
in any other court in which venue and jurisdiction are proper. Borrower and all
signers or endorsers hereof consent to venue and jurisdiction in the District
Court in and for the City and County of Denver, State of Colorado and in the
United States District Court for the District of Colorado and to service of
process under Sections 13-1-124(l)(a) and 13-1-125, Colorado Revised Statutes
(1992), as amended, in any action commenced to enforce this Note.

                                     A-2

<PAGE>

      This Note is to be governed by and construed according to the laws of the
state of Colorado.

                                          KESTREL ENERGY, INC.

                                          By:
                                             ----------------------------------
                                              Barry D. Lasker,
                                              President

                                     A-3

<PAGE>

                                    EXHIBIT B

                             COMPLIANCE CERTIFICATE

Wells Fargo Bank, N.A.
MAC #C7301-046
1740 Broadway
Denver, Colorado 80274
Attention: Denver Energy Group

Gentlemen:

      This Compliance Certificate is submitted pursuant to the Term Loan
Agreement dated as of November 29, 2001 (the "Term Loan Agreement"), between
Kestrel Energy, Inc. and Wells Fargo Bank, N.A. Capitalized terms used herein
without definition shall have the same meanings as provided in the Term Loan
Agreement.

      THE UNDERSIGNED OFFICER CERTIFIES AS FOLLOWS:

     1. Enclosed herewith are the [annual/quarterly] financial statements of
Borrower, required to be submitted to Wells Fargo not later than _____________,
20_, pursuant to Section [6.1(b)(1)][6.1(b)(2)] of the Term Loan Agreement.

     2. The following computations show Borrower's compliance or non-compliance,
as of ______________, 20_, with the financial tests referred to below:

        (a)   Current Ratio:
                  Actual
                    Current Assets of Borrower:           $
                                                             ------------

                    Current Liabilities of Borrower:      $
                                                             ------------
                    Current Maturities of Loan:      -    $
                                                             ------------
                    Difference:                           $
                                                             ------------
                  Current Ratio:                             ___:1.0
                  Minimum Per Agreement:                     1.0:1.0

        (b)   Tangible Net Worth:
                  Actual
                    Net Worth of Borrower:                $
                                                             ------------
                    Intangible Assets of Borrower:   -    $
                                                             ------------
                    Difference:                           $
                                                             ------------

                  Minimum Per Agreement:
                    Initial Minimum:                      $  10,000,000
                    50 percent of Cumulative
                     Net Income after 06/30/01: + $
                                                             ------------
                  Total:                                  $
                                                             ------------

                                     B-1

<PAGE>

     3. The enclosed financial statements are true, correct and complete in all
material respects, to the best knowledge of the undersigned.

     4. The undersigned has read the Term Loan Agreement and the Security
Documents; this Certificate is based upon an examination of the Term Loan
Agreement and the Security Documents and of the accounts and other pertinent
records of Borrower.

5. In the opinion of the undersigned, the undersigned has made such examination
and investigation as is necessary to enable the undersigned to express an
informed opinion as to whether or not the covenants and conditions of the Term
Loan Agreement and the Security Documents as to which this Certificate relates
have been complied with, and, to the best knowledge of the undersigned: CHECK
EITHER (a) or (b)):

                          (____)   (a)   There exists no condition or event
                                         at the end of the subject reporting
                                         period or at the time of the execution
                                         of this Certificate which constituted
                                         or constitutes a Default or an Event of
                                         Default.

                          (____)   (b)   In the opinion of the undersigned,
                                         a condition or event did exist or
                                         does exist that constituted or
                                         constitutes a Default or an Event of
                                         Default. In conjunction with the
                                         execution of this Certificate, the
                                         undersigned have transmitted, under
                                         separate cover, a letter detailing the
                                         nature and period of existence of any
                                         such condition or event.

     6. The most recent quarterly production report, required to be submitted to
Wells Fargo not later than __________, 20__, pursuant to Section 6.1(b)(4) of
the Term Loan Agreement, was submitted to Wells Fargo on ____________, 20__.

     7. The following is a list of any and all developed oil and Gas Interests
sold, disposed of by exchange or otherwise transferred by Borrower to date
during the calendar year which will end on December 31, 20__, and the price
received by Borrower in connection with any such transfer:

       Property Name              County, State             Price Received
       -------------              -------------             --------------

                                          SIGNED AND CERTIFIED:

                                          KESTREL ENERGY, INC.

                                          By:
                                              ------------------------------
                                              -----------------------

                                      B-2

<PAGE>

                                    EXHIBIT C

                            PRINCIPAL PAYMENT AMOUNTS

                                               Principal
                          Payment Date      Payment Amount
                          ------------      --------------

                            11/30/01            $20,000
                            12/31/01            $20,000
                            01/31/02           $340,000
                            02/28/02            $40,000
                            03/31/02            $40,000
                            04/30/02           $340,000
                            05/31/02            $40,000
                            06/30/02            $40,000
                            07/31/02           $340,000
                            08/31/02            $40,000
                            09/30/02            $40,000
                            10/31/02            $40,000

                                       C-1<PAGE>
                                                                     EXHIBIT 4.2

                                RIGHTS AGREEMENT

                            dated as of May 11, 2001

                                 by and between

                          DOCUMENT SCIENCES CORPORATION

                                       and

                        U.S. STOCK TRANSFER CORPORATION

                                 as Rights Agent

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                          Page
                                                                                          ----
<S>          <C>                                                                          <C>
Section 1.   Certain Definitions............................................................1

Section 2.   Appointment of Rights Agent....................................................5

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

Section 4.   Form of Right Certificates.....................................................7

Section 5.   Countersignature and Registration..............................................8

Section 6.   Transfer, Split Up, Combination and Exchange of Right Certificates;
             Mutilated, Destroyed, Lost or Stolen Right Certificates........................8

Section 7.   Exercise of Rights.............................................................9

Section 8.   Cancellation and Destruction of Right Certificates............................10

Section 9.   Reservation and Availability of Capital Stock.................................11

Section 10.  Securities Record Date........................................................11

Section 11.  Adjustment of Exercise Price, Number of Shares Issuable Upon Exercise of
             Rights or Number of Rights....................................................12

Section 12.  Certificate of Adjusted Exercise Price or Number of Shares Issuable Upon
             Exercise of Rights............................................................17

Section 13.  Consolidation, Merger or Sale or Transfer of Assets or Earning Power..........17

Section 14.  Fractional Rights and Fractional Shares.......................................19

Section 15.  Rights of Action..............................................................20

Section 16.  Agreement of Right Holders....................................................20

Section 17.  Right Holder and Right Certificate Holder Not Deemed a Stockholder............21

Section 18.  Concerning the Rights Agent...................................................21

Section 19.  Merger or Consolidation or Change of Name of Rights Agent.....................22

Section 20.  Duties of Rights Agent........................................................22

Section 21.  Change of Rights Agent........................................................24
</TABLE>

                                        i
<PAGE>

<TABLE>
<S>          <C>                                                                           <C>
Section 22.  Issuance of New Right Certificates............................................25

Section 23.  Redemption of Rights..........................................................25

Section 24.  Exchange of Rights............................................................26

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

Section 26.  Notices.......................................................................27

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

Section 28.  Certain Covenants.............................................................29

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

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

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

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

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

Section 34.  Descriptive Headings..........................................................30

Exhibit A -- Form of Right Certificate
</TABLE>

                                       ii
<PAGE>

                                RIGHTS AGREEMENT

        This Rights Agreement (the "Agreement") is made and entered into as of
the 11th day of May, 2001 by and between DOCUMENT SCIENCES CORPORATION, a
Delaware corporation (the "Company"), and U. S. STOCK TRANSFER CORPORATION, a
California corporation, as rights agent (the "Rights Agent").

        WHEREAS, the Board of Directors of the Company has authorized and
declared a dividend of one preferred share purchase right (a "Right") for each
Common Share (as hereinafter defined) of the Company outstanding on May 18, 2001
(the "Record Date"), each Right representing the right to purchase one
one-hundredth of a Preferred Share (as hereinafter defined), upon the terms and
subject to the conditions set forth herein, and has further authorized and
directed the issuance of one Right with respect to each Common Share that shall
become outstanding between the Record Date and the earliest of the Distribution
Date, the Redemption Date or the Expiration Date (as such terms are hereinafter
defined).

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

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

        "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 promulgated under the Exchange Act, as in effect on
the date hereof.

        A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to "Beneficially Own" any securities:

               (i) that such Person or any of such Person's Affiliates or
        Associates beneficially owns, directly or indirectly, for purposes of
        Section 13(d) of the Exchange Act and Rule 13d-3 promulgated under the
        Exchange Act, in each case as in effect on the date hereof;

               (ii) that such Person or any of such Person's Affiliates or
        Associates has the right to acquire (whether such right is exercisable
        immediately, or only after the passage of time, compliance with
        regulatory requirements, the fulfillment of a condition or otherwise)
        pursuant to any agreement, arrangement or understanding, or upon the
        exercise of conversion rights, exchange rights (other than these
        Rights), rights, warrants or options, or otherwise, provided, however,
        that a Person shall not be deemed the Beneficial Owner of, or to
        Beneficially Own, securities tendered pursuant to a tender offer 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;

               (iii) that such Person or any such Person's Affiliates or
        Associates has the right to vote, whether alone or in concert with
        others, pursuant to any agreement, arrangement or

<PAGE>

        understanding, provided, however, that a Person shall not be deemed the
        Beneficial Owner of, or to Beneficially Own, any security if the
        agreement, arrangement or understanding to vote such security (A) arises
        solely from a revocable proxy given to such Person or any of such
        Person's Affiliates or Associates in response to a public proxy
        solicitation made pursuant to and in accordance with the applicable
        rules and regulations promulgated under the Exchange Act, and (B) is not
        also then reportable on Schedule 13D under the Exchange Act (or any
        comparable or successor report);

               (iv) that are Beneficially Owned, directly or indirectly, by any
        other Person with which such Person or any of such Person's Affiliates
        or Associates has any agreement, arrangement or understanding for the
        purpose of acquiring, holding, voting (other than voting pursuant to a
        revocable proxy as described in the proviso to clause (iii) of this
        definition of "Beneficial Owner") or disposing of any securities of the
        Company; and

               (v) that, on any day on or after the Distribution Date, evidence
        Rights that prior to such date were represented by certificates for
        Common Shares that such Person Beneficially Owns on such day.

