Document:

exv10w28

Exhibit 10.28

Annex 1 to the guarantee dated October 10, 2007 in the amount of EUR 15 Mio. By IPG Laser

GmbH, Burbach

The following branches and subsidiaries of Deutsche Bank AG have entered into a business
relationship with subsidiaries of IPG Laser GmbH.

In this context, subsidiaries of IPG Laser GmbH may draw funds within the EUR 15,000,000.—umbrella
credit facility dated Oct. 10, 2007 based on the borrower’s guarantee in the amount of EUR
15,000,000.—as listed below:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Amount	 	 	 	 	 	 
	 	 	DB	 	Local	 	(in k	 	Cash /	 	 	 	 
	Debtor	 	branch/subsidiary	 	currency	 	currency)	 	discount	 	Guarantee	 	total
	Total credit facilities IPG Laser GmbH – group,
thereof

	 	 	 	 	 	 	 	 	12.000	 	 	 	3.000	 	 	 	15.000	 
	 

	 	 	 	if not
	 	Exchange
value in
k Euro

	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	IPG Laser GmbH, Burbach

	 	Siegen
	 	 	 	 	 	 	8.000	 	 	 	3.000	 	 	 	11.000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Credit lines under guarantee of IPG Laser GmbH
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	IPG Fibertech S.r.l., Via Pisacone, 46, 20025
Legnano (MI), Italy

	 	Deutsche Bank Spa,
Milano Italy
	 	 	 	 	 	 	1.000	 	 	 	 	 	 	 	1.000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	IRE-Polus NTO, 141190, Fryazino, pl. Vvedenskogo,
Russua

	 	Deutsche Bank Ltd.,
Moscow, Russia
	 	 	 	 	 	 	3.000	 	 	 	 	 	 	 	3.000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Credit lines based on the borrower’s guarantee

	 	 	 	 	 	 	 	 	12.000	 	 	 	3.000	 	 	 	15.000	 

Burbach, dated March 5, 2009

IPG Laser GmbH

	 	 	 
	/s/ Valentin P. Gapontsev
 

	 	 
	legally binding signatures
	 	 

Being guarantor we agree with the above mentioned changes of the facilities within the Credit
Facility Agreement dated Oct. 10, 2007 between IPG Laser GmbH and the bank regarding the Umbrella
Facility in the amount of EUR 15 million. Further we agree with all future changes within the
Umbrella Facility and waive separate information thereof, provided that the allocation to
subsidiaries of IPG Laser GmbH does not exceed an aggregate the amount of EURO 9 million
(cash/discount and / or guarantees).

Burbach, dated March 5, 2009

IPG Photonics Corporation

	 	 	 
	/s/ Timothy P.V. Mammen
 

	 	 
	legally binding signaturesexv4w1

EXHIBIT 4.1

 

RIGHTS AGREEMENT

between

Penwest Pharmaceuticals Co.

and

Mellon Investor Services LLC,

as Rights Agent

Dated March 11, 2009

 

 

 

Table of Contents

	 	 	 	 	 	 	 
	Section 1.

	 	Certain Definitions
	 	 	1	 
	 
	 	 	 	 	 	 
	Section 2.

	 	Appointment of Rights Agent
	 	 	7	 
	 
	 	 	 	 	 	 
	Section 3.

	 	Issuance of Rights
	 	 	7	 
	 
	 	 	 	 	 	 
	Section 4.

	 	Form of Rights Certificates
	 	 	10	 
	 
	 	 	 	 	 	 
	Section 5.

	 	Countersignature and Registration
	 	 	11	 
	 
	 	 	 	 	 	 
	Section 6.

	 	Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated,
Destroyed, Lost or Stolen Rights Certificates
	 	 	12	 
	 
	 	 	 	 	 	 
	Section 7.

	 	Exercise of Rights; Purchase Price; Expiration Date of Rights
	 	 	13	 
	 
	 	 	 	 	 	 
	Section 8.

	 	Cancellation and Destruction of Rights Certificates
	 	 	15	 
	 
	 	 	 	 	 	 
	Section 9.

	 	Reservation and Availability of Capital Stock
	 	 	16	 
	 
	 	 	 	 	 	 
	Section 10.

	 	Preferred Stock Record Date
	 	 	17	 
	 
	 	 	 	 	 	 
	Section 11.

	 	Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights	 	 	18	 
	 
	 	 	 	 	 	 
	Section 12.

	 	Certificate of Adjusted Purchase Price or Number of Shares
	 	 	26	 
	 
	 	 	 	 	 	 
	Section 13.

	 	Consolidation, Merger or Sale or Transfer of Assets or Earning Power
	 	 	26	 
	 
	 	 	 	 	 	 
	Section 14.

	 	Fractional Rights and Fractional Shares
	 	 	29	 
	 
	 	 	 	 	 	 
	Section 15.

	 	Rights of Action
	 	 	30	 
	 
	 	 	 	 	 	 
	Section 16.

	 	Agreement of Rights Holders
	 	 	31	 
	 
	 	 	 	 	 	 
	Section 17.

	 	Rights Certificate Holder Not Deemed a Shareholder
	 	 	32	 
	 
	 	 	 	 	 	 
	Section 18.

	 	Concerning the Rights Agent
	 	 	32	 
	 
	 	 	 	 	 	 
	Section 19.

	 	Merger or Consolidation or Change of Name of Rights Agent
	 	 	33	 
	 
	 	 	 	 	 	 
	Section 20.

	 	Duties of Rights Agent
	 	 	33	 
	 
	 	 	 	 	 	 
	Section 21.

	 	Change of Rights Agent
	 	 	36	 
	 
	 	 	 	 	 	 
	Section 22.

	 	Issuance of New Rights Certificates
	 	 	37	 

-i-

 

	 	 	 	 	 	 	 
	Section 23.

	 	Redemption; Independent Director Review
	 	 	37	 
	 
	 	 	 	 	 	 
	Section 24.

	 	Exchange
	 	 	38	 
	 
	 	 	 	 	 	 
	Section 25.

	 	Notice of Certain Events
	 	 	40	 
	 
	 	 	 	 	 	 
	Section 26.

	 	Notices
	 	 	41	 
	 
	 	 	 	 	 	 
	Section 27.

	 	Supplements and Amendments
	 	 	42	 
	 
	 	 	 	 	 	 
	Section 28.

	 	Successors
	 	 	42	 
	 
	 	 	 	 	 	 
	Section 29.

	 	Actions by the Board, etc.
	 	 	42	 
	 
	 	 	 	 	 	 
	Section 30.

	 	Benefits of this Agreement
	 	 	43	 
	 
	 	 	 	 	 	 
	Section 31.

	 	Severability
	 	 	43	 
	 
	 	 	 	 	 	 
	Section 32.

	 	Governing Law
	 	 	43	 
	 
	 	 	 	 	 	 
	Section 33.

	 	Counterparts
	 	 	43	 
	 
	 	 	 	 	 	 
	Section 34.

	 	Descriptive Headings
	 	 	43	 

 

 

RIGHTS AGREEMENT

     RIGHTS AGREEMENT, dated March 11, 2009 (the “Agreement”), between Penwest Pharmaceuticals Co.,
a Washington corporation (the “Company”), and Mellon Investor Services LLC, a New Jersey limited
liability company, as Rights Agent (the “Rights Agent”).

WITNESSETH

     WHEREAS, on March 11, 2009 the Board of Directors of the Company (the “Board”) authorized and
declared a dividend distribution of one Right for each share of Common Stock (as hereinafter
defined) of the Company outstanding at the close of business on March 23, 2009 (the “Record Date”),
and authorized the issuance of one Right (as such number may hereinafter be adjusted pursuant to
the provisions of Section 11(i) or Section 11(p) hereof) for each share of Common Stock of the
Company issued between the Record Date (whether originally issued or delivered from the Company’s
treasury) and the earlier of the Distribution Date or the Expiration Date, each Right initially
representing the right to purchase one one-thousandth of a share of Series A Junior Participating
Preferred Stock of the Company having the rights, powers and preferences set forth in the form of
Designation of Rights and Preferences of Series A Junior Participating Preferred Stock attached
hereto as Exhibit A, upon the terms and subject to the conditions hereinafter set forth
(the “Rights”);

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

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

     (a) “Acquiring Person” shall mean any Person who or which, together with all Affiliates and
Associates of such Person, shall be the Beneficial Owner of 15% or more of the shares of Common
Stock then outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the Company,
(iii) any employee benefit plan of the Company or of any Subsidiary of the Company, (iv) any Person
organized, appointed or established by the Company for or pursuant to the terms of any such plan or
(v) an Exempted Person. Notwithstanding the foregoing, (x) no Person shall become an “Acquiring
Person” as the result of an acquisition of Common Stock by the Company which, by reducing the
number of shares outstanding, increases the proportionate number of shares beneficially owned by
such Person to 15% or more of the shares of Common Stock of the Company then outstanding; provided,
however that if a Person shall become the Beneficial Owner of 15% or more of the shares of Common
Stock of the Company then outstanding as the result of an acquisition of Common Stock by the
Company and shall, following written notice from, or public disclosure by the Company of such share
purchases by the Company become the Beneficial Owner of any additional Common Stock of the Company
and shall then beneficially own 15% or more of the shares of Common Stock then

1

 

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

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

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

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

     (e) A Person shall be deemed the “Beneficial Owner” of, and shall be deemed to “beneficially
own,” any securities:

          (i) which such Person or any of such Person’s Affiliates or Associates, directly or
indirectly, owns or has the right to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group members with respect to a bona
fide public offering of securities or agreements with or between Persons and the Company with
respect to any other bona fide issuance of securities by the Company to such Persons for resale
within 40 days, including without limitation pursuant to Section 4(2) of the Act or Rule 144A or
Regulation S promulgated under the Act), whether or not in writing, or upon the exercise of
conversion rights, exchange rights, other rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the “Beneficial Owner” of, or
to “beneficially own,” (A) securities tendered pursuant to a tender or exchange offer made by or on
behalf of such Person or any of such Person’s Affiliates or Associates until such tendered
securities are accepted for purchase or exchange, or (B) securities issuable upon exercise of
Rights at any time prior to the occurrence of a Triggering Event, or (C) securities issuable upon
exercise of Rights from and after the occurrence of a Triggering Event which Rights were acquired
by such Person or any of such Person’s Affiliates or Associates prior to the Distribution Date or
pursuant to Section 3(a) or Section 22 hereof (the “Original Rights”) or pursuant to Section 11(i)
hereof in connection with an adjustment made with respect to any Original Rights;