Notwithstanding anything to the contrary in this Section l(b), a Person engaged
in business as an underwriter of securities shall not be deemed to be the
Beneficial Owner of, or to Beneficially Own, any securities acquired through
such Person's participation in good faith in a firm commitment underwriting
until the expiration of 40 days after the date of such acquisition.

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

        "Certificate of Designations" shall mean the certificate of designations
specifying the powers, designations, preferences and rights of the Preferred
Shares in accordance with the Delaware General Corporation Law.

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

        "Closing Price" of a stock or other security on any day shall be the
last sale price, regular way, per share of such stock or unit of such other
security on such day or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if such stock or other security is not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which such stock or other security is listed or admitted
to trading or, if such stock or other security is not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported on the Nasdaq National Market ("NASDAQ") or such other
system then in use or, if on any such date such stock or other security is not
quoted by any such organization, the average of the closing bid and asked prices

                                       2
<PAGE>

as furnished by a professional market maker that makes a market in such stock or
other security and that is selected by the Board of Directors of the Company.

        "Common Share" shall mean one share of the Common Stock, par value $.001
per share, of the Company, unless used with reference to a Person other than the
Company, in which case it shall mean one share of each class of stock of such
Person having the right to vote generally in the election of directors or, if
such Person is a Subsidiary of another Person, one Common Share of the Person
that ultimately controls such Person.

        "Common Share Equivalent" shall have the meaning ascribed to it in
Section 11(a)(iii) hereof.

        "Current Market Price" per share of a stock or unit of any other
security on any date shall mean the average of the daily Closing Prices of such
stock or other security for the 30 consecutive Trading Days through and
including the Trading Day immediately preceding the date in question; provided,
however, that if any event shall have caused the Closing Price on any Trading
Day during such 30-day period not to be fully comparable with the Closing Price
on the date in question (or, if no Closing Price is available on the date in
question, on the Trading Day immediately preceding the date in question), then
each such non-comparable Closing Price so used shall be appropriately adjusted
by the Board of Directors in order to make the Closing Price on each Trading Day
during the period used for the determination of the Current Market Price fully
comparable with the Closing Price on such date in question (or, if applicable,
the immediately preceding Trading Day). "Current Market Price" per share of any
stock or unit of such other security that is not publicly held or so listed or
traded, and "Current Market Price" of any other property, shall mean the fair
value per share of such stock or unit of such other security, or the fair value
of such other property, respectively, as determined in good faith by the Board
of Directors of the Company based upon such appraisals or valuation reports of
such independent experts as the Board of Directors shall in good faith determine
appropriate, which determination shall be described in a statement filed by the
Company with the Rights Agent.

        "Distribution Date" shall have the meaning ascribed to it in Section 3
hereof.

        "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

        "Exempt Person" shall mean the Company, any wholly-owned Subsidiary of
the Company, any employee benefit plan of the Company or of a Subsidiary of the
Company, any Person holding Voting Shares for or pursuant to the terms of any
such employee benefit plan, and Xerox Corporation.

        "Exercise Price" shall have the meaning ascribed to it in Section 7(c)
hereof.

        "Expiration Date" shall mean May 18, 2011.

        "Person" shall mean any individual, firm, partnership, corporation,
association, group (as such term is used in Rule 13d-5 promulgated under the
Exchange Act as in effect on the date hereof) or other entity, and shall include
any successor (by merger or otherwise) of such entity.

                                       3
<PAGE>

        "Preferred Share" shall mean one share of the Series A Junior
Participating Cumulative Preferred Stock, par value $.001 per share, of the
Company, which shall have the rights and preferences set forth in the
Certificate of Designations for the Preferred Shares.

        "Preferred Share Equivalent" shall have the meaning ascribed to it in
Section 11(b) hereof.

        "Record Date" shall have the meaning ascribed to it in the recitals
hereto.

        "Redemption Date" shall mean the date of the action of the Board of
Directors of the Company authorizing and directing the redemption of the Rights
pursuant to Section 23(a) hereof or the exchange of the Rights pursuant to
Section 24(a) hereof.

        "Redemption Price" shall have the meaning ascribed to it in Section
23(a) hereof.

        "Right Certificate", as that term is used with respect to any period
prior to the Distribution Date, shall have the meaning ascribed to it in Section
3(b) hereof, and, as that term is used with respect to any period on or after
the Distribution Date, shall have the meaning ascribed to it in Section 3(c)
hereof.

        "Rights Expiration Date" shall mean the Expiration Date, except if there
has been a Distribution Date, then it shall mean the tenth anniversary of the
Distribution Date.

        "Section 11(a)(ii) Event" shall have the meaning ascribed to it in
Section 11(a)(ii) hereof.

        "Section 13(a) Event" shall have the meaning ascribed to it in Section
13(a) hereof.

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

        "Subsidiary" of any Person shall mean any corporation or other Person of
which equity securities or equity interests representing a majority of the
voting power are owned, directly or indirectly, or which is effectively
controlled, by such Person.

        "Surviving Person" shall have the meaning ascribed to it in Section
13(a) hereof.

        "Trading Day" shall mean, as to any stock or other security, a day on
which the principal national securities exchange on which such stock or other
security is listed or admitted to trading is open for the transaction of
business or, if such stock or other security is not listed or admitted to
trading on any national securities exchange, a Business Day.

        "20% Ownership Date" shall mean the first date of public announcement
(which, for purposes of this definition, shall include, without limitation, a
report filed pursuant to Section 13(d) of the Exchange Act) by the Company or a
20% Stockholder containing the facts by virtue of which a Person has become a
20% Stockholder.

        "20% Stockholder" shall mean any Person that Beneficially Owns 20% or
more of the Voting Shares of the Company then outstanding; provided, however,
that the term "20% Stockholder" shall not include: (i) an Exempt Person; (ii)
any Person that would not

                                       4
<PAGE>

otherwise be a 20% Stockholder but for a reduction in the number of outstanding
Voting Shares resulting from a stock repurchase program or other similar plan of
the Company or from a self tender offer of the Company, which plan or tender
offer commenced on or after the date hereof; provided, however, that the term
"20% Stockholder" shall include such Person from and after the first date upon
which (A) such Person, since the date of the commencement of such plan or tender
offer, shall have acquired Beneficial Ownership of, in the aggregate, a number
of Voting Shares of the Company equal to 1% or more of the Voting Shares of the
Company then outstanding and (B) such Person, together with all Affiliates and
Associates of such Person, shall Beneficially Own 20% or more of the Voting
Shares of the Company then outstanding; (iii) any Person that would not
otherwise be a 20% Stockholder but for its Beneficial Ownership of Rights; (iv)
any Person that is the Beneficial Owner of 20% or more of the outstanding Voting
Shares of the Company as of April 24, 2001; provided, however, that the term
"20% Stockholder" shall include such Person from and after the first date upon
which (A) such Person, since April 24, 2001, shall have acquired, without the
prior approval of the Board of Directors of the Company, Beneficial Ownership
of, in the aggregate, a number of Voting Shares of the Company equal to 1% or
more of the Voting Shares of the Company then outstanding and (B) such Person,
together with all Affiliates and Associates of such Person, shall Beneficially
Own 20% or more of the Voting Shares of the Company then outstanding; or (v) any
Person (a "Transferee") that acquires Voting Shares from a Person described in
clause (iv) above that has not become a 20% Stockholder if, after giving effect
to such acquisition, such Transferee Beneficially Owns no more than the sum of
the Voting Shares so acquired plus 1% of the Voting Shares then outstanding;
provided, however, that the term "20% Stockholder" shall include such Transferee
from and after the first date upon which (A) such Transferee, since the date of
such acquisition, shall have acquired, without the prior approval of the Board
of Directors of the Company, Beneficial Ownership of, in the aggregate, a number
of Voting Shares of the Company equal to 1% or more of the Voting Shares of the
Company then outstanding and (B) such Transferee, together with all Affiliates
and Associates of such Transferee, shall Beneficially Own 20% or more of the
Voting Shares of the Company then outstanding. In calculating the percentage of
the outstanding Voting Shares that are Beneficially Owned by a Person for
purposes of this definition, Voting Shares that are Beneficially Owned by such
Person shall be deemed outstanding, and Voting Shares that are not Beneficially
Owned by such Person and that are subject to issuance upon the exercise or
conversion of outstanding conversion rights, exchange rights, rights, warrants
or options shall not be deemed outstanding. Any determination made by the Board
of Directors of the Company as to whether any Person is or is not a 20%
Stockholder shall be conclusive and binding upon all holders of Rights.

        "Voting Share" shall mean (i) a Common Share of the Company and (ii) any
other share of capital stock of the Company entitled to vote generally in the
election of directors or entitled to vote together with the Common Shares in
respect of any merger, consolidation, sale of all or substantially all of the
Company's assets, liquidation, dissolution or winding up. References in this
Agreement to a percentage or portion of the outstanding Voting Shares shall be
deemed a reference to the percentage or portion of the total votes entitled to
be cast by the holders of the outstanding Voting Shares.

        Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of Rights in
accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The

                                       5
<PAGE>

Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable.

        Section 3. Issuance of Rights Certificates.

        (a) "Distribution Date" shall mean the date, after the date hereof, that
is the earliest of (i) the tenth Business Day (or such later day as shall be
designated by the Board of Directors of the Company) following the date of the
commencement of, or the first public announcement of the intent of any Person,
other than an Exempt Person, to commence a tender offer or exchange offer, the
consummation of which would cause any Person to become a 20% Stockholder, (ii)
the date of the first Section 11(a)(ii) Event or (iii) the date of the first
Section 13(a) Event.

        (b) Until the Distribution Date, (i) the Rights shall be represented by
certificates for Common Shares (all of which certificates for Common Shares
shall be deemed to be Right Certificates) and not by separate Right
Certificates, (ii) the record holder of the Common Shares represented by each of
such certificates shall be the record holder of the Rights represented thereby
and (iii) the Rights shall be transferable only in connection with the transfer
of Common Shares. Until the earliest of the Distribution Date, the Redemption
Date or the Expiration Date, the surrender for transfer of such certificates for
Common Shares shall also constitute the surrender for transfer of the Rights
represented thereby.

        (c) As soon as practicable after the Distribution Date, and after
notification by the Company, the Rights Agent shall send, at the expense of the
Company, by first-class, postage-prepaid mail to each record holder of Common
Shares, as of the Close of Business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Right Certificate
substantially in the form of Exhibit A hereto representing one Right for each
Common Share so held. From and after the Distribution Date, the Rights shall be
represented solely by such Right Certificates and may only be transferred by the
transfer of such Right Certificates, and the holders of such Right Certificates,
as listed in the records of the Company or any transfer agent or registrar for
such Rights, shall be the record holders of such Rights.

        (d) Certificates for Common Shares issued at any time after the Record
Date and prior to the earliest of the Distribution Date, the Redemption Date or
the Expiration Date, shall have impressed on, printed on, written on or
otherwise affixed to them the following legend:

        This certificate also evidences and entitles the holder hereof to
        certain Rights as set forth in a Rights Agreement dated as of May 11,
        2001 by and between Document Sciences Corporation and U. S. Stock
        Transfer Corporation, as Rights Agent (the "Rights Agreement"), as
        amended to date, the terms and conditions of which are hereby
        incorporated herein by reference and a copy of which is on file at the
        principal executive offices of Document Sciences Corporation Under
        certain circumstances specified in the Rights Agreement, such Rights
        will be represented by separate certificates and will no longer be
        represented by this certificate. Under certain circumstances specified
        in the Rights Agreement, Rights beneficially owned by certain persons
        may become null and void. Document Sciences Corporation will mail to the
        record holder of this certificate a copy of the Rights Agreement without
        charge promptly following receipt of a

                                       6
<PAGE>

        written request therefor. As described in the Rights Agreement, Rights
        Beneficially Owned by any Person who becomes a 20% Stockholder or any
        Affiliate or Associate of a 20% Stockholder (as such capitalized terms
        are defined in the Rights Agreement) shall become null and void.

        (e) Certificates for Common Shares issued at any time on or after the
Distribution Date and prior to the earlier of the Redemption Date or the Rights
Expiration Date shall have impressed on, printed on, written on or otherwise
affixed to them the following legend:

        This certificate does not represent any Right issued pursuant to the
        terms of a Rights Agreement dated as of May 11, 2001 by and between
        Document Sciences Corporation and U. S. Stock Transfer Corporation, as
        Rights Agent.

        (f) In the event that at any time on or after the earlier of the date of
the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event
and prior to the earlier of the Redemption Date or the Rights Expiration Date,
the Company shall issue any Common Shares pursuant to the exercise of conversion
rights, exchange rights, rights (other than Rights), warrants or options that
shall have been issued or granted prior to the earlier of the date of the first
Section 11(a)(ii) Event or the date of the first Section 13(a) Event, then,
unless the Board of Directors of the Company shall have provided otherwise at
the time of the issuance or grant of such conversion rights, exchange rights,
rights (other than Rights), warrants or options, the Rights Agent shall, as soon
as practicable after the date of such event, send by first-class,
postage-prepaid mail to the record holder of such Common Shares, at the address
of such holder as shown on the records of the Company, a Right Certificate
substantially in the form of Exhibit A hereto representing one Right for each
Common Share so issued.

        (h) Notwithstanding the foregoing provisions of this Section , the
Rights Agent shall not send any Right Certificate to any 20% Stockholder or any
of its Affiliates or Associates or to any Person if the Rights held by such
Person are Beneficially Owned by a 20% Stockholder or any of its Affiliates or
Associates. Any determination made by the Board of Directors of the Company as
to whether any Common Shares are or were Beneficially Owned at any time by a 20%
Stockholder or an Affiliate or Associate of a 20% Stockholder shall be
conclusive and binding upon all holders of Rights.

        Section 4. Form of Right Certificates. The Right Certificates and the
form of assignment, including certificate, and the form of election to purchase,
including certificate, printed on the reverse thereof, when, as and if issued,
shall be substantially the same as Exhibit A hereto, and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange upon which the Rights or the securities
of the Company issuable upon exercise of the Rights may from time to time be
listed, or to conform to usage. Subject to Section 22 hereof, Right
Certificates, whenever issued, that are issued in respect of Common Shares that
were issued and outstanding as of the Close of Business on the Distribution
Date, shall be dated as of the Distribution Date.

                                       7
<PAGE>

        Section 5. Countersignature and Registration.

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

        (b) Following the Distribution Date, the Rights Agent shall keep or
cause to be kept at its principal offices books for registration and transfer of
the Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of Right Certificates, the number of Rights
represented on its face by each Right Certificate and the date of each Right
Certificate.

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

        (a) Subject to the provisions of Sections 6(c), 7(d) and 14 hereof, at
any time after the Close of Business on the Distribution Date, and so long as
the Rights represented thereby remain outstanding, any one or more Right
Certificates may be transferred, split-up, combined or exchanged for one or more
Right Certificates representing the same aggregate number of Rights as the Right
Certificates surrendered. Any registered holder desiring to transfer, split up,
combine or exchange one or more Right Certificates shall make such request in
writing delivered to the Rights Agent, and shall surrender the Right
Certificates to be transferred, split up, combined or exchanged at the office of
the Rights Agent with the form of assignment, including certificate, on the
reverse side thereof completed and duly executed, with signature guaranteed.
Thereupon, the Rights Agent shall countersign and deliver to the person entitled
thereto one or more Right Certificates, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.

        (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 Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
such Right Certificate if mutilated, the Company shall issue and deliver to the
Rights Agent for

                                       8
<PAGE>

delivery to the record holder of such Right Certificate a new Right Certificate
of like tenor in lieu of such lost, stolen, destroyed or mutilated Right
Certificate.

        (c) Notwithstanding anything to the contrary in this Section 6, the
Rights Agent shall not countersign and deliver a Right Certificate to any Person
if such Right Certificate represents, or would represent when held by such
Person, Rights that had become or would become null and void pursuant to Section
7(d) hereof.

        Section 7. Exercise of Rights.

        (a) Until the Distribution Date, no Right may be exercised.

        (b) Subject to Section 7(d) and (g) hereof and the other provisions of
this Agreement, at any time after the Close of Business on the Distribution Date
and prior to the Close of Business on the earlier of the Redemption Date or the
Rights Expiration Date, the registered holder of any Right Certificate may
exercise the Rights represented thereby in whole or in part upon surrender of
such Right Certificate, with the form of election to purchase, including
certificate, on the reverse side thereof completed and duly executed, with
signature guaranteed, to the Rights Agent at the office of the Rights Agent at
1745 Gardena Avenue, Glendale, California 91204, together with payment of the
Exercise Price for each Right exercised. Upon the exercise of an exercisable
Right and payment of the Exercise Price in accordance with the provisions of
this Agreement, the holder of such Right shall be entitled to receive, subject
to adjustment as provided herein, one one-hundredth of a Preferred Share (or,
following the occurrence of a Section 11(a)(ii) Event or a Section 13(a) Event,
Common Shares and/or other securities).

        (c) The "Exercise Price" for the exercise of each Right shall initially
be $25.00 and shall be payable in lawful money of the United States of America
in accordance with Section 7(f) hereof. The Exercise Price and the number of
Preferred Shares (or, following the occurrence of a Section 11(a)(ii) Event or a
Section 13(a) Event, Common Shares and/or other securities) to be acquired upon
exercise of a Right shall be subject to adjustment from time to time as provided
in Sections 7(e), 11 and 13 hereof and the other provisions of this Agreement.

        (d) Notwithstanding anything in this Agreement to the contrary, from and
after the earlier of the date of the first Section 11(a)(ii) Event or the date
of the first Section 13(a) Event, any Rights that are or were Beneficially Owned
by a 20% Stockholder or any Affiliate or Associate of a 20% Stockholder at any
time on or after the Distribution Date shall be null and void, and for all
purposes of this Agreement such Rights shall thereafter be deemed not to be
outstanding, and any holder of such Rights (whether or not such holder is a 20%
Stockholder or an Affiliate or Associate of a 20% Stockholder) shall thereafter
have no right to exercise such Rights.

        (e) Prior to the Distribution Date, if the Board of Directors of the
Company shall have determined that such action adequately protects the interests
of the holders of Rights, the Company may, in its discretion, substitute for all
or any portion of the Preferred Shares that would otherwise be issuable (after
the Close of Business on the Distribution Date) upon the exercise of each Right
and payment of the Exercise Price (i) cash, (ii) other equity securities of

                                       9
<PAGE>

the Company, (iii) debt securities of the Company, (iv) other property or (v)
any combination of the foregoing, in each case having an aggregate Current
Market Price equal to the aggregate Current Market Price of the Preferred Shares
for which substitution is made. Subject to Section 7(d) hereof, in the event
that the Company takes any action pursuant to this Section 7(e), such action
shall apply uniformly to all outstanding Rights.