2

 

          (ii) which such Person or any of such Person’s Affiliates or Associates, directly or
indirectly, has the right to vote or dispose of or has “beneficial ownership” of (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act, or any
comparable or successor rule), including pursuant to any agreement, arrangement or understanding
(other than customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of securities or agreements with or
between Persons and the Company with respect to any other bona fide issuance of securities by the
Company to such Persons for resale within 40 days, including without limitation pursuant to Section
4(2) of the Act or Rule 144A or Regulation S promulgated under the Act), whether or not in writing;
provided, however, that a Person shall not be deemed the “Beneficial Owner” of, or
to “beneficially own,” any security under this subparagraph (ii) as a result of (A) being deemed to
beneficially own securities of one or more other Person(s) because such Person and such other
Person(s) are acting in concert or as part of a group with respect to a solicitation of proxies or
consents made pursuant to, and in accordance with, the applicable provisions of the General Rules
and Regulations under the Exchange Act or (B) any agreement, arrangement or understanding to vote
such security if such agreement, arrangement or understanding arises solely from a revocable or
irrevocable proxy or consent given in response to a proxy or consent solicitation made pursuant to,
and in accordance with, the applicable provisions of the General Rules and Regulations under the
Exchange Act; or

          (iii) which are beneficially owned, directly or indirectly, by any other Person (or any
Affiliate or Associate thereof) with which such Person (or any of such Person’s Affiliates or
Associates) has any agreement, arrangement or understanding (other than customary agreements with
and between underwriters and selling group members with respect to a bona fide public offering of
securities or agreements with or between Persons and the Company with respect to any other bona
fide issuance of securities by the Company to such Persons for resale within 40 days, including
without limitation pursuant to Section 4(2) of the Act or Rule 144A or Regulation S promulgated
under the Act) whether or not in writing, for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy or consent as described in the proviso to subparagraph (ii) of this
paragraph (e)) or disposing of any voting securities of the Company.

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

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

3

 

     (g) “Business Day” shall mean any day other than a Saturday, Sunday or a day on which banking
institutions in the State of New York or New Jersey are authorized or obligated by law or executive
order to close.

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

     (i) “Common Stock” shall mean the common stock, $.001 par value, of the Company, except that
“Common Stock” when used with reference to any Person other than the Company shall mean the capital
stock of such Person with the greatest voting power, or the equity securities or other equity
interest having power to control or direct the management, of such Person.

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

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

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

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

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

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

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

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

     (r) “Exempted Person” shall mean:

          (i) Perceptive Life Sciences Master Fund Ltd. (“Perceptive”), and any of its Affiliates or
Associates who are deemed to be Beneficial Owners of the Common Stock, which as of the date hereof
have together publicly reported that they beneficially own an aggregate of 6,476,446 shares of the
Company’s Common Stock, representing approximately 20.42% of the Common Stock outstanding as of the
date hereof, unless and until the earlier of such time as (A) Perceptive, together with its
Affiliates and Associates, directly or indirectly, become the Beneficial Owners of a percentage of
the Common Stock then outstanding which percentage equals or is more than the greater of (x) 21% or
(y) that percentage of the Common Stock outstanding which Perceptive, together with its Affiliates
and Associates, directly or indirectly,

4

 

beneficially own as of the close of business on the date immediately preceding the date on which
the adoption of this Agreement is publicly announced (the “Perceptive Percentage”) (other than
under circumstances described in the second sentence of Section 1(a) hereof (replacing for this
purpose all references in Section 1(a) to 15% with the Perceptive Percentage)), or (B) the date on
which Perceptive, together with its Affiliates and Associates, directly or indirectly, become the
Beneficial Owners of less than 15% of the shares of the Company’s Common Stock then outstanding, in
which event, Perceptive, and its Affiliates and Associates, immediately shall cease to be Exempted
Person(s); and

          (ii) Tang Capital Management, LLC ( “Tang”), and any of its Affiliates or Associates who are
deemed to be Beneficial Owners of the Common Stock, which as of the date hereof have together
publicly reported that they beneficially own an aggregate of 6,670,498 shares of the Company’s
Common Stock, representing approximately 21.02% of the Common Stock outstanding as of the date
hereof, unless and until such time as (A) Tang, together with its Affiliates and Associates,
directly or indirectly, become the Beneficial Owners of a percentage of the Common Stock then
outstanding which percentage equals or is more than the greater of (x) 22% or (y) that percentage
of the Common Stock outstanding which Tang, together with its Affiliates and Associates, directly
or indirectly, beneficially own as of the close of business on the date immediately preceding the
date on which the adoption of this Agreement is publicly announced (the “Tang Percentage”) (other
than under circumstances described in the second sentence of Section 1(a) hereof (replacing for
this purpose all references in Section 1(a) to 15% with the Tang Percentage)), or (B) the date on
which Tang, together with its Affiliates and Associates, directly or indirectly, become the
Beneficial Owners of less than 15% of the shares of the Company’s Common Stock then outstanding, in
which event, Tang, and its Affiliates and Associates, immediately shall cease to be Exempted
Person(s).

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

     (t) “Final Expiration Date” shall mean the earlier of (i) the close of business on March 11,
2019 or (ii) the close of business on July 1, 2010, if the Shareholder Approval shall not have been
obtained by the close of business on July 1, 2010.

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

5

 

     (v) “Person” shall mean any individual, firm, corporation, partnership, trust, association,
limited liability company or other entity, and shall include any successor (by merger or otherwise)
thereof or thereto.

     (w) “Preferred Stock” shall mean shares of Series A Junior Participating Preferred Stock,
$0.001 par value, of the Company having the rights and preferences set forth in the Designation of
Rights and Preferences of Series A Junior Participating Preferred Stock filed by the Company on
July 17, 1998 and attached to this Agreement as Exhibit A and, to the extent that there is
not a sufficient number of shares of Series A Junior Participating Preferred Stock authorized to
permit the full exercise of the Rights, any other series of Preferred Stock, $.001 par value, of
the Company designated for such purpose containing terms substantially similar to the terms of the
Series A Junior Participating Preferred Stock.

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

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

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

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

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

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

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

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

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

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

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

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

6

 

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

     (kk) “Shareholder Approval” shall mean the approval of this Agreement by the affirmative vote
of the holders of shares of Common Stock having a majority of the votes cast by the holders of all
of the shares of Common Stock present or represented and voting on the proposal to approve this
Agreement at a meeting of shareholders of the Company duly held in accordance with applicable law.

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

     (mm) “Substitution Period” shall have the meaning set forth in Section 11(a)(iii) hereof.

     (nn) “Trading Day” shall have the meaning set forth in Section 11(d)(i) hereof.

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

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

     Section 3. Issuance of Rights.

     (a) Until the earlier of (i) the close of business on the tenth Business Day (or such later
date as may be determined by the Board) after the Stock Acquisition Date (or, if the tenth Business
Day after the Stock Acquisition Date occurs before the Record Date, the close of business on the
Record Date), or (ii) the close of business on the tenth Business Day (or such later date as may be
determined by action of the Board) after the date that a tender or exchange offer (other than a
Permitted Offer) by any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company,

7

 

or any Person organized, appointed or established by the Company for or pursuant to the terms of
any such plan) is first published or sent or given within the meaning of Rule 14d-2 of the General
Rules and Regulations under the Exchange Act, if upon consummation thereof, such Person would be
the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding, or, in the case
of an Exempted Person, at least the Perceptive Percentage or the Tang Percentage, as the case may
be (the earlier of (i) and (ii) being herein referred to as the “Distribution Date”), (x) the
Rights will be evidenced by the certificates for the Common Stock registered in the names of the
holders of the Common Stock (which certificates for Common Stock shall be deemed also to be
certificates for Rights) and not by separate certificates, and (y) the Rights will be transferable
only in connection with the transfer of the underlying shares of Common Stock (including a transfer
to the Company). As soon as practicable after the Distribution Date, the Company will prepare and
execute, the Rights Agent will countersign, and the Company will send or cause to be sent (and the
Rights Agent will, if requested and provided with all necessary information, send) by first-class,
insured, postage prepaid mail, to each record holder of the Common Stock as of the close of
business on the Distribution Date, at the address of such holder shown on the records of the
Company or the transfer agent or registrar for the Common Stock, one or more rights certificates,
in substantially the form of Exhibit B hereto (the “Rights Certificates”), evidencing one
Right for each share of Common Stock so held, subject to adjustment as provided herein. With
respect to certificates for the Common Stock outstanding as of the close of business on the Record
Date, until the Distribution Date, the Rights will be evidenced by such certificates for the Common
Stock and the registered holders of the Common Stock shall also be the registered holders of the
associated Rights. In addition, in connection with the issuance or sale of shares of Common Stock
following the Distribution Date and prior to the redemption or expiration of the Rights, the
Company (i) shall, with respect to shares of Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee benefit plan or arrangement, or upon the exercise,
conversion or exchange of securities granted or issued by the Company prior to the Distribution
Date, and (ii) may, in any other case, if deemed necessary or appropriate by the Board, issue
Rights Certificates representing the appropriate number of Rights in connection with such issuance
or sale; provided, however, that (x) no such Rights Certificate shall be issued if, and to the
extent that, the Company shall be advised by counsel that such issuance would create a significant
risk of material adverse tax consequences to the Company or the Person to whom such Rights
Certificate would be issued, and (y) no such Rights Certificate shall be issued if, and to the
extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof.
In the event that an adjustment in the number of Rights per share of Common Stock has been made
pursuant to Sections 11(i) or 11(p) hereof, at the time of distribution of the Rights Certificates,
the Company shall make the necessary and appropriate rounding adjustments (in accordance with
Section 14(a) hereof) so that Rights Certificates representing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Rights. As of and after the Distribution
Date, the Rights will be evidenced solely by such Rights Certificates.

8

 

     The Company shall promptly notify the Rights Agent in writing upon the occurrence of the
Distribution Date and, if such notification is given orally, the Company shall confirm the same in
writing on or prior to the Business Day next following. Until such notice is received by the
Rights Agent, the Rights Agent may presume conclusively for all purposes that the Distribution Date
has not occurred.