        (f) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase, including certificate, completed and duly
executed, with signature guaranteed, accompanied by payment of the Exercise
Price for each Right to be exercised and an amount equal to any applicable
transfer tax required to be paid by the holder of such Right Certificate in
accordance with Section 9 hereof by certified check or cashier's check payable
to the order of the Company, the Rights Agent shall thereupon promptly (i)
requisition from the transfer agent of the Preferred Shares (or, following the
occurrence of a Section 11(a)(ii) Event or a Section 13(a) Event, Common Shares
and/or securities) certificates for the number of Preferred Shares (or such
other securities) to be purchased, and the Company hereby irrevocably authorizes
such transfer agent to comply with all such requests, and/or, as provided in
Section 14 hereof, requisition from the depositary agent described therein
depositary receipts representing such number of one-hundredths of a Preferred
Share (or such other securities) as are to be purchased (in which case
certificates for the Preferred Shares (or such other securities) represented by
such receipts shall be deposited by the transfer agent with such depositary
agent) and the Company hereby directs such depositary agent to comply with such
request, (ii) when appropriate, requisition from the Company the amount of cash
to be paid in lieu of issuance of fractional Preferred Shares (or such other
securities) in accordance with Section 14 hereof, (iii) after receipt of such
certificates, depositary receipts or cash, cause the same to be delivered to or
upon the order of the registered holder of such Right Certificate, registered in
such name or names as may be designated by such holder and (iv) when
appropriate, after receipt thereof, deliver such cash to or upon the order of
the registered holder of such Right Certificate.

        (g) Notwithstanding the foregoing provisions of this Section 7, the
exercisability of the Rights shall be suspended for such period as shall
reasonably be necessary for the Company to register and qualify under the
Securities Act and any applicable securities law of any jurisdiction the
Preferred Shares and/or Common Shares or other securities to be issued pursuant
to the exercise of the Rights; provided, however, that nothing contained in this
Section 7 shall relieve the Company of its obligations under Section 9(c)
hereof.

        (h) In case the registered holder of any Right Certificate shall
exercise less than all of the Rights represented thereby, a new Right
Certificate representing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Right
Certificate or to such holder's duly authorized assigns, subject to the
provisions of Section 14 hereof.

        Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
this Agreement. The Company shall deliver to the Rights Agent for cancellation
and retirement, and

                                       10
<PAGE>

the Rights Agent shall so cancel and retire, any other Right Certificate
purchased or acquired by the Company otherwise than upon the exercise thereof.
The Rights Agent shall deliver all canceled Right Certificates to the Company or
shall, at the written request of the Company, destroy such canceled Right
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.

        Section 9. Reservation and Availability of Capital Stock.

        (a) Subject to Sections 7(e) and 9(f) hereof, the Company shall cause to
be reserved and kept available out of its authorized and unissued equity
securities (or out of its authorized and issued equity securities held in its
treasury), the number of such equity securities that will from time to time be
sufficient to permit the exercise in full of all outstanding Rights.

        (b) In the event that any securities issuable upon exercise of the
Rights are listed on any national securities exchange, the Company shall use its
best efforts, from and after such time as the Rights become exercisable, to
cause all such securities issued or reserved for such issuance to be listed on
such exchange upon official notice of issuance upon such exercise.

        (c) If necessary to permit the issuance of securities upon exercise of
the Rights, the Company shall use its best efforts, from and after the
Distribution Date, to register and qualify such securities under the Securities
Act, the Exchange Act and any other applicable securities laws and to keep such
registration effective until the earlier of the Redemption Date or the Rights
Expiration Date.

        (d) The Company shall take all such action as may be necessary to ensure
that all securities delivered upon exercise of the Rights shall, at the time of
delivery of the certificates for such securities (subject to payment of the
Exercise Price), be duly and validly authorized and issued and fully paid and
nonassessable securities.

        (e) The Company shall 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 Right Certificates or of any securities upon the exercise of
Rights. The Company shall not, however, be required to pay any transfer tax that
may be payable in respect of any transfer or delivery of a Right Certificate to
a Person other than, or the issuance or delivery of a certificate for securities
in respect of a name other than that of, the registered holder of the Right
Certificate representing Rights surrendered for exercise, or to issue or deliver
any certificate for securities upon the exercise of any Right until any such tax
shall have been paid (any such tax being payable by the holder of such Right
Certificate at the time of surrender) or until it has been established to the
Company's satisfaction that no such tax is due.

        (f) With respect to the Common Shares and/or other securities issuable
pursuant to Section 11(a)(ii) and (iii) hereof, the foregoing covenants shall be
applicable only upon and following the occurrence of a Section 11(a)(ii) Event.

        Section 10. Securities Record Date. Each Person in whose name any
certificate for securities of the Company is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of the
securities represented thereby on, and such certificate shall be dated, the date
upon which the Right Certificate representing such Rights was

                                       11
<PAGE>

duly surrendered and payment of the Exercise Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the securities transfer books of the Company are
closed, such person shall be deemed to have become the record holder of such
securities on, and such certificate shall be dated, the next succeeding Business
Day on which the securities transfer books of the Company are open.

        Section 11. Adjustment of Exercise Price, Number of Shares Issuable Upon
Exercise of Rights or Number of Rights. The Exercise Price, the number and kind
of securities that may be purchased upon exercise of a 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 that the Company shall at any time after the
        Close of Business on the Record Date and prior to the Close of Business
        on the earlier of the Redemption Date or the Rights Expiration Date (A)
        declare or pay any dividend on the Preferred Shares payable in Preferred
        Shares or Voting Shares, (B) subdivide the outstanding Preferred Shares,
        (C) combine the outstanding Preferred Shares into a smaller number of
        Preferred Shares or (D) issue Preferred Shares or other securities of
        the Company (other than those for which an adjustment is required under
        Section 11(b) hereof) in a reclassification of the Preferred Shares
        (including any such reclassification in connection with a consolidation
        or merger in which the Company is the continuing or surviving
        corporation) or in a reorganization of the Company, then, and upon each
        such event, the number and kind of Preferred Shares or other securities
        issuable upon the exercise of a Right on the date of such event shall be
        proportionately adjusted so that the holder of any Right exercised on or
        after such date shall be entitled to receive, upon the exercise thereof
        and payment of the Exercise Price, the aggregate number and kind of
        Preferred Shares or other securities or other property, as the case may
        be, that, if such Right had been exercised immediately prior to such
        date and at a time when such Right was exercisable and the transfer
        books of the Company were open, such holder would have owned upon such
        exercise and would have 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) In the event that a 20% Ownership Date shall have occurred
        and neither the Redemption Date nor the Expiration Date shall have
        occurred prior to the tenth Business Day following such 20% Ownership
        Date (a "Section 11(a)(ii) Event"), then, and upon each such Section
        11(a)(ii) Event, proper provision shall be made so that, except as
        provided in Section 7(d) hereof, each holder of a Right shall thereafter
        have the right to receive, upon the exercise thereof in accordance with
        the terms of this Agreement and payment of the then current Exercise
        Price, such number of Common Shares of the Company as shall equal the
        result obtained by (A) multiplying the then current Exercise Price by
        the then number of one-hundredths of a Preferred Share for which a Right
        was exercisable immediately prior to such Section 11(a)(ii) Event (or,
        if the Distribution Date shall not have occurred prior to the date of
        such Section 11(a)(ii) Event, the number of one-hundredths of a
        Preferred Share for which a Right would have been exercisable if the
        Distribution Date had occurred on the Business Day immediately preceding
        the date of

                                       12
<PAGE>

        such Section 11(a)(ii) Event), and (B) dividing that product by 50% of
        the Current Market Price of a Common Share on the date of occurrence of
        the relevant Section 11(a)(ii) Event (such number of shares being
        hereinafter referred to as the "Adjustment Shares"). Successive
        adjustments shall be made pursuant to this paragraph each time a Section
        11(a)(ii) Event occurs.

               (iii) In the event that on the date of a Section 11(a)(ii) Event
        the aggregate number of Common Shares that are authorized by the
        Company's Certificate of Incorporation, as amended from time to time,
        but not outstanding or reserved for issuance for purposes other than
        upon exercise of the Rights is less than the aggregate number of
        Adjustment Shares thereafter issuable upon the exercise in full of the
        Rights in accordance with Section 11(a)(ii) hereof (the excess of such
        number of Adjustment Shares over and above such number of Common Shares
        being hereinafter referred to as the "Unavailable Adjustment Shares"),
        then, and upon each such event, the Company shall substitute for the pro
        rata portion of the Unavailable Adjustment Shares that would otherwise
        be issuable thereafter upon the exercise of each Right and payment of
        the Exercise Price (A) cash, (B) other equity securities of the Company
        (including, without limitation, shares of preferred stock of the Company
        or units of such shares having the same Current Market Price as one
        Common Share (a "Common Share Equivalent")), (C) debt securities of the
        Company, (D) other property or (E) any combination of the foregoing, in
        each case having an aggregate Current Market Price equal to the
        aggregate Current Market Price of the Unavailable Adjustment Shares for
        which substitution is made. Subject to Section 7(d) hereof, in the event
        that the Company takes any action pursuant to this Section 11(a)(iii),
        such action shall apply uniformly to all outstanding Rights.

        (b) In the event that the Company shall, at any time after the Close of
Business on the Record Date and prior to the Close of Business on the earlier of
the Redemption Date or the Rights Expiration Date, fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Shares
entitling them initially to subscribe for or purchase Preferred Shares (or
shares having the same rights, privileges and preferences as the Preferred
Shares ("Preferred Share Equivalents")) or securities convertible into Preferred
Shares or Preferred Share Equivalents, at a price per Preferred Share or
Preferred Share Equivalent (or having a conversion price per share, if a
security convertible into Preferred Shares or Preferred Share Equivalents) less
than the Current Market Price per Preferred Share on such record date, then, and
upon each such event, the Exercise Price to be in effect after such record date
shall be determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be equal
to the sum of the number of Preferred Shares outstanding on such record date
plus the number of Preferred Shares that the aggregate offering price of the
total number of Preferred Shares and/or Preferred Share Equivalents to be so
offered (and/or the aggregate initial conversion price of the convertible
securities to be so offered) would purchase at such Current Market Price, and
the denominator of which shall be equal to the number of Preferred Shares
outstanding on such record date plus the number of additional Preferred Shares
and/or Preferred Share Equivalents to be offered for subscription or purchase
(or into which the convertible securities to be so offered are initially
convertible); provided, however, that if such rights, options or warrants are
not exercisable immediately upon issuance but become exercisable only upon the
occurrence of a specified event or the passage of a specified period of

                                       13
<PAGE>

time, then the adjustment to the Exercise Price shall be made and become
effective only upon the occurrence of such event or such passage of time, and
such adjustment shall be made as if the record date for the issuance of such
rights, options or warrants had been the Business Day immediately preceding the
date upon which such rights, options or warrants became exercisable. Preferred
Shares owned by or held for the account of the Company shall not be deemed
outstanding for the purpose of any such computation. Such adjustment to the
Exercise Price shall be made successively whenever such a record date is fixed,
and in the event that such rights or warrants are not so issued, the Exercise
Price shall be adjusted to be the Exercise Price that would then be in effect if
such record date had not been fixed.

        (c) In the event that the Company shall, at any time after the Close of
Business on the Record Date and prior to the Close of Business on the earlier of
the Redemption Date or the Rights Expiration Date, fix a record date for the
making of a distribution to all holders of the Preferred Shares (including any
such distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) of assets (other than a distribution for
which an adjustment is required under Section 11(a)(i) or (b) hereof or a
regular quarterly cash dividend), then the Exercise Price to be in effect after
such record date shall be determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be equal to the excess of the Current Market Price per Preferred Share on
such record date over and above the fair market value of the portion of the
securities or assets to be so distributed with respect to one Preferred Share,
and the denominator of which shall be equal to such Current Market Price per
Preferred Share. Such adjustments shall be made successively whenever such a
record date is fixed, and in the event that such a distribution is not so made,
the Exercise Price shall be adjusted to be the Exercise Price that would then be
in effect if such record date had not been fixed.

        (d) For the purpose of any computation under this Section 11, if the
Preferred Shares are not publicly held or traded, the "Current Market Price" per
Preferred Share shall be conclusively deemed to be the Current Market Price per
Common Share multiplied by 100.

        (e) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the then
current Exercise Price; provided, however, that any adjustments that by reason
of this Section 11(e) are not required to be made shall be cumulated and taken
into account in any subsequent adjustment. All calculations under this Section
11 shall be made to the nearest cent or to the nearest one-thousandth of a
Common Share or other share or one-millionth of a Preferred Share, as the case
may be.

        (f) If, as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right shall, upon exercise thereof, be entitled to
receive any securities of the Company other than Preferred Shares, and if an
event occurs in respect of such securities that, if it were to occur in respect
of Preferred Shares, would require an adjustment under this Section 11 in
respect of Preferred Shares, then the number of such other securities so
receivable upon exercise of any Right shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to Preferred Shares contained in this Section 11, and
the other provisions of this Agreement with respect to Preferred Shares shall
apply on like terms to any such other securities.

                                       14
<PAGE>

        (g) All Rights originally issued by the Company subsequent to any
adjustment made to the Exercise Price hereunder shall represent the right to
purchase, at the adjusted Exercise Price, the number of one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.

        (h) Unless the Company shall have exercised its election as provided in
Section 11(i) below, upon each adjustment of the Exercise Price as a result of
the calculations made in Sections 11(b) and (c) hereof, each Right outstanding
immediately prior to the making of such adjustment shall thereafter represent
the right to purchase, at the adjusted Exercise Price, that number of
one-hundredths of a Preferred Share (calculated to the nearest one-millionth of
a Preferred Share) obtained by multiplying (i) the number of one-hundredths of a
Preferred Share purchasable upon the exercise of one Right immediately prior to
such adjustment of the Exercise Price by (ii) the Exercise Price in effect
immediately prior to such adjustment, and dividing the product so obtained by
the Exercise Price in effect immediately after such adjustment.

        (i) The Company may elect, on or after the date of any adjustment of the
Exercise Price, to adjust the number of Rights instead of making any adjustment
in the number of Preferred Shares purchasable upon the exercise of a Right. Each
of the Rights outstanding after such adjustment of the number of Rights shall be
exercisable for the number of one-hundredths of a Preferred Share for which a
Right was exercisable immediately prior to such adjustment. Each Right held of
record prior to such adjustment of the number of Rights shall become that number
of Rights (calculated to the nearest one one-thousandth of a Right) obtained by
dividing the Exercise Price in effect immediately prior to the adjustment of the
Exercise Price by the Exercise Price in effect immediately after such adjustment
of the Exercise Price. The Company shall make a public announcement of its
election to adjust the number of Rights pursuant to this Section 11(i),
indicating the record date for the adjustment and, if known at the time, the
amount of the adjustment to be made. Such record date may be the date on which
the Exercise Price is adjusted or any day thereafter, but, if separate Right
Certificates have been issued, it shall be at least 10 days after the date of
such public announcement. If separate Right Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates
representing, 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, cause to be distributed to such holders of record in substitution
and replacement for the Right Certificates held by such holders prior to the
date of such adjustment, and upon surrender thereof if required by the Company,
new Right Certificates representing all the Rights to which such holders shall
be entitled after such adjustment. Right Certificates to be so distributed shall
be issued, executed and countersigned in the manner provided for herein (and may
bear, at the option of the Company, the adjusted Exercise Price) and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.

        (j) Irrespective of any adjustment or change in the Exercise Price or
the number of one-hundredths of a Preferred Share issuable upon the exercise of
one Right, the Right Certificates theretofore and thereafter issued may continue
to express the Exercise Price per one one-hundredth of a Preferred Share and the
number of Preferred Shares issuable upon the exercise of one Right that were
expressed in the initial Right Certificates issued hereunder.

                                       15
<PAGE>

        (k) Before taking any action that would cause an adjustment reducing the
Exercise Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action that may, in the advice or opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable one one-hundredths of a Preferred Share at such adjusted Exercise
Price.

        (l) In any case in which this Section 11 shall require that an
adjustment in the Exercise 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
of the number of one-hundredths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of one-hundredths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Exercise Price in effect prior to such adjustment; provided, however, that
the Company shall deliver to such holder a due bill or other appropriate
instrument representing such holder's right to receive such additional shares
upon the occurrence of the event requiring such adjustment.

        (m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such further adjustments in the number of
one-hundredths of a Preferred Share that may be purchased upon exercise of one
Right, and such further adjustments in the Exercise Price, in addition to those
adjustments expressly required by this Section 11, as and to the extent that the
Company in its sole discretion shall determine to be advisable in order that any
(i) consolidation or subdivision of the Preferred Shares, (ii) issuance wholly
for cash of any Preferred Shares at less than the Current Market Price thereof,
(iii) issuance wholly for cash of Preferred Shares or securities that by their
terms are convertible into or exchangeable for Preferred Shares, (iv) dividends
on Preferred Shares payable in Preferred Shares or (v) issuance of rights,
options or warrants referred to in Section 11(b) hereof, hereafter made by the
Company to holders of its Preferred Shares shall not be taxable to such
stockholders.

        (n) In the event that the Company shall, at any time after the Close of
Business on the Record Date and prior to the Close of Business on the earliest
of the date of the first Section 11(a)(ii) Event, the date of the first Section
13(a) Event, the Redemption Date or the Rights Expiration Date, (i) pay any
dividend on the Common Shares payable in Common Shares, (ii) subdivide the
outstanding Common Shares, (iii) combine the outstanding Common Shares into a
smaller number of Common Shares or (iv) issue Common Shares in a
reclassification of the Common Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), then, and upon each such event, the Exercise Price to
be in effect after such event shall be determined by multiplying the Exercise
Price in effect immediately prior to such event by a fraction, the numerator of
which shall be equal to the number of Common Shares outstanding immediately
prior to such event and the denominator of which shall be equal to the number of
Common Shares outstanding immediately after such event. Successive adjustments
shall be made pursuant to this Section 11(n) each time such a dividend is paid
or such a subdivision, combination or reclassification is effected. If an event
occurs that would require an adjustment under both this Section 11(n) and
Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(n)
shall

                                       16
<PAGE>

be in addition to, and shall be made prior to, any adjustment required pursuant
to Section 11(a)(ii) hereof.

        Section 12. Certificate of Adjusted Exercise Price or Number of Shares
Issuable Upon Exercise of Rights. Whenever an adjustment is made as provided in
Section 11 hereof, the Company shall promptly (a) prepare a certificate setting
forth such adjustment and a brief statement of the facts giving rise to such
adjustment, (b) file with the Rights Agent and with each transfer agent for the
securities issuable upon exercise of the Rights a copy of such certificate and
(c) mail a brief summary thereof to each holder of Rights in accordance with
Section 25 hereof. Notwithstanding the foregoing sentence, the failure of the
Company to make such certification or to give such notice shall not affect the
validity or the force and effect of such adjustment. Any adjustment to be made
pursuant to Sections 11 or 13 hereof shall be effective as of the date of the
event giving rise to such adjustment. The Rights Agent shall be fully protected
in relying on any such certificate and on any adjustment therein contained, and
shall not be obligated or responsible for calculating any adjustment nor shall
it be deemed to have knowledge of such an 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 (a "Section 13(a) Event") that, at any time on or after
the 20% Ownership Date and prior to the earlier of the Redemption Date or the
Rights Expiration Date, (1) the Company shall, directly or indirectly,
consolidate with or merge with and into any other Person and the Company shall
not be the continuing or surviving corporation in such consolidation or merger,
(2) any Person shall, directly or indirectly, consolidate with or merge with and
into the Company and the Company shall be the continuing or surviving
corporation in such merger and, in connection with such merger, all or part of
the Common Shares shall be changed into or exchanged for stock or other
securities of any Person or cash or any other property, or (3) the Company
and/or any one or more of its Subsidiaries shall, directly or indirectly, sell
or otherwise transfer, in one or more transactions (other than transactions in
the ordinary course of business), 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 one or more of its
wholly-owned Subsidiaries (such Persons, together with the Persons described in
clauses (1) and (2) above shall be collectively referred to in this Section as
the "Surviving Person"), then, and in each such case, proper provision shall be
made so that:

               (i) except as provided in Section 7(d) hereof, each holder of a
        Right shall thereafter have the right to receive, upon the exercise
        thereof in accordance with the terms of this Agreement and payment of
        the then current Exercise Price, in lieu of the securities or other
        property otherwise purchasable upon such exercise, such number of
        validly authorized and issued, fully paid and nonassessable Common
        Shares of the Surviving Person (and if such Surviving Person has more
        than one class or series of Common Shares, such number of validly
        authorized and issued, fully paid and nonassessable Common Shares of
        each series or class) as shall be equal to a fraction, the numerator of
        which is:

                                       17
<PAGE>

                      (A) if a Section 11(a)(ii) Event has not occurred prior to
               such Section 13(a) Event, the product of the then current
               Exercise Price multiplied by the number of one-hundredths of a
               Preferred Share purchasable upon the exercise of one Right
               immediately prior to the first Section 13(a) Event (or, if the
               Distribution Date shall not have occurred prior to the date of
               such Section 13(a) Event, the number of one-hundredths of a
               Preferred Share that would have been so purchasable if the
               Distribution Date had occurred on the Business Day immediately
               preceding the date of such Section 13(a) Event), or

                      (B) if a Section 11(a)(ii) Event has occurred prior to
               such Section 13(a) Event, the product of the Exercise Price in
               effect immediately prior to such Section 11(a)(ii) Event
               multiplied by the number of one-hundredths of a Preferred Share
               purchasable upon the exercise of one Right immediately prior to
               such Section 11(a)(ii) Event (or, if the Distribution Date shall
               not have occurred prior to the date of such Section 11(a)(ii)
               Event, the number of one-hundredths of a Preferred Share that
               would have been so purchasable if the Distribution Date had
               occurred on the Business Day immediately preceding the date of
               such Section 11(a)(ii) Event),

        and the denominator of which is 50% of the Current Market Price per
        Common Share of the Surviving Person on the date of consummation of such
        Section 13(a) Event;

               (ii) the Surviving Person shall thereafter be liable for and
        shall assume, by virtue of such consolidation, merger, sale or transfer,
        all the obligations and duties of the Company pursuant to this
        Agreement;

               (iii) the term "Company" shall thereafter be deemed to refer to
        the Surviving Person; and

               (iv) the Surviving Person shall take such steps (including, but
        not limited to, the reservation of a sufficient number of its Common
        Shares in accordance with Section 9 hereof) in connection with such
        consummation as may be necessary to ensure that the provisions hereof
        shall thereafter be applicable to its Common Shares thereafter
        deliverable upon the exercise of Rights.

        (b) Notwithstanding the foregoing, if the Section 13(a) Event is the
sale or transfer in one or more transactions of assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole), but less than 100% thereof, then each Person
acquiring all or a portion thereof shall assume the obligations of the Company
as to a fraction of each of the Rights equal to the fraction of the assets of
the Company and its Subsidiaries (taken as a whole) acquired by such Person, and
the obligations of the Company as to the remaining fraction of each of the
Rights shall continue to be the obligations of the Company.

        (c) The Company shall not consummate a Section 13(a) Event unless prior
thereto the Company and the Surviving Person shall have executed and delivered
to the Rights Agent a supplemental agreement confirming that such Surviving
Person shall, upon consummation of

                                       18
<PAGE>

such Section 13(a) Event, assume this Agreement in accordance with Section 13
hereof, that all rights of first refusal or preemptive rights in respect of the
issuance of Common Shares of such Surviving Person upon exercise of outstanding
Rights have been waived and that such Section 13(a) Event shall not result in a
default by such Surviving Person under this Agreement, and further providing
that, as soon as practicable after the date of consummation of such Section
13(a) Event, such Surviving Person shall:

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

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

               (iii) deliver to holders of the Rights historical financial
        statements for such Surviving Person that comply in all respects with
        the requirements for registration on Form 10 (or any successor form)
        under the Exchange Act.

        (d) In the event that at any time after the occurrence of a Section
11(a)(ii) Event some or all of the Rights shall not have been exercised pursuant
to Section 11 hereof prior to the date of a Section 13(a) Event, such Rights
shall thereafter be exercisable only in the manner described in Section 13(a)
hereof. In the event that a Section 11(a)(ii) Event occurs on or after the date
of a Section 13(a) Event, Rights shall not be exercisable pursuant to Section 11
hereof but shall instead be exercisable pursuant to, and only pursuant to, this
Section 13.

        (e) The provisions of this Section 13 shall apply to each successive
merger, consolidation, sale or other transfer constituting a Section 13(a)
Event.

        Section 14. Fractional Rights and Fractional Shares.

        (a) The Company shall not be required to issue fractions of Rights or to
distribute Right Certificates that represent fractional Rights. If the Company
shall determine not to issue such fractional Rights, the Company shall pay to
the registered holders of the Right Certificates with respect to which such
fractional Rights would otherwise be issuable, at the time such fractional
Rights would otherwise have been issued as provided herein, an amount in cash
equal to the same fraction of the Current Market Price of a whole Right on the
Business Day immediately prior to the date upon which such fractional Rights
would otherwise have been issuable.

        (b) The Company shall not be required to issue fractions of Common
Shares or Preferred Shares (other than fractions that are integral multiples of
one one-hundredth of a Preferred Share) upon exercise of Rights, or to
distribute certificates that represent fractional

                                       19
<PAGE>

Common Shares or Preferred Shares (other than fractions that are integral
multiples of one one-hundredth of a Preferred Share). Fractions of Preferred
Shares in integral multiples of one one-hundredth of a Preferred Share may, at
the election of the Company, be represented by depositary receipts, pursuant to
an appropriate agreement between the Company and a depositary selected by it,
provided that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they are
entitled as beneficial owners of Preferred Shares. If the Company shall
determine not to issue fractional Common Shares or Preferred Shares (or
depositary receipts in lieu of Preferred Shares), the Company shall pay to the
registered holders of Right Certificates with respect to which such fractional
Common Shares or Preferred Shares would otherwise be issuable, at the time such
Rights are exercised as provided herein, an amount in cash equal to the same
fraction of the Current Market Price of a whole Common Share or Preferred Share,
as the case may be. For purposes of this Section 14(b), the Current Market Price
of a whole Common Share or Preferred Share shall be the Closing Price per share
for the Trading Day immediately prior to the date of such exercise.

        (c) The holder of a Right, by the acceptance of such Right, expressly
waives such holder's right to receive any fractional Rights or any fractional
Common Shares or Preferred Shares upon exercise of such 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 given to the Rights Agent under Section
18 hereof, are vested in the respective registered holders of the Right
Certificates and certificates for Common Shares representing Rights, and any
registered holder of any Right Certificate or of such certificate for Common
Shares, without the consent of the Rights Agent or of the holder of any other
Right Certificate or any other certificate for Common Shares may, in such
holder's own behalf and for such holder's own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, such holder's right to exercise the
Rights represented by such Right Certificate or by such certificate for Common
Shares in the manner provided in such Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and shall be entitled to specific
performance, and injunctive relief against actual or threatened violations, of
the obligations of any Person under this Agreement.

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

        (a) prior to the Distribution Date, the Rights shall be represented by
certificates for Common Shares registered in the name of the holders of such
Common Shares (which certificates for Common Shares shall also constitute Right
Certificates), and each such Right shall be transferable only in connection with
the transfer of such Common Shares;

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

                                       20
<PAGE>

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

        Section 17. Right Holder and Right Certificate Holder Not Deemed a
Stockholder. No holder, as such, of any Right or Right Certificate shall be
entitled to vote, receive dividends or be deemed for any purpose the holder of
the securities of the Company that may at any time be issuable upon the exercise
of the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right or Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, to give or withhold consent to any
corporate action, to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, in each case until such Right or the
Rights represented by such Right 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
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. The costs and expenses of enforcing
this right of indemnification shall also be paid by the Company. The
indemnification provided for hereunder shall survive the expiration of the
Rights and the termination of this Agreement.

        (b) The Rights Agent may conclusively rely upon and shall be protected
and shall incur no liability for or in respect of any action taken, suffered or
omitted by it in connection with its administration of this Agreement in
reliance upon any Right Certificate or certificate for Preferred Shares or
Common Shares or for other securities of the Company, instrument of assignment
or transfer, power of attorney, endorsement, affidavit, letter, notice,
direction, consent, certificate, statement or other paper or document believed
by it to be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper person or persons, or otherwise upon the advice of
its counsel as set forth in Section 20 hereof.

        (c) Notwithstanding anything in this Agreement to the contrary, in no
event shall the Rights Agent be liable for special, indirect or consequential
loss or damage of any kind whatsoever (including but not limited to lost
profits), even if the Rights Agent has been advised of the likelihood of such
loss or damage and regardless of the form of the action.

                                       21
<PAGE>

        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 that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. If, at the time such successor Rights Agent shall succeed to the agency
created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and if at that time any of the Right Certificates
shall not have been countersigned, any successor Rights Agent may countersign
such Right Certificates either in the name of the predecessor Rights Agent or in
the name of the successor Rights Agent; and in all such cases such Right
Certificates shall have the full force provided in such Right Certificate and in
this Agreement.

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

        Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement (and no implied duties or
obligations shall be read into this Agreement against the Rights Agent) upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates, by their acceptance of the Rights, shall be bound:

        (a) Before the Rights Agent acts or refrains from acting, it may consult
with legal counsel (who may be legal counsel for the Company), and the advice or
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 advice or opinion.