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

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

This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Rights Agreement between Penwest
Pharmaceuticals Co. (the “Company”) and Mellon Investor Services
(the “Rights Agent”) dated March 11, 2009, as the same may be
amended, restated or renewed from time to time (the “Rights
Agreement”), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal offices of
the Company. Under certain circumstances, as set forth in the
Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate.
The Company will mail to the holder of this certificate a copy of
the Rights Agreement, as in effect on the date of mailing, without
charge promptly after receipt of a written request therefor. Under
certain circumstances set forth in the Rights Agreement, Rights
issued to, or held by, any Person

9

 

who is, was or becomes an Acquiring Person or any Affiliate or
Associate thereof (as such terms are defined in the Rights
Agreement), whether currently held by or on behalf of such Person or
by any subsequent holder, may become null and void.

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

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

     Section 4. Form of Rights Certificates.

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

     (b) Any Rights Certificate issued pursuant to Section 3, Section 11(i) or Section 22 hereof
that represents Rights beneficially owned by persons known to be: (i) an Acquiring Person or an
Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee after the Acquiring

10

 

Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration)
from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person
with whom such Acquiring Person has any continuing agreement, arrangement or understanding (whether
or not in writing) regarding the transferred Rights or (B) a transfer which the Board has
determined is part of a plan, arrangement or understanding (whether or not in writing) that has as
a primary purpose or effect avoidance of Section 7(e) hereof, and any Rights Certificate issued
pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of
any other Rights Certificate referred to in this sentence, shall contain a legend in substantially
the following form:

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

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

     Section 5. Countersignature and Registration.

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

11

 

     (b) Following the Distribution Date, receipt by the Rights Agent of notice to that effect and
all other relevant information referred to in Section 3(a), the Rights Agent shall keep or cause to
be kept, at its office designated for such purpose, books for registration and transfer of the
Rights Certificates issued hereunder. Such books shall show the names and addresses of the
respective holders of the Rights Certificates, the number of Rights evidenced on its face by each
of the Rights Certificates, the Rights Certificate number and the date of each of the Rights
Certificates.

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

     (a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any time
after the close of business on the Distribution Date, and at or prior to the close of business on
the Expiration Date, any Rights Certificate or Certificates (other than Rights Certificates
representing Rights that have become void pursuant to Section 7(e) hereof or that have been
exchanged pursuant to Section 24 hereof) may be transferred, split up, combined or exchanged for
another Rights Certificate or Certificates, entitling the registered holder to purchase a like
number of one one-thousandths of a share of Preferred Stock (or, following a Triggering Event,
Common Stock, other securities, cash or other assets, as the case may be) as the Rights Certificate
or Certificates surrendered then entitled such holder (or former holder in the case of a transfer)
to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Rights
Certificate or Certificates shall make such request in writing delivered to the Rights Agent, and
shall surrender the Rights Certificate or Certificates to be transferred, split up, combined or
exchanged, with the form of assignment and certificate appropriately executed, at the office of the
Rights Agent designated for such purpose. The Rights Certificates are transferable only on the
registry books of the Rights Agent. Neither the Rights Agent nor the Company shall be obligated to
take any action whatsoever with respect to the transfer of any such surrendered Rights Certificate
until the registered holder thereof shall have (i) properly completed and duly signed the
certificate contained in the form of assignment set forth on the reverse side of each such Rights
Certificate, (ii) provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) thereof and the Affiliates and Associates of such Beneficial Owner (or
former Beneficial Owner) and of the Rights evidenced thereby as the Company shall reasonably
request, and (iii) paid a sum sufficient to cover any tax or charge that may be imposed in
connection with any transfer, split up, combination or exchange of Rights Certificate as required
by Section 9(e) hereof. Thereupon the Rights Agent shall countersign and deliver to the Person
entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested,
registered in such names or names as may be designated by the surrendering registered holder. The
Rights Agent shall promptly forward any such sum collected by it to the Company or to such Persons
as the Company shall specify by written notice. The Rights Agent shall have no duty or obligation
under any Section of this Agreement

12

 

which requires the payment of taxes or charges unless and until it is satisfied that all such taxes
and/or charges have been paid.

     (b) Upon receipt by the Company and the Rights Agent of evidence satisfactory to them of the
loss, theft, destruction or mutilation of a Rights Certificate, and, in case of loss, theft or
destruction, of indemnity or security satisfactory to them, and reimbursement to the Company and
the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights
Agent and cancellation of the Rights Certificate if mutilated, the Company will execute and deliver
a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the
registered holder in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.

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

     (a) Subject to Section 7(e) hereof, the registered holder of any Rights Certificate may
exercise the Rights evidenced thereby (except as otherwise provided herein including, without
limitation, the restrictions on exercisability set forth in Section 9(c), Section 11(a)(iii) and
Section 23 hereof) in whole or in part at any time after the Distribution Date upon surrender of
the Rights Certificate, with the form of election to purchase and the certificate on the reverse
side thereof properly completed and duly executed, to the Rights Agent at the office of the Rights
Agent designated for such purpose, together with payment of the aggregate Purchase Price with
respect to the total number of one one-thousandths of a share of Preferred Stock (or other shares,
securities, cash or other assets, as the case may be) as to which such surrendered Rights are then
exercisable, at or prior to the earliest of (i) the Final Expiration Date, (ii) the time at which
the Rights expire as provided in Section 13(d) hereof, (iii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the “Redemption Date”) and (iv) the time at which such
Rights are exchanged as provided in Section 24 hereof (the earliest of (i), (ii), (iii) and (iv)
being herein referred to as the “Expiration Date”). Except for those provisions herein which
expressly survive the termination of this Agreement, this Agreement shall terminate at such time as
the Rights are no longer exercisable hereunder.

     (b) The Purchase Price for each one one-thousandth of a share of Preferred Stock pursuant to
the exercise of a Right shall initially be $12.50 and shall be subject to adjustment from time to
time as provided in Sections 11 and 13(a) hereof and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below.

     (c) Upon receipt of a Rights Certificate representing exercisable Rights, with the form of
election to purchase properly completed and the certificate duly executed, accompanied by payment,
with respect to each Right so exercised, of the Purchase Price per one one-thousandth of a share of
Preferred Stock (or other shares, securities, cash or other assets, as the case may be) to be
purchased and an amount equal to any applicable tax or charge required to be paid under Section
9(e) hereof by certified check, cashier’s check, bank draft or money order

13

 

playable to the order of the Company, the Rights Agent shall, subject to Section 20(k) hereof,
thereupon promptly (i) (A) requisition from any transfer agent of the shares of Preferred Stock (or
make available, if the Rights Agent is the transfer agent for such shares) certificates for the
total number of one one-thousandths of a share of Preferred Stock to be purchased and the Company
hereby authorizes its transfer agent to comply with such requests, or (B) if the Company shall have
elected to deposit the total number of shares of Preferred Stock issuable upon exercise of the
Rights hereunder with a depositary agent, requisition from the depositary agent depositary receipts
representing such number of one one-thousandths of a share of Preferred Stock as are to be
purchased (in which case certificates for the shares of Preferred Stock represented by such
receipts shall be deposited by the transfer agent with the depositary agent) and the Company hereby
directs the depositary agent to comply with such requests, (ii) requisition from the Company the
amount of cash, if any, to be paid in lieu of fractional shares in accordance with Section 14
hereof, (iii) after receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Rights Certificate, registered in
such name or names as may be designated by such holder, and (iv) after receipt thereof, deliver
such cash, if any, to or upon the order of the registered holder of such Rights Certificate. The
payment of the Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii) hereof)
may be made in cash or by certified bank check or money order payable to the order of the Company.
In the event that the Company is obligated to issue other securities (including Common Stock) of
the Company, pay cash and/or distribute other property pursuant to Section 11(a) hereof, the
Company shall make all arrangements necessary so that such other securities, cash and/or other
property are available for distribution by the Rights Agent, if and when necessary to comply with
this Agreement.

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

     (e) Notwithstanding anything in this Agreement to the contrary, from and after the first
occurrence of a Section 11(a)(ii) Event, any Rights beneficially owned by (i) an Acquiring Person
or an Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes
such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives
such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring
Person to holders of equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has any continuing agreement, arrangement or understanding (whether or not in
writing) regarding the transferred Rights or (B) a transfer which

14

 

the Board has determined is part of a plan, arrangement or understanding (whether or not in
writing) that has as a primary purpose or effect avoidance of this Section 7(e), shall become null
and void without any further action and no holder of such Rights shall have any rights whatsoever
with respect to such Rights, whether under any provision of this Agreement or otherwise. No Rights
Certificate shall be issued at any time upon the transfer of any Rights to an Acquiring Person
whose Rights would be void pursuant to the preceding sentence or any Associate or Affiliate thereof
or to any nominee of such Acquiring Person, Associate or Affiliate; and any Rights Certificate
delivered to the Rights Agent for transfer to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence shall be cancelled. The Company shall give the Rights Agent
written notice of the identity of any such Acquiring Person, Associate or Affiliate, or the nominee
of any of the foregoing, and the Rights Agent may rely on such notice in carrying out its duties
under this Agreement and shall be deemed not to have any knowledge of the identity of any such
Acquiring Person, Associate or Affiliate, or the nominee of any of the foregoing unless and until
it shall have received such notice. The Company shall use all reasonable efforts to insure that
the provisions of this Section 7(e) and Section 4(b) hereof are complied with, but shall have no
liability to any holder of Rights Certificates or other Person as a result of its failure to make
any determinations with respect to an Acquiring Person or its Affiliates, Associates or transferees
hereunder.

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

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

15

 

     Section 9. Reservation and Availability of Capital Stock.

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

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

     (c) The Company shall use its best efforts to (i) file, as soon as practicable following the
earliest date after the first occurrence of a Section 11(a)(ii) Event on which the consideration to
be delivered by the Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) hereof, or as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under the Act, with respect to the securities purchasable
upon exercise of the Rights on an appropriate form, (ii) cause such registration statement to
become effective as soon as practicable after such filing, (iii) cause such registration statement
to remain effective (with a prospectus at all times meeting the requirements of the Act) until the
earlier of (A) the date as of which the Rights are no longer exercisable for such securities, and
(B) the Expiration Date, and (iv) obtain such other regulatory approvals as may be necessary for it
to issue securities purchasable upon the exercise of the Rights. The Company will also take such
action as may be appropriate under, or to ensure compliance with, the securities or “blue sky” laws
of the various states in connection with the exercisability of the Rights. The Company may
temporarily suspend, for a period of time not to exceed ninety (90) days after the date set forth
in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order
to prepare and file such registration statement and permit it to become effective or to obtain any
other required regulatory approval in connection with the exercisability of the Rights. Upon any
such suspension, the Company shall issue a public announcement stating that the exercisability of
the Rights has been temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. The Company shall notify the Rights Agent whenever it makes a
public announcement pursuant to this Section 9(c) and give the Rights Agent a copy of such
announcement. Notwithstanding any provision of this Agreement to the contrary, the Rights shall
not be exercisable in any jurisdiction unless the requisite registration or qualification in such
jurisdiction shall have been effected or obtained.