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

                                       22
<PAGE>

        (c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or willful misconduct.

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

        (e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due authorization, execution and delivery hereof by the Rights Agent) or in
respect of the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any Right
Certificate; nor shall it be responsible for any change in the exercisability of
the Rights (including any Rights becoming null and void pursuant to Section 7(d)
hereof) or any adjustment in the terms of the Rights (including the manner,
method or amount thereof) provided for in Sections 7, 11, 13 and 23 hereof, or
the ascertaining of the existence of facts that would require any such change or
adjustment (except with respect to the exercise of Rights represented by Right
Certificates after actual notice that such change or adjustment is required);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any Preferred Shares or
Common Shares or other securities to be issued pursuant to this Agreement or any
Right Certificate, or as to whether any Preferred Shares or Common Shares or
other securities will, when issued, be validly authorized and issued, fully paid
and nonassessable.

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

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

                                       23
<PAGE>

        (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 the 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 that reasonable care was exercised in the
selection and continued employment thereof.

        (j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.

        (k) The Rights Agent shall not be required to take notice or be deemed
to have notice of any fact, event or determination (including, without
limitation, any dates or events defined in this Agreement or the designation of
any Person as a 20% Stockholder, Affiliate or Associate) under this Agreement
unless and until the Rights Agent shall be specifically notified in writing by
the Company of such fact, event or determination.

        (l) 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 Rights Agent shall not take any further action with respect to
such requested exercise or transfer without first consulting with the Company.

        Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30-days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares and Preferred Shares by registered or certified mail, and,
at the expense of the Company to the holders of the Right Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon 30-days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Shares and Preferred Shares by registered or certified mail, and to the
holders of the Right Certificates by first-class mail. If the Rights Agent shall
resign or be removed or shall otherwise become incapable of acting as such, the
Company shall appoint a successor to the Rights Agent. If the Company shall fail
to make such appointment within a period of 30 days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (who shall, with such notice, submit such holder's Right
Certificate for inspection by the Company), then the Company shall become the
Rights Agent and the registered holder of any Right Certificate may

                                       24
<PAGE>

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 corporation organized and doing business under the laws of the
United States or of the States of New York or California (or of any other state
of the United States so long as such corporation is authorized to do business as
a banking institution in the States of New York or California), in good
standing, having a principal office in New York or California, that 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
that has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50,000,000. 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 of this
Agreement and so that the successor Rights Agent may appropriately act as Rights
Agent hereunder. 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 Shares and Preferred Shares, and mail a
notice thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.

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

        Section 23. Redemption of Rights.

        (a) Until the earliest of (i) the date of the first Section 11(a)(ii)
Event, (ii) the date of the first Section 13(a) Event or (iii) the Rights
Expiration Date, the Board of Directors of the Company may, at its option,
authorize and direct the redemption of all, but not less than all, of the then
outstanding Rights at a redemption price of $0.001 per Right, as such redemption
price shall be appropriately adjusted to reflect any stock split, stock dividend
or similar transaction occurring after the date hereof (the "Redemption Price"),
and the Company shall so redeem the Rights.

        (b) Immediately upon the action of the Board of Directors of the Company
authorizing and directing the redemption of the Rights pursuant to subsection
(a) of this Section 23, or at such time and date thereafter as it may specify,
and without any further action and without any notice, the right to exercise
Rights shall terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price. Within ten (10) Business Days after
the date of such action, the Company shall give notice of such redemption to the
holders of Rights by mailing such notice to all holders of Rights at their last
addresses as they appear upon the registry books of the Rights Agent or, if
prior to the Distribution Date, on the registry books

                                       25
<PAGE>

of the transfer agent for the Common Shares. Any notice that is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives
such notice, but neither the failure to give any such notice nor any defect
therein shall affect the legality or validity of such redemption. Each such
notice of redemption shall state the method by which the payment of the
Redemption Price will be made. Neither the Company nor any of its Affiliates or
Associates may, directly or indirectly, redeem, acquire or purchase for value
any Rights in any manner other than that specifically set forth in Section 24
hereof or in this Section 23, or in connection with the purchase of Common
Shares prior to the earlier of the date of the first Section 11(a)(ii) Event or
the date of the first Section 13(a) Event.

        (c) The Company may, at its option, pay the Redemption Price in cash,
Common Shares, Preferred Shares, other equity securities of the Company, debt
securities of the Company, other property or any combination of the foregoing,
in each case having an aggregate Current Market Price on the Redemption Date
equal to the Redemption Price.

        Section 24. Exchange of Rights.

        (a) At any time during the period of 180 days after a Section 11(a)(ii)
Event, the Board of Directors of the Company may, at its option, authorize and
direct the exchange of all, but not less than all, of the then outstanding
Rights for Common Shares, one one-hundredths of Preferred Shares, debt
securities of the Company, other property, or any combination of the foregoing,
in each case having an aggregate Current Market Price equal to the result
obtained by (i) multiplying the Current Market Price per Common Share on the
record date for such exchange by the number of Common Shares for which a Right
is exercisable on such record date and (ii) subtracting from such product the
Exercise Price on such Record Date (the "Exchange Ratio"), and the Company shall
so exchange the Rights.

        (b) Immediately upon the action of the Board of Directors of the Company
authorizing and directing the exchange of the Rights pursuant to subsection (a)
of this Section 24, or at such time and date thereafter as it may specify, and
without any further action and without any notice, the right to exercise Rights
shall terminate and the only right thereafter of the holders of Rights shall be
to receive the securities described in Section 24(a) in accordance with the
Exchange Ratio. Within ten (10) Business Days after the date of such action, the
Company shall give notice of such exchange to the holders of Rights by mailing
such notice to all holders of Rights at their last addresses as they appear upon
the registry books of the Rights Agent or, if prior to the Distribution Date, on
the registry books of the transfer agent for the Common Shares. Any notice that
is mailed in the manner herein provided shall be deemed given, whether or not
the holder receives such notice, but neither the failure to give any such notice
nor any defect therein shall affect the legality or validity of such exchange.
Each such notice of exchange shall state the method by which the Rights will be
exchanged.

        (c) Notwithstanding the foregoing, in the event that the aggregate
number of Common Shares that are authorized by the Company's Certificate of
Incorporation, as amended from time to time, but not outstanding or reserved for
issuance for purposes other than upon exercise or exchange of the Rights is less
than the aggregate number of Common Shares issuable upon the exchange of the
Rights in accordance with this Section 24 (the excess of such number of
authorized Common Shares over and above such number of issuable Common Shares
being

                                       26
<PAGE>

hereinafter referred to as the "Unavailable Exchange Shares"), then the Company
shall substitute for the pro rata portion of the Unavailable Exchange Shares
that would otherwise be issuable upon the exchange of the Rights in accordance
with this Section 24 (i) cash, (ii) other equity securities of the Company
(including, without limitation, Common Share Equivalents), (iii) debt securities
of the Company, (iv) other property or (v) any combination of the foregoing, in
each case having an aggregate Current Market Price equal to the aggregate
Current Market Price of the Unavailable Exchange Shares for which substitution
is made. Subject to Section 7(d) hereof, in the event that the Company takes any
action pursuant to this Section 24, such action shall apply uniformly to all
outstanding Rights.

        Section 25. Notice of Certain Events.

        (a) In the event that the Company shall propose (i) to declare or pay
any dividend on or make any distribution with respect to its Common Shares or
Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer
to the holders of its Common Shares or Preferred Shares options, rights or
warrants to subscribe for or to purchase any additional shares thereof or shares
of stock of any class or any other securities, rights or options, (iii) to
effect any reclassification of its Common Shares or Preferred Shares (other than
a reclassification involving only the subdivision of outstanding shares), (iv)
to effect any consolidation or merger with or into, or to effect any sale or
other transfer (or to permit one or more of its Subsidiaries to effect any sale
or other transfer), in one or more transactions, of more than 50% of the assets
or earning power of the Company and its Subsidiaries (taken as a whole) to, any
other Person or Persons, or (v) to effect the liquidation, dissolution or
winding up of the Company, then and in each such case, the Company shall give to
each holder of a Right Certificate, in accordance with Section 26 hereof, a
notice of such proposed action that shall specify the record date for the
purpose of such dividend or distribution, or the date upon 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 record of the Common Shares or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 20 days prior to the record date
for determining holders of the Common Shares or Preferred Shares for purposes of
such action, and in the case of any such other action, at least 20 days prior to
the date of the taking of such proposed action or the date of participation
therein by the holders of the Common Shares or Preferred Shares, whichever date
shall be the earlier. The failure to give the notice required by this Section 25
or any defect therein shall not affect the legality or validity of the action
taken by the Company or the vote upon any such action.

        (b) Upon the occurrence of each Section 11(a)(ii) Event and each Section
13(a) Event, the Company shall as soon as practicable thereafter give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
the occurrence of such event, specifying the event and the consequences of the
event to holders of Rights under Sections 11 and 13 hereof.

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

                                       27
<PAGE>

                      Document Sciences Corporation
                      6339 Paseo del Lago
                      Carlsbad, CA 92009
                      Attention: Corporate Secretary

Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made to or on the Rights Agent (i) by the
Company shall be sufficiently given or made if sent, postage prepaid, by
registered or certified mail, addressed to the principal office of the Rights
Agent as set forth below (until another address is filed in writing with the
Company) or (ii) by the holder of any Right Certificate shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed to the
principal office of the Rights Agent as set forth below (until another address
is filed in writing with the Company), and shall be deemed given upon actual
receipt. The Company hereby agrees that it shall encourage the holders of the
Right Certificates, in any and all writings to such holders regarding the Rights
or this Agreement, to give or make any notice or demand authorized by this
Agreement by registered or certified mail, addressed to the principal office of
the Rights Agent as follows (until another address is filed in writing with the
Company):

                      U.S. Stock Transfer Corporation
                      1745 Gardena Avenue
                      Glendale, California 91204
                      Re: Document Sciences Corporation

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

        Section 27. Supplements and Amendments.