16

 

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

     (e) The Company further covenants and agrees that it will pay when due and payable any and all
federal and state transfer taxes and charges that may be payable in respect of the issuance or
delivery of the Rights Certificates and of any certificates for a number of one one-thousandths of
a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) upon the
exercise of Rights. The Company shall not, however, be required (i) to pay any transfer tax that
may be payable in respect of any transfer or delivery of Rights Certificates to a Person other
than, or the issuance or delivery of a number of one one-thousandths of a share of Preferred Stock
(or Common Stock and/or other securities, as the case may be) in respect of a name other than that
of, the registered holder of the Rights Certificate evidencing Rights surrendered for exercise or
(ii) to issue or deliver any certificates for a number of one one-thousandths of a share of
Preferred Stock (or Common Stock and/or other securities, as the case may be) in a name other than
that of the registered holder upon the exercise of any Rights until any such tax or charge shall
have been paid (any such tax or charge being payable by the holder of such Rights Certificate at
the time of surrender) or until it has been established to the Company’s or the Rights Agent’s
satisfaction that no such tax or charge is due.

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

17

 

shall not be entitled to receive any notice of any proceedings of the Company, except as provided
herein.

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

     (a) (i) In the event the Company shall at any time after the date of this Agreement (A)
declare a dividend on the Preferred Stock payable in shares of Preferred Stock, (B) subdivide the
outstanding Preferred Stock, (C) combine the outstanding Preferred Stock into a smaller number of
shares, or (D) issue any shares of its capital stock in a reclassification of the Preferred Stock
(including any such reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), except as otherwise provided in this Section
11(a) and Section 7(e) hereof, the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of Preferred Stock or capital stock, as the case may be, issuable on such
date, shall be proportionately adjusted so that the holder of any Right exercised after such time
shall be entitled to receive, upon payment of the Purchase Price then in effect, the aggregate
number and kind of shares of Preferred Stock or capital stock, as the case may be, which, if such
Right had been exercised immediately prior to such date and at a time when the Preferred Stock
transfer books of the Company were open, he would have owned upon such exercise and been entitled
to receive by virtue of such dividend, subdivision, combination or reclassification. If an event
occurs that would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii)
hereof, the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be
made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof.

          (ii) Subject to Section 24 of this Agreement, in the event that any Person, alone or together
with its Affiliates or Associates, becomes an Acquiring Person (other than pursuant to a Permitted
Offer), then, promptly following the first occurrence of such event, proper provision shall be made
so that each holder of a Right (except as provided below and in Section 7(e) hereof) shall
thereafter have the right to receive (subject to the last sentence of Section 23(a)), upon exercise
thereof at the then current Purchase Price in accordance with the terms of this Agreement, in lieu
of a number of one one-thousandths of a share of Preferred Stock, such number of shares of Common
Stock of the Company that equals the result obtained by (x) multiplying the then current Purchase
Price by the then number of one one-thousandths of a share of Preferred Stock for which a Right was
exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event, and (y)
dividing that product (which, following such first occurrence, shall thereafter be referred to as
the “Purchase Price” for each Right and for all purposes of this Agreement) by 50% of the current
market price (determined pursuant to

18

 

Section 11(d) hereof) per share of Common Stock on the date of such first occurrence (such number
of shares, the “Adjustment Shares”).

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

19

 

this Section 11(a)(iii) and give to the Rights Agent a copy of such public announcement. For
purposes of this Section 11(a)(iii), the value of the Common Stock shall be the current market
price (as determined pursuant to Section 11(d) hereof) per share of the Common Stock on the Section
11(a)(ii) Trigger Date and the value of any “common stock equivalent” shall be deemed to have the
same value as the Common Stock on such date.

     (b) In case the Company shall fix a record date for the issuance of rights, options or
warrants to all holders of Preferred Stock entitling them to subscribe for or purchase (for a
period expiring within forty-five (45) calendar days after such record date) Preferred Stock (or
shares having the same rights, privileges and preferences as the shares of Preferred Stock
(“equivalent preferred stock”)) or securities convertible into Preferred Stock or equivalent
preferred stock at a price per share of Preferred Stock or per share of equivalent preferred stock
(or having a conversion price per share, if a security convertible into Preferred Stock or
equivalent preferred stock) less than the current market price (as determined pursuant to Section
11(d) hereof) per share of Preferred Stock on such record date, the Purchase Price to be in effect
after such record date shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the number of shares of
Preferred Stock outstanding on such record date, plus the number of shares of Preferred Stock which
the aggregate offering price of the total number of shares of Preferred Stock and/or equivalent
preferred stock so to be offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price, and the denominator of
which shall be the number of shares of Preferred Stock outstanding on such record date, plus the
number of additional shares of Preferred Stock and/or equivalent preferred stock to be offered for
subscription or purchase (or into which the convertible securities so to be offered are initially
convertible). In case such subscription price may be paid by delivery of consideration part or all
of which may be in a form other than cash, the value of such consideration shall be as determined
in good faith by the Board, whose determination shall be described in a statement filed with the
Rights Agent and shall be conclusive for all purposes. Shares of Preferred Stock owned by or held
for the account of the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record date is fixed, and
in the event that such rights, options or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if such record date had not been
fixed.

     (c) In case the Company shall fix a record date for a distribution to all holders of Preferred
Stock (including any such distribution made in connection with a consolidation or merger in which
the Company is the continuing corporation) of evidences of indebtedness, cash (other than a regular
quarterly cash dividend out of the earnings or retained earnings of the Company), assets (other
than a dividend payable in Preferred Stock, but including any dividend payable in stock other than
Preferred Stock) or subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date shall

20

 

be determined by multiplying the Purchase Price in effect immediately prior to such record date by
a fraction, the numerator of which shall be the current market price (as determined pursuant to
Section 11(d) hereof) per share of Preferred Stock on such record date, less the fair market value
(as determined in good faith by the Board, whose determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes) of the portion of the cash,
assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants
applicable to a share of Preferred Stock and the denominator of which shall be such current market
price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock on such record
date. Such adjustments shall be made successively whenever such a record date is fixed, and in the
event that such distribution is not so made, the Purchase Price shall be adjusted to be the
Purchase Price which would have been in effect if such record date had not been fixed.

     (d) (i) For the purpose of any computation hereunder, other than computations made pursuant to
Section 11(a)(iii) hereof, the “current market price” per share of Common Stock on any date shall
be deemed to be the average of the daily closing prices per share of such Common Stock for the
thirty (30) consecutive Trading Days (as such term is hereinafter defined) immediately prior to but
not including such date, and for purposes of computations made pursuant to Section 11(a)(iii)
hereof, the “current market price” per share of Common Stock on any date shall be deemed to be the
average of the daily closing prices per share of such Common Stock for the ten (10) consecutive
Trading Days immediately following but not including such date; provided, however,
that in the event that the current market price per share of the Common Stock is determined during
a period following the announcement by the issuer of such Common Stock of (A) a dividend or
distribution on such Common Stock payable in shares of such Common Stock or securities convertible
into shares of such Common Stock (other than the Rights), or (B) any subdivision, combination or
reclassification of such Common Stock, and prior to the expiration of the requisite thirty (30)
Trading Day or ten (10) Trading Day period, as set forth above, after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination or reclassification
occurs, then, and in each such case, the “current market price” shall be properly adjusted to take
into account ex-dividend or post record date trading. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to trading on the
principal national securities exchange on which the shares of Common Stock are listed or admitted
to trading or, if the shares of Common Stock are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the average of the high bid and
the low asked prices in the over-the-counter market, as reported by The Nasdaq Stock Market, Inc.
(“Nasdaq”) or such other system then in use, or, if on any such date the shares of Common Stock are
not quoted by any such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Common Stock selected by the Board. All
references in this Section to closing prices, last quoted prices or other stock prices mean prices
during regular

21

 

trading hours, without giving effect to any after-hours or extended hours trading. If on any such
date no market maker is making a market in the Common Stock, the fair value of such shares on such
date shall be as determined in good faith by the Board, whose determination shall be described in a
statement filed with the Rights Agent and shall be conclusive for all purposes. The term “Trading
Day” shall mean a day on which Nasdaq or any national securities exchange on which the shares of
Common Stock are listed or admitted to trading is open for the transaction of business or, if the
shares of Common Stock are not listed or admitted to trading on Nasdaq or any national securities
exchange, a Business Day. If the Common Stock is not publicly held or not so listed or traded,
“current market price” per share shall mean the fair value per share as determined in good faith by
the Board, whose determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes.

          (ii) For the purpose of any computation hereunder, the “current market price” per share of
Preferred Stock shall be determined in the same manner as set forth above for the Common Stock in
clause (i) of this Section 11(d) (other than the last sentence thereof). If the current market
price per share of Preferred Stock cannot be determined in the manner provided above or if the
Preferred Stock is not publicly held or listed or traded in a manner described in clause (i) of
this Section 11(d), the “current market price” per share of Preferred Stock shall be conclusively
deemed to be an amount equal to 1000 (as such number may be appropriately adjusted for such events
as stock splits, stock dividends and recapitalizations with respect to the Common Stock occurring
after the date of this Agreement) multiplied by the current market price per share of the Common
Stock. If neither the Common Stock nor the Preferred Stock is publicly held or so listed or
traded, “current market price” per share of the Preferred Stock shall mean the fair value per share
as determined in good faith by the Board, which determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes. For all purposes of this
Agreement, the “current market price” of one one-thousandth of a share of Preferred Stock shall be
equal to the “current market price” of one share of Preferred Stock divided by 1000.

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

22

 

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

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

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

     (i) The Company may elect on or after the date of any adjustment of the Purchase Price to
adjust the number of Rights, in lieu of any adjustment in the number of one one-thousandths of a
share of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding
after the adjustment in the number of Rights shall be exercisable for the number of one
one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior
to such adjustment. Each Right held of record prior to such adjustment of the number of Rights
shall become that number of Rights (calculated to the nearest one-hundred- thousandth) obtained by
dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall
make a public announcement (with prompt written notice thereof to the Rights Agent) of its election
to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date on which the
Purchase Price is adjusted or any day thereafter, but, if the Rights

23

 

Certificates have been issued, shall be at least ten (10) days later than the date of the public
announcement. If Rights Certificates have been issued, upon each adjustment of the number of
Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and replacement for the Rights Certificates
held by such holders prior to the date of adjustment, and upon surrender thereof, if required by
the Company, new Rights Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed
and delivered by the Company, and countersigned and delivered by the Rights Agent in the manner
provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and
shall be registered in the names of the holders of record of Rights Certificates on the record date
specified in the public announcement.

     (j) Irrespective of any adjustment or change in the Purchase Price or the number of one
one-thousandths of a share of Preferred Stock issuable upon the exercise of the Rights, the Rights
Certificates theretofore and thereafter issued may continue to express the Purchase Price per one
one-thousandth of a share and the number of one one-thousandths of a share which were expressed in
the initial Rights Certificates issued hereunder.

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

     (l) In any case in which this Section 11 shall require that an adjustment in the Purchase
Price be made effective as of a record date for a specified event, the Company may elect to defer
(with prompt written notice thereof to the Rights Agent) until the occurrence of such event the
issuance to the holder of any Right exercised after such record date the number of one
one-thousandths of a share of Preferred Stock and other capital stock or securities of the Company,
if any, issuable upon such exercise over and above the number of one one-thousandths of a share of
Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder’s right to receive such additional shares (fractional or
otherwise) or securities upon the occurrence of the event requiring such adjustment.

     (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled
to make such reductions in the Purchase Price, in addition to those adjustments expressly

24

 

required by this Section 11, as and to the extent that in their good faith judgment the Board shall
determine to be advisable in order that any (i) consolidation or subdivision of the Preferred
Stock, (ii) issuance wholly for cash of any shares of Preferred Stock at less than the current
market price, (iii) issuance wholly for cash of shares of Preferred Stock or securities which by
their terms are convertible into or exchangeable for shares of Preferred Stock, (iv) stock
dividends or (v) issuance of rights, options or warrants referred to in this Section 11, hereafter
made by the Company to holders of its Preferred Stock shall not be taxable to such shareholders.

     (n) The Company covenants and agrees that it shall not, at any time after the Distribution
Date, (i) consolidate with any other Person (other than a Subsidiary of the Company in a
transaction that complies with Section 11(o) hereof), (ii) merge with or into any other Person
(other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof),
(iii) effect a share exchange (within the meaning of Section 23B.11.020 of the Revised Code of
Washington) with any Person (other than a Subsidiary of the Company in a transaction which complies
with Section 11(o) thereof), or (iv) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction, or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken
as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries
in one or more transactions each of which complies with Section 11(o) hereof), if (x) at the time
of or immediately after such consolidation, merger or sale there are any charter or bylaw
provisions or any rights, warrants or other instruments or securities outstanding or agreements in
effect that would substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately after such
consolidation, merger or sale, the shareholders of the Person who constitutes, or would constitute,
the “Principal Party” for purposes of Section 13(a) hereof shall have received a distribution of
Rights previously owned by such Person or any of its Affiliates or Associates. The Company shall
not consummate any consolidation, merger, sale or transfer described in clause (i), (ii) or (iii)
of the prior sentence unless prior thereto the Company and such other Person shall have executed
and delivered to the Rights Agent a supplemental agreement evidencing compliance with this Section
11(n).

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

     (p) Anything in this Agreement to the contrary notwithstanding, in the event that the Company
shall at any time after the Record Date and prior to the Distribution Date (i) declare or pay any
dividend on the outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding shares of Common Stock, or (iii) combine the outstanding

25

 

shares of Common Stock into a smaller number of shares, the number of Rights associated with each
share of Common Stock then outstanding, or issued or delivered thereafter but prior to the
Distribution Date, shall be proportionately adjusted so that the number of Rights thereafter
associated with each share of Common Stock following any such event shall equal the result obtained
by multiplying the number of Rights associated with each share of Common Stock immediately prior to
such event by a fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the occurrence of such event and the denominator of which shall be
the number of shares of Common Stock outstanding immediately following the occurrence of such
event.

     Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an
adjustment is made or any event affecting the Rights or their exercisability (including without
limitation an event which causes the Rights to become null and void) occurs, as provided in Section
11 or Section 13 hereof, the Company shall promptly (a) prepare a certificate setting forth such
adjustment or describing such event and a brief, reasonably detailed statement of the facts,
computations and methodology accounting for such adjustment, (b) file with the Rights Agent, and
with each transfer agent for the Preferred Stock and the Common Stock, a copy of such certificate,
and (c) mail a brief summary thereof to each holder of a Rights Certificate (or, if prior to the
Distribution Date, to each holder of a certificate representing shares of Common Stock) in
accordance with Section 26 hereof. The Rights Agent shall be fully protected in relying on any
such certificate and on any adjustment or statement therein contained and shall have no duty or
liability with respect to, and shall not be deemed to have knowledge of, any adjustment or any such
event unless and until it shall have received such certificate.

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

     (a) In the event that, at any time after a Person has become an Acquiring Person, (x) the
Company shall consolidate with, merge with and into, or effect a share exchange with, any other
Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(o)
hereof), and the Company shall not be the continuing or surviving corporation of such
consolidation, merger or share exchange, (y) any Person (other than a Subsidiary of the Company in
a transaction that complies with Section 11(o) hereof) shall consolidate with, merge with or into,
or effect a share exchange with, the Company, and the Company shall be the continuing or surviving
corporation of such consolidation, merger or share exchange and, in connection with such
consolidation, merger or share exchange, all or part of the outstanding shares of Common Stock
shall be changed into or exchanged for stock or other securities of any other Person or cash or any
other property, or (z) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one transaction or a series of related
transactions, assets or earning power aggregating more than 50% of the assets or earning power of
the Company and its Subsidiaries (taken as a whole) to any Person or Persons (other than the
Company or any Subsidiary of the Company in one or more transactions each of which

26

 

complies with Section 11(o) hereof), then, and in each such case and except as contemplated by
Section 13(d) hereof, proper provision shall be made so that: (i) each holder of a Right, except as
provided in Section 7(e) hereof, shall thereafter have the right to receive, upon the exercise
thereof at the then current Purchase Price in accordance with the terms of this Agreement, such
number of validly authorized and issued, fully paid, non-assessable and freely tradeable shares of
Common Stock of the Principal Party (as such term is hereinafter defined), which shall not be
subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall be
equal to the result obtained by (1) multiplying the then current Purchase Price by the number of
one one-thousandths of a share of Preferred Stock for which a Right is exercisable immediately
prior to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred
prior to the first occurrence of a Section 13 Event, multiplying the number of such one
one-thousandths of a share for which a Right was exercisable immediately prior to the first
occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to such
first occurrence), and (2) dividing that product (which, following the first occurrence of a
Section 13 Event, shall be referred to as the “Purchase Price” for each Right and for all purposes
of this Agreement) by 50% of the current market price (determined pursuant to Section 11(d)(i)
hereof) per share of the Common Stock of such Principal Party on the date of consummation of such
Section 13 Event; (ii) such Principal Party shall thereafter be liable for, and shall assume, by
virtue of such Section 13 Event, all the obligations and duties of the Company pursuant to this
Agreement; (iii) the term “Company” shall thereafter be deemed to refer to such Principal Party, it
being specifically intended that, subject to clause (v) below, the provisions of Section 11 hereof
shall apply only to such Principal Party following the first occurrence of a Section 13 Event; (iv)
such Principal Party shall take such steps (including, but not limited to, the reservation of a
sufficient number of shares of its Common Stock) in connection with the consummation of any such
transaction as may be necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its shares of Common Stock thereafter
deliverable upon the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof
shall be of no effect following the first occurrence of any Section 13 Event.

     (b) “Principal Party” shall mean

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

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

27

 

provided, however, that in any such case, (1) if the Common Stock of such Person is
not at such time and has not been continuously over the preceding twelve (12) month period
registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary
of another Person the Common Stock of which is and has been so registered, “Principal Party” shall
refer to
such other Person; (2) in case such Person is a Subsidiary, directly or indirectly, of more than
one Person, the Common Stocks of two or more of which are and have been so registered, “Principal
Party” shall refer to whichever of such Persons is the issuer of the Common Stock having the
greatest aggregate market value; and (3) in case such Person is owned, directly or indirectly, by a
joint venture formed by two or more Persons that are not owned, directly or indirectly, by the same
Person, the rules set forth in (1) and (2) above shall apply to each of the chains of ownership
having an interest in such joint venture as if such party were a “Subsidiary” of both or all of
such joint ventures and the Principal Parties in each such chain shall bear the obligations set
forth in this Section 13 in the same ratio as their direct or indirect interests in such Person
bear to the total of such interests.

     (c) The Company shall not consummate any such consolidation, merger, share exchange, sale or
transfer unless the Principal Party shall have a sufficient number of authorized shares of its
Common Stock which have not been issued or reserved for issuance to permit the exercise in full of
the Rights in accordance with this Section 13 and unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further
providing that, as soon as practicable after the date of any consolidation, merger, share exchange,
sale of assets, disposition or transfer mentioned in paragraph (a) of this Section 13, the
Principal Party will

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

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

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

The provisions of this Section 13 shall similarly apply to successive mergers, consolidations,
share exchanges or sales or other transfers. In the event that a Section 13 Event shall occur at
the same time as, or at any time after, the occurrence of a Section 11(a)(ii) Event, the Rights
which

28

 

have not theretofore been exercised shall thereafter become exercisable in the manner
described in Section 13(a).

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

     Section 14. Fractional Rights and Fractional Shares.