        (a) The Board of Directors of the Company may, from time to time,
without the approval of any holders of Rights, supplement or amend any provision
of this Agreement in any manner, whether or not such supplement or amendment is
adverse to any holder of Rights, and direct the Rights Agent so to supplement or
amend such provision, and the Rights Agent shall so supplement or amend such
provision; provided, however, that from and after the earliest of (i) the date
of the first Section 11(a)(ii) Event, (ii) the date of the first Section 13(a)
Event, (iii) the Redemption Date or (iv) the Expiration Date, this Agreement
shall not be supplemented or amended in any manner that would materially and
adversely affect any holder of outstanding Rights other than a 20% Stockholder
or a Surviving Person.

        (b) From and after the earlier of the date of the first Section
11(a)(ii) Event or the date of the first Section 13(a) Event and prior to the
Rights Expiration Date, the Company shall not effect any amendment to the
Certificate of Designations for the Preferred Shares that would materially and
adversely affect the rights, privileges or preferences of the Preferred Shares
without the prior approval of the holders of two-thirds or more of the then
outstanding Rights. Notwithstanding anything in this Agreement to the contrary,
no supplement or amendment that changes the rights and duties of the Rights
Agent under this Agreement in any manner adverse to

                                       28
<PAGE>

the Rights Agent will be effective against the Rights Agent without the
execution of such supplement or amendment by the Rights Agent.

        Section 28. Certain Covenants. Subject to Section 27 hereof and the
other provisions of this Agreement, from and after the earlier of the date of
the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event
and prior to the earlier of the Redemption Date or the Rights Expiration Date,
the Company shall not (a) issue or sell, or permit any Subsidiary to issue or
sell, to a 20% Stockholder or a Surviving Person, or any Affiliate or Associate
of a 20% Stockholder or a Surviving Person, or any Person holding Voting Shares
of the Company that are Beneficially Owned by a 20% Stockholder or a Surviving
Person, (i) any rights, options, warrants or convertible securities on terms
similar to, or that materially adversely affect the value of, the Rights or (ii)
Preferred Shares, Common Shares or shares of any other class of capital stock,
if such sale is intended to or would materially adversely affect the value of
the Rights, or (b) take any other action that is intended to or would materially
adversely affect the value of the Rights.

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

        Section 30. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Right Certificates (other than those representing
Rights that have become null and void) and the certificates for Common Shares
representing Rights (other than those Rights that have become null and void) any
legal or equitable right, remedy or claim under this Agreement, and this
Agreement shall be for the sole and exclusive benefit of the Company, the Rights
Agent and such registered holders of Right Certificates and certificates for
Common Shares representing Rights.

        Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.

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

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

                                       29
<PAGE>

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

                            [SIGNATURE PAGE FOLLOWS]

                                       30
<PAGE>

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

                                           DOCUMENT SCIENCES CORPORATION

Attest:

By: /s/ Daniel J. Fregeau                  By: /s/ John L. McGannon
    -------------------------------            ---------------------------------
    Name: Daniel J. Fregeau                    Name: John L. McGannon
    Title: Executive Vice President            Title: President, Chief Executive
                                               Officer, Chief Financial Officer,
                                               Secretary

                                           U. S. STOCK TRANSFER CORPORATION,
                                           as Rights Agent

Attest:

By: /s/ Carol J. Clays                     By:  /s/ Richard C. Brown
    -------------------------------            ---------------------------------
    Name: Carol J. Clays                       Name: Richard C. Brown
    Title: Asst. Vice President                Title: Vice President

                                       31
<PAGE>

                                    EXHIBIT A

                            Form of Right Certificate

Certificate No. _____                                          __________ Rights

        NOT EXERCISABLE AFTER THE LATER OF MAY 18, 2011 OR THE TENTH ANNIVERSARY
        OF THE DISTRIBUTION DATE (AS THAT TERM IS DEFINED IN THE RIGHTS
        AGREEMENT) OR EARLIER IF REDEEMED. THE RIGHTS ARE SUBJECT TO REDEMPTION
        AT $0.001 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
        UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY A 20%
        STOCKHOLDER OR AN AFFILIATE OR ASSOCIATE OF A 20% STOCKHOLDER (AS SUCH
        TERMS ARE DEFINED IN THE RIGHTS AGREEMENT AND AS THOSE CIRCUMSTANCES ARE
        SPECIFIED IN THE RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDER OF SUCH
        RIGHTS MAY BECOME NULL AND VOID.

                                Right Certificate

                          DOCUMENT SCIENCES CORPORATION

        This certifies that _______________________, or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement dated as of May 11, 2001 (the "Rights Agreement") between
Document Sciences Corporation, a Delaware corporation (the "Company"), and U. S.
Stock Transfer Corporation, a California corporation (the "Rights Agent"), to
purchase from the Company at any time after the Distribution Date (as such term
is defined in the Rights Agreement) and prior to 5:00 P.M., California time, on
the later of May 18, 2011 or the tenth anniversary of the Distribution Date at
the office or agency of the Rights Agent at 1745 Gardena Avenue, Glendale,
California 91204, or at the office of its successors as Rights Agent, one
one-hundredth of a fully paid non-assessable share of Series A Junior
Participating Cumulative Preferred Stock, $.001 par value (the "Preferred
Shares"), of the Company, at an exercise price of $25.00 per Right (the
"Exercise Price"), upon presentation and surrender of this Right Certificate
with the Form of Election to Purchase duly executed. The number of Rights
evidenced by this Right Certificate (and the number of Preferred Shares that may
be purchased upon exercise thereof) set forth above, and the Exercise Price per
share set forth above, are the number and Exercise Price as of _______, 20__
based on the Preferred Shares as constituted at such date.

        As provided in the Rights Agreement, the Exercise Price and the number
of Preferred Shares that may be purchased upon the exercise of the Rights
evidenced by this Right Certificate are subject to modification and adjustment
upon the happening of certain events. This Right Certificate is subject to all
of the terms, provisions and conditions of the Rights Agreement,

<PAGE>

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. Copies of the Rights Agreement are
on file at the principal executive offices of Document Sciences Corporation and
the above-mentioned offices of the Rights Agent.

        This Right Certificate, with or without other Right Certificates, upon
surrender at the office or agency of the Rights Agent at 1745 Gardena Avenue,
Glendale, California 91204, may be exchanged for another Right Certificate or
Right Certificates of like tenor and date evidencing Rights entitling the holder
to purchase a like aggregate number of Preferred Shares as the Rights evidenced
by the Right Certificate or Right Certificates surrendered shall have entitled
such holder to purchase. If this Right Certificate shall be exercised in part,
the holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by this
Certificate may, but are not required to, be redeemed by the Company at a
redemption price of $0.001 per Right.

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

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

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

                                       2
<PAGE>

        WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of ______, 20__.

ATTEST:                                   DOCUMENT SCIENCES CORPORATION

----------------------------------        -------------------------------------
Secretary                                 President and Chief Executive Officer

Countersigned:

U. S. STOCK TRANSFER CORPORATION,
as Rights Agent

By:
    ------------------------------

Title:
       ---------------------------

                                       3
<PAGE>

                    Form of Reverse Side of Right Certificate

                               FORM OF ASSIGNMENT

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

        FOR VALUE RECEIVED _______________________________________ hereby sells,
assigns and transfers unto ___________________________________________________

________________________________________________________________________________
                  (Please print name and address of transferee)
________________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ___________________________
Attorney, to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.

Dated: ____________________, ____

                                        ________________________________________
                                        Signature
Signature Guaranteed:

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

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

The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not Beneficially Owned by a 20% Stockholder or an Affiliate or
Associate thereof (as defined in the Rights Agreement).

                                        ________________________________________
                                        Signature

                                        (Signature must conform in all respects
                                        to name of holder as specified on the
                                        face of this Right Certificate in every
                                        particular, without alteration or
                                        enlargement or any change whatsoever)

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

                                       4
<PAGE>

             Form of Reverse Side of Right Certificate -- continued

                          FORM OF ELECTION TO PURCHASE

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

TO: DOCUMENT SCIENCES CORPORATION

        The undersigned hereby irrevocably elects to exercise
___________________ Rights represented by this Right Certificate to purchase the
Preferred Shares or other securities issuable upon the exercise of such Rights
and requests that certificates for such Preferred Shares or other securities be
issued in the following name:

                       (please print name, address and social security, tax
                       identification or other identifying number:

                       ______________________________________

                       ______________________________________

                       ______________________________________

                       ______________________________________

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

                (please print name, address and social security,
                 tax identification or other identifying number:

                       ______________________________________

                       ______________________________________

                       ______________________________________

                       ______________________________________

Dated: _________________

                                        ________________________________________
                                        Signature

                                        (Signature must conform in all respects
                                        to name of holder as specified on the
                                        face of this Right Certificate in every
                                        particular, without alteration or
                                        enlargement or any change whatsoever)

                                       5
<PAGE>

             Form of Reverse Side of Right Certificate -- continued

Signature Guarantee:

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

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

The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not Beneficially Owned by a 20% Stockholder or an Affiliate or
Associate thereof (as defined in the Rights Agreement).

                                        ________________________________________
                                        Signature

                                        (Signature must conform in all respects
                                        to name of holder as specified on the
                                        face of this Right Certificate in every
                                        particular, without alteration or
                                        enlargement or any change whatsoever)

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

                                     NOTICE

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

        In the event the certification set forth above in the Forms of
Assignment and Election is not completed, the Company will deem the Beneficial
Owner of the Rights evidenced by this Right Certificate to be a 20% Stockholder
or an Affiliate or Associate thereof (as defined in the Rights Agreement) and,
in the case of an Assignment, will affix a legend to that effect on any Right
Certificates issued in exchange for this Right Certificate.

                                       6

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