     (a) The Company shall not be required to issue fractions of Rights, except prior to the
Distribution Date as provided in Section 11(i) or (p) hereof, or to distribute Rights Certificates
that evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the
registered holders of the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the current market value of
a whole Right. For purposes of this Section 14(a), the current market value of a whole Right shall
be the closing price of the Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price of the Rights for any day
shall be the last sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities listed or admitted
to trading on the principal national securities exchange on which the Rights are listed or admitted
to trading, or if the Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high bid and the low asked
prices in the over-the-counter market, as reported by Nasdaq or such other system then in use or,
if on any such date the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market in the Rights
selected by the Board. All references in this Section to closing prices, last quoted prices or
other stock prices means prices during regular trading hours, without giving effect to any
after-hours or extended hours trading. If on any such date no such market maker is making a market
in the Rights, the fair value of the Rights on such date as determined in good faith by the Board
shall be used, which determination shall be described in a statement filed with Rights Agent and
shall be conclusive for all purposes.

     (b) The Company shall not be required to issue fractions of shares of Preferred Stock (other
than fractions which are integral multiples of one one-thousandth of a share of Preferred

29

 

Stock) upon exercise of the Rights or to distribute certificates that evidence fractional shares of
Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share
of Preferred Stock). Fractional shares of Preferred Stock in integral multiples of one
one-thousandth of a share of Preferred Stock may, at the election of the Company, be evidenced by
depositary receipts; provided, however, that holders of such depositary receipts shall have all of
the designations and the powers, preferences and rights, and the qualifications, limitations and
restrictions to which they are entitled as beneficial owners of the shares of Preferred Stock
represented by such depositary receipts. In lieu of fractional shares of Preferred Stock (other
than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock),
the Company shall pay to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the current market
value of one one-thousandth of a share of Preferred Stock. For purposes of this Section 14(b), the
current market value of one one-thousandth of a share of Preferred Stock shall be one
one-thousandth of the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of such exercise.

     (c) Following the occurrence of a Triggering Event, the Company shall not be required to issue
fractions of shares of Common Stock upon exercise of the Rights or to distribute certificates which
evidence fractional shares of Common Stock. In lieu of fractional shares of Common Stock, the
Company shall pay to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the current market
price of one (1) share of Common Stock (as determined pursuant to Section 11(d)(i) hereof) for the
Trading Day immediately prior to the date of such exercise.

     (d) The holder of a Right by the acceptance of such Right expressly waives his right to
receive any fractional Rights or any fractional shares upon exercise of a Right, except as
permitted by this Section 14.

     (e) Whenever a payment for fractional Rights or fractional shares is to be made by the Rights
Agent, the Company shall (i) promptly prepare and deliver to the Rights Agent a certificate setting
forth in reasonable detail the facts related to such payments and the prices and/or formulas
utilized in calculating such payments, and (ii) provide sufficient monies to the Rights Agent in
the form of fully collected funds to make such payments. The Rights Agent shall be fully protected
in relying upon such a certificate and shall have no duty with respect to, and shall not be deemed
to have knowledge of any payment for fractional Rights or fractional shares under any Section of
this Agreement relating to the payment of fractional Rights or fractional shares unless and until
the Rights Agent shall have received such a certificate and sufficient monies.

     Section 15. Rights of Action. All rights of action in respect of this Agreement,
except the rights of action expressly given to the Rights Agent in Section 18 and Section 20
hereof, are vested in the respective registered holders of the Rights Certificates (and, prior to
the

30

 

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

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

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

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

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

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

31

 

any such order, decree or ruling and to have any such order, decree or ruling lifted or otherwise
overturned as soon as possible.

     Section 17. Rights Certificate Holder Not Deemed a Shareholder. No holder, as such,
of any Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose
the holder of the number of one one-thousandths of a share of Preferred Stock or any other
securities of the Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Rights Certificate be construed
to confer upon the holder of any Rights Certificate, as such, any of the rights of a shareholder of
the Company or any right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as provided in Section
25 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Rights Certificate shall have been exercised in accordance with the provisions
hereof.

     Section 18. Concerning the Rights Agent.

     (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services
rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and disbursements and other disbursements incurred in the preparation,
negotiation, delivery, amendment, 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, damage, judgment, fine, penalty, claim,
demand, settlement, cost or expense (including, without limitation, the reasonable fees and
expenses of legal counsel), incurred without gross negligence, bad faith or willful misconduct on
the part of the Rights Agent (which gross negligence, bad faith or willful misconduct must be
determined by a final, non-appealable judgment of a court of competent jurisdiction) for any action
taken, suffered or omitted by the Rights Agent in connection with the acceptance, administration,
exercise and performance of its duties under this Agreement, including the costs and expenses of
defending against any claim of liability in the premises. The costs and expenses incurred in
enforcing this right of indemnification shall be paid by the Company. The provisions of this
Section 18 and Section 20 below shall survive the termination of this Agreement, the exercise or
expiration of the Rights and the resignation, replacement or removal of the Rights Agent.

     (b) The Rights Agent shall be authorized and protected and shall incur no liability for or in
respect of any action taken, suffered or omitted by it in connection with its acceptance and
administration of this Agreement and the exercise and performance of its duties hereunder, in
reliance upon any Rights Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement, or other paper or document believed by it

32

 

to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the
proper Person or Persons, or otherwise upon the advice of counsel as set forth in Section 20
hereof. The Rights Agent shall not be deemed to have knowledge of any event of which it was
supposed to receive notice thereof hereunder, and the Rights Agent shall be fully protected and
shall incur no liability for failing to take action in connection therewith unless and until it has
received such notice in writing.

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

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

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

     Section 20. Duties of Rights Agent. The Rights Agent undertakes to perform only the
duties and obligations expressly imposed by this Agreement (and no implied duties) upon the
following terms and conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:

     (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company
or an employee of the Rights Agent), and the advice or opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent and the Rights Agent

33

 

shall incur no
liability for or in respect of any action taken, suffered or omitted by it 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 (including, without limitation, the
identity of any Acquiring Person and the determination of “current market price”) be proved or
established by the Company prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by the Chairman of the Board, the
President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be
full and complete authorization and protection to the Rights Agent and the Rights Agent shall incur
no liability for or in respect of any action taken, suffered or omitted by it under the provisions
of this Agreement in reliance upon such certificate.

     (c) The Rights Agent shall be liable hereunder to the Company and any other Person only for
its own gross negligence, bad faith or willful misconduct (which gross negligence, bad faith or
willful misconduct must be determined by a final, non-appealable judgment of a court of competent
jurisdiction). Anything to the contrary notwithstanding, in no event shall the Rights Agent be
liable for special, punitive, indirect, consequential or incidental 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.

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

     (e) The Rights Agent shall not have any liability for or be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof (except the due
execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights
Certificate (except its countersignature thereof); nor shall it be responsible for any breach by
the Company of any covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any change in the exercisability of the Rights (including the
Rights becoming null and void pursuant to Section 7(e) and Section 11(a)(ii) hereof) or any change
or adjustment required under the provisions of Section 11, Section 13 or Section 24 hereof or
responsible for the manner, method or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such change or adjustment (except with respect to the
exercise of Rights evidenced by Rights Certificates after receipt of a certificate describing any
such adjustment, delivered pursuant to Section 12, upon which the Rights Agent may rely); nor shall
it by any act hereunder be deemed to make any representation or warranty as to the authorization or
reservation of any shares of Common Stock or Preferred Stock to be issued
pursuant to this Agreement or any Rights Certificate or as to whether any shares of Common Stock or
Preferred Stock will, when so issued, be validly authorized and issued, fully paid and
nonassessable.

34

 

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

     (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to
the performance of its duties hereunder from the Chairman of the Board, the President, any Vice
President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of the
Company, and to apply to such officers for advice or instructions in connection with its duties,
and such instructions shall be full authorization and protection to the Rights Agent and it shall
not be liable for or in respect of any action taken, suffered or omitted by it in accordance with
instructions of any such officer or for delay in action while waiting for those instructions. The
Rights Agent shall be fully authorized and protected in relying upon the most recent instructions
received by any such officer. Any application by the Rights Agent for written instructions from
the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be
taken, suffered or omitted by the Rights Agent with respect to its duties or obligations under this
Rights Agreement and the date on and/or after which such action shall be taken, suffered or omitted
and the Rights Agent shall not be liable for any action taken, suffered or omitted in accordance
with a proposal included in any such application on or after the date specified therein (which date
shall not be less than five Business Days after the date any such officer 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 in response to such application
specifying the action to be taken, suffered or omitted.

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

     (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 (through its directors, officers and employees) 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 or any other Person resulting from any such act, default, neglect or

35

 

misconduct, absent gross negligence, bad faith or willful misconduct in the selection and continued
employment thereof (which gross negligence, bad faith or willful misconduct must be determined by a
final, non-appealable judgment of a court of competent jurisdiction).

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

     (k) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or
transfer, the certificate attached to the form of assignment or form of election to purchase, as
the case may be, has not been properly completed, the Company and the Rights Agent will deem the
beneficial owner of the rights evidenced by such Rights Certificate to be an Acquiring Person or an
Affiliate or Associate thereof and such assignment or election to purchase will not be honored, and
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 thirty (30) days’ notice in
writing mailed to the Company, and to each transfer agent of the Common Stock and Preferred Stock
known to the Rights Agent, by registered or certified mail, and to the holders of the Rights
Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights
Agent upon thirty (30) days’ notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Stock and Preferred Stock, by
registered or certified mail, and to the holders of the Rights Certificates by first-class mail.
If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights
Agent or by the holder of a Rights Certificate (who shall, with such notice, submit his Rights
Certificate for inspection by the Company), then any registered holder of any Rights Certificate
may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a Person
organized and doing business under the laws of the United States (or of any state of the United
States) in good standing, which is authorized under such laws to exercise corporate trust or stock
transfer powers and is subject to supervision or examination by federal or state authority and
which has at the time of its appointment as Rights Agent a combined capital and surplus of at least
$50,000,000 or (b) an Affiliate of such a Person. 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

36

 

Agent any property at the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and
each transfer agent of the Common Stock and the Preferred Stock, and mail a notice thereof in
writing to the registered holders of the Rights Certificates. Failure to give any notice provided
for in this Section 21, however, or any defect therein, shall not affect the legality or validity
of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent,
as the case may be.

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

     Section 23. Redemption; Independent Director Review.

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

     (b) Immediately upon the action of the Board ordering the redemption of the Rights, written
evidence of which shall have been filed with the Rights Agent and without any further action and
without any notice, the right to exercise the Rights shall terminate and the only right thereafter
of the holders of Rights shall be to receive the Redemption Price for each Right so held. Promptly
after the action of the Board ordering the redemption of the Rights, the Company shall promptly
mail written notice of such redemption to the Rights Agent and the holders of the

37

 

then outstanding Rights by mailing such notice to all such holders at each holder’s last address as
it appears upon the registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the Transfer Agent for the Common Stock. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives the notice. Each
such notice of redemption will state the method by which the payment of the Redemption Price will
be made.

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

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

     Section 24. Exchange.

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

38

 

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

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

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

     (e) The Company shall not be required to issue fractions of shares of Common Stock or to
distribute certificates which evidence fractional shares of Common Stock. In lieu of such
fractional shares of Common Stock, there shall be paid to the registered holders of the Right
Certificates with regard to which such fractional shares of Common Stock would otherwise be
issuable, an amount in cash equal to the same fraction of the current market value of a whole share
of Common Stock. For the purposes of this subsection (e), the current market value of a whole
share of Common Stock shall be the closing price per share of Common Stock (as

39

 

determined pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of exchange pursuant to this Section 24.

     Section 25. Notice of Certain Events.

     (a) In case the Company shall propose, at any time after the Distribution Date, (i) to pay any
dividend payable in stock of any class to the holders of Preferred Stock or to make any other
distribution to the holders of Preferred Stock (other than a regular quarterly cash dividend out of
earnings or retained earnings of the Company), or (ii) to offer to the holders of Preferred Stock
rights or warrants to subscribe for or to purchase any additional shares of Preferred Stock or
shares of stock of any class or any other securities, rights or options, or (iii) to effect any
reclassification of its Preferred Stock (other than a reclassification involving only the
subdivision of outstanding shares of Preferred Stock), or (iv) to effect any consolidation, merger
or share exchange into or with any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof), or to effect any sale or other transfer (or
to permit one or more of its Subsidiaries to effect any sale or other transfer), in one transaction
or a series of related transactions, of more than 50% of the assets or earning power of the Company
and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company
and/or any of its Subsidiaries in one or more transactions each of which complies with Section
11(o) hereof), or (v) to effect the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall give to the Rights Agent and to the extent feasible each holder
of a Rights Certificate, in accordance with Section 26 hereof, a notice of such proposed action,
which shall specify the record date for the purposes of such stock dividend, distribution of rights
or warrants, or the date on which such reclassification, consolidation, merger, share exchange,
sale, transfer, liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the shares of Preferred Stock, if any such date is to be
fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii)
above at least twenty (20) days prior to the record date for determining holders of the shares of
Preferred Stock for purposes of such action, and in the case of any such other action, at least
twenty (20) days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the shares of Preferred Stock, whichever shall be the
earlier.

     (b) In case a Section 11(a)(ii) Event shall occur, then, in any such case, (i) the Company
shall as soon as practicable thereafter give to the Rights Agent and to the extent feasible to each
holder of a Rights Certificate, in accordance with Section 26 hereof, a notice of the occurrence of
such event, which notice shall specify the event and the consequences of the event to holders of
Rights under Section 11(a)(ii) hereof, and (ii) all references in the preceding paragraph to
Preferred Stock shall be deemed thereafter to refer also to Common Stock and/or, if appropriate,
other securities; provided that the failure to give such notice shall not affect the validity of
such consent.

40

 

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

Penwest Pharmaceuticals Co.

39 Old Ridgebury Road, Suite 11

Danbury, Connecticut, 06810

Attention: Chief Executive Officer

with a copy to:

WilmerHale

60 State Street

Boston, MA 02109

Attention: Stuart Falber, Esq.

Subject to the provisions of Section 21, any notice or demand authorized by this Agreement to be
given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent
shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing with the Company) as follows:

BNY Mellon Shareowner Services

111 Founders Plaza, Suite 1100

East Hartford, CT 06108

Attention: John J. Boryczki

with a copy to:

Mellon Investor Services LLC

Newport Office Center VII

480 Washington Boulevard

Jersey City, New Jersey 07310

Attention: General Counsel

Notices or demands authorized by this Agreement to be given or made by the Company or the Rights
Agent to the holder of any Rights Certificate (or, if prior to the Distribution Date, to the holder
of certificates representing shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Company.

41

 

     Section 27. Supplements and Amendments. Except as provided in the penultimate
sentence of this Section 27, for so long as the Rights are then redeemable, the Company may, in its
sole and absolute discretion, and the Rights Agent shall, if the Company so directs, supplement or
amend any provision of this Agreement in any respect without the approval of any holders of the
Rights. At any time when the Rights are no longer redeemable, except as provided in the
penultimate sentence of this Section 27, the Company may, by approval of at least 75% of the
members of the Board, and the Rights Agent shall, if the Company so directs, supplement or amend
this Agreement without the approval of any holders of Rights in order (i) to cure any ambiguity or
(ii) to correct or supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, provided that no such supplement or amendment shall adversely
affect the interests of the holders of Rights as such (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person). Upon the delivery of a certificate from an
appropriate officer of the Company and, if requested by the Rights Agent, an opinion of counsel,
which states that the proposed supplement or amendment is in compliance with the terms of this
Section 27, the Rights Agent shall execute such supplement or amendment. Notwithstanding
anything contained in this Agreement to the contrary, (a) no supplement or amendment shall be made
which changes the Redemption Price, and (b) the Rights Agent may, but shall not be obligated to,
enter into any supplement or amendment that affects the Rights Agent’s own rights, duties,
obligations or immunities under this Agreement. Prior to the Distribution Date, the interests of
the holders of Rights shall be deemed coincident with the interests of the holders of Common Stock.

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

     Section 29. Actions by the Board, etc. The Board shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers specifically granted
to the Board or to the Company, or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (i) interpret the provisions of
this Agreement, and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including a determination to redeem or not redeem the Rights or
to amend this Agreement). All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to the foregoing) which
are done or made by the Board in good faith, shall (x) be final, conclusive and binding on the
Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject the
Board to any liability to the holders of the Rights. The Rights Agent is entitled always to assume
the Company’s Board of Directors acted in good faith and shall be fully protected and incur no
liability in reliance thereon.

42

 

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

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

     Section 32. Governing Law. This Agreement, each Right and each Rights Certificate
issued hereunder shall be deemed to be a contract made under the laws of the State of Washington
and for all purposes shall be governed by and construed in accordance with the laws of Washington
applicable to contracts made and to be performed entirely within Washington; provided, however,
that all provisions regarding the rights, duties and obligations of the Rights Agent shall be
governed by and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely within such state.

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

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

     Section 35. Force Majeure. Notwithstanding anything to the contrary contained herein,
the Rights Agent shall not be liable for any delays or failures in performance resulting from acts
beyond its reasonable control including, without limitation, acts of God, terrorist acts, shortage
of supply, breakdowns or malfunctions, interruptions or malfunctions of computer

43

 

facilities, or loss of data due to power failures or mechanical difficulties with information
storage or retrieval systems, labor difficulties, war or civil unrest.

44

 

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

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Attest:	 	PENWEST PHARMACEUTICALS CO.	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	By:	 	/s/ Frank Muscolo	 	By:	 	/s/ Jennifer Good	 	 
	 

	 	Name:
	 	Frank Muscolo
	 	 	 	Name:
	 	Jennifer Good	 	 
	 

	 	Title:
	 	Chief Accounting Officer
	 	 	 	Title:
	 	President	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Attest:	 	MELLON INVESTOR SERVICES LLC,

as Rights Agent	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	By:	 	/s/ Lee Kowalsky	 	By:	 	/s/ John J. Boryczki	 	 
	 

	 	Name:
	 	Lee Kowalsky
	 	 	 	Name:
	 	John J. Boryczki	 	 
	 

	 	Title:
	 	Relationship Manager
	 	 	 	Title:
	 	Relationship Manager	 	 

45

 

EXHIBIT A

DESIGNATION OF RIGHTS AND PREFERENCES

OF

SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

OF

PENWEST PHARMACEUTICALS CO.

 

     RESOLVED: That pursuant to the authority granted to and vested in the Board of Directors of
the Corporation (hereinafter called the “Board”) in accordance with the provisions of the Amended
and Restated Articles of Incorporation, as amended, the Board hereby creates a series of Preferred
Stock, $.001 par value per share (the “Preferred Stock”), of the Corporation and hereby states the
designation and number of shares, and fixes the relative rights, preferences and limitations
thereof as follows:

     SERIES A JUNIOR PARTICIPATING PREFERRED STOCK:

     Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as “Series A
Junior Participating Preferred Stock” (the “Series A Preferred Stock”) and the number of shares
constituting the Series A Preferred Stock shall be one hundred thousand (100,000). Such number of
shares may be increased or decreased by resolution of the Board prior to issuance; PROVIDED, that
no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for issuance upon the exercise
of outstanding options, rights or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Series A Preferred Stock.

     Section 2. DIVIDENDS AND DISTRIBUTIONS.

     (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or
any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to
dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of
Common Stock, par value $.001 per share (the “Common Stock”), of the Corporation, and of any other
junior stock, shall be entitled to receive, when, as and if declared by the Board out of funds of
the Corporation legally available for the payment of dividends, quarterly dividends payable in cash
on the last day of each fiscal quarter of the Corporation in each year (each such date being

A-1

 

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

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

A-2

 

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

     Section 3. VOTING RIGHTS.

The holders of shares of Series A Preferred Stock shall have the following voting rights:

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

A-3

 

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

     (C) (i) If at any time dividends on any Series A Preferred Stock shall be in arrears in an
amount equal to six quarterly dividends thereon, the holders of the Series A Preferred Stock,
voting as a separate series from all other series of Preferred Stock and classes of capital stock,
shall be entitled to elect two members of the Board in addition to any Directors elected by any
other series, class or classes of securities and the authorized number of Directors will
automatically be increased by two. Promptly thereafter, the Board of the Corporation shall, as soon
as may be practicable, call a special meeting of holders of Series A Preferred Stock for the
purpose of electing such members of the Board. Such special meeting shall in any event be held
within 45 days of the occurrence of such arrearage.

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

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

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

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

A-4

 

the holders of shares of the Series A Preferred Stock shall have only the limited voting rights
elsewhere herein set forth.

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

     Section 4. CERTAIN RESTRICTIONS.

     (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A
Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued
and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:

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

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

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

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

A-5

 

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

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

     Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP.

     (A) Upon any liquidation, dissolution or winding up of the Corporation, no distribution
shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the
holders of shares of Series A Preferred Stock shall have received $1000 per share, plus an amount
equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment, provided that the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to
holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred
Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock
in proportion to the total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.

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

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

A-6

 

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

     Section 7. CONSOLIDATION, MERGER, ETC. Notwithstanding anything to the contrary contained
herein, in case the Corporation shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of Series A Preferred
Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to
the provision for adjustment hereinafter set forth, equal to 1,000
times the aggregate amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is changed or exchanged. In
the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable
in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or change of shares of
Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were outstanding immediately
prior to such event. In the event the Corporation shall at any time declare or pay any dividend on
the Series A Preferred Stock payable in shares of Series A Preferred Stock, or effect a
subdivision, combination or consolidation of the outstanding shares of Series A Preferred Stock (by
reclassification or otherwise than by payment of a dividend in shares of Series A Preferred Stock)
into a greater or lesser number of shares of Series A Preferred Stock, then in each such case the
amount set forth in the first sentence of this Section 7 with respect to the exchange or change of
shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Series A Preferred Stock that were outstanding
immediately prior to such event and the denominator of which is the number of shares of Series A
Preferred Stock outstanding immediately after such event.

     Section 8. NO REDEMPTION. The shares of Series A Preferred Stock shall not be redeemable.

A-7

 

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

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

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

A-8

 

[Form of Rights Certificate]

			
	 	 	 
	Certificate No. R-
	 	______ Rights

NOT EXERCISABLE AFTER THE FINAL EXPIRATION DATE (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT)
OR EARLIER IF REDEEMED OR EXCHANGED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.001
PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE
RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS
REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME
AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED
IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY
MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH
AGREEMENT.]1

PENWEST PHARMACEUTICALS CO.

Rights Certificate

This certifies that                     , or registered assigns, is the registered owner of the number of
Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions
and conditions of the Rights Agreement, dated March 11, 2009 (the “Rights Agreement”), between
Penwest Pharmaceuticals Co., a Washington corporation (the “Company”), and Mellon Investor Services
LLC, a New Jersey limited liability company (the “Rights Agent”), to purchase from the Company
after the Distribution Date (as such term is defined in the Rights Agreement) and at any time prior
to 5:00 p.m. (New York time), on the earlier of (a) March 11, 2019, or (b) July 1, 2010 if the
Shareholder Approval (as such term is defined in the Rights Agreement) shall not have been obtained
by July 1, 2010, at the office of the Rights Agent designated for such purpose, or its successors
as Rights Agent, one one-thousandth of a fully paid, non-assessable share of Series A Junior
Participating Preferred Stock (the “Preferred Stock”) of the Company, $.001 par value per share, at
a purchase price of $12.50 in cash per one one-thousandth of a share (the “Purchase Price”), upon
presentation and surrender of this Rights Certificate with the Form of Election to Purchase and
related Certificate duly executed. The number of Rights evidenced by this Rights Certificate (and
the number of one one-thousandth of a share of Preferred Stock which may be purchased upon exercise
hereof) set forth above, and the Purchase Price set forth

 

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

B-1

 

above, are the number and Purchase Price as of the close of business on March 11, 2009, based on
the Preferred Stock as constituted at such date. Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to such terms in the Rights Agreement.

Upon the occurrence of a Section 11(a)(ii) Event, if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of any
such Acquiring Person (as such terms are defined in the Rights Agreement), (ii) a transferee of any
such Acquiring Person, Associate or Affiliate who becomes a transferee after the Acquiring Person
becomes an Acquiring Person, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, concurrently with or after such transfer, became an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such Rights shall become
null and void and no holder hereof shall have any right with respect to such Rights from and after
the occurrence of such Section 11(a)(ii) Event.

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

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

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

Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be
redeemed by the Company at its option at a redemption price of $.001 per Right at any time prior to
the earlier of (i) the close of business on the tenth Business Day (or such later date as may be
determined by the Board pursuant to clause (i) of the first sentence of Section 3(a) with respect
to the Distribution Date) following the Stock Acquisition Date (or, if the Stock

B-2

 

Acquisition Date shall have occurred prior to the Record Date, the close of business on the tenth
Business Day following the Record Date) and (ii) the Final Expiration Date.

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

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

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

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

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

Dated as of                     

	 	 	 	 	 	 	 	 	 
	ATTEST:	 	 	 	PENWEST PHARMACEUTICALS CO.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By: 	 	 	 	 
	 

	 	 
	 	 	 

	 	 
	Secretary

	 	 	 	 	Title: 	 	 	 
	 
	 	 	 	 	 	 	 	 
	COUNTERSIGNED:	 	 	 	MELLON INVESTOR SERVICES LLC, as Rights Agent	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 
	 

	 	 	 	 	 	Authorized Signature	 	 

B-3

 

[Form of Reverse Side of Rights Certificate]

FORM OF ASSIGNMENT

(To be executed by the registered holder if such

holder desires to transfer the Rights Certificate.)

     FOR VALUE RECEIVED 
                    
                    
                    
                    
                     hereby sells,

assigns and transfers unto
 

 
(Please print name and address of transferee)

this 

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

Dated:                     

	 	 	 	 	 
	 

	 	 

	 	 
	 

	 	Signature	 	 

Signature Guaranteed:

Certificate

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

Dated:                     

	 	 	 	 	 
	 

	 	 

	 	 
	 

	 	Signature	 	 

Signature Guaranteed:

NOTICE

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

B-4

 

FORM OF ELECTION TO PURCHASE

(To be executed if holder desires to exercise

Rights represented by the Rights Certificate.)

To: Mellon Investor Services LLC

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

Please insert social security

or other identifying number
 

 
(Please print name and address)

 

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

Please insert social security

or other identifying number
 

 
(Please print name and address)

 

Dated:                     

	 	 	 	 	 
	 

	 	 

	 	 
	 

	 	Signature	 	 

Signature Guaranteed:

B-5

 

Certificate

The undersigned hereby certifies by checking the appropriate boxes that:

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

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

Dated:                     

	 	 	 	 	 
	 

	 	 

	 	 
	 

	 	Signature	 	 

Signature Guaranteed:

NOTICE

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

B-6

 

SUMMARY OF RIGHTS TO

PURCHASE PREFERRED STOCK

On March 11, 2009, the Board of Directors of Penwest Pharmaceuticals Co. (the “Company”), declared
a dividend of one Right for each outstanding share of the Company’s Common Stock to shareholders of
record at the close of business on March 23, 2009 (the “Record Date”). Each Right entitles the
registered holder to purchase from the Company one one-thousandth of a share of Series A Junior
Participating Preferred Stock, $.001 par value per share (the “Preferred Stock”), at a Purchase
Price of $12.50 in cash, subject to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement dated March 11, 2009 (the “Rights Agreement”) between the Company and
Mellon Investor Services LLC, a New Jersey limited liability company, as Rights Agent.

Initially, the Rights are not exercisable and will be attached to all certificates representing
outstanding shares of Common Stock, and no separate Rights Certificates will be distributed. The
Rights will separate from the Common Stock, and the Distribution Date will occur, upon the earlier
of (i) 10 business days following the later of (a) the first date of a public announcement that a
person or group of affiliated or associated persons (an “Acquiring Person”) has acquired, or
obtained the right to acquire, beneficial ownership of 15% (or in the case of an Exempted Person,
as defined below, the applicable percentage specified below) or more of the outstanding shares of
Common Stock or (b) the first date on which an executive officer of the Company has actual
knowledge that an Acquiring Person has become such (the “Stock Acquisition Date”), or (ii) 10
business days following the commencement of a tender offer or exchange offer that would result in a
person or group beneficially owning 15% (or in the case of an Exempted Person, the applicable
percentage specified below) or more of the outstanding shares of Common Stock. The Distribution
Date may be deferred in circumstances determined by the Board of Directors. In addition, certain
inadvertent acquisitions will not trigger the occurrence of the Distribution Date. Until the
Distribution Date (or earlier redemption or expiration of the Rights), (i) the Rights will be
evidenced by the Common Stock certificates outstanding on the Record Date, together with this
Summary of Rights, or by new Common Stock certificates issued after the Record Date which contain a
notation incorporating the Rights Agreement by reference, (ii) the Rights will be transferred with
and only with such Common Stock certificates; and (iii) the surrender for transfer of any
certificates for Common Stock outstanding (with or without a copy of this Summary of Rights or such
notation) will also constitute the transfer of the Rights associated with the Common Stock
represented by such certificate.

For purposes of the Rights Agreement, “Exempted Person” shall mean each of:

Perceptive Life Sciences Master Fund Ltd. (“Perceptive”), and any of its affiliates and associated
persons who are deemed to be beneficial owners of the Common Stock, unless and until the earlier of
such time as (A) Perceptive, together with its affiliates and associated persons, either (i)
directly or indirectly, acquire or obtain the right to acquire beneficial ownership of the greater

C-1

 

of (x) 21% or (y) that percentage which Perceptive, with its affiliates and associated persons,
directly and indirectly, beneficially own of the Common Stock outstanding as of the close of
business on the date immediately preceding the date on which the adoption of this Agreement is
publicly announced (the “Perceptive Percentage”) (other than certain inadvertent acquisitions), or
(B) the date on which Perceptive, together with its affiliates and associated persons, directly or
indirectly, become the beneficial owners of less than 15% of the shares of the Common Stock then
outstanding, in which event Perceptive, and its affiliates and associated persons, immediately
shall cease to be Exempted Person(s).

Tang Capital Management, LLC (“Tang”), and any of its affiliates and associated persons who are
deemed to be beneficial owners of the Common Stock, unless and until such time as (A) Tang,
together with its affiliates and associated persons, either (i) directly or indirectly, acquire or
obtain the right to acquire beneficial ownership of the greater of (x) 22% or (y) that percentage
which Tang, with its affiliates and associated persons, directly and indirectly, beneficially own
of the Common Stock outstanding as of the close of business on the date immediately preceding the
date on which the adoption of this Agreement is publicly announced (the “Tang Percentage”) (other
than certain inadvertent acquisitions), or (B) the date on which Tang, together with its affiliates
and associated persons, directly or indirectly, become the beneficial owners of less than 15% of
the shares of the Common Stock then outstanding, in which event Tang, and its affiliates and
associate persons, immediately shall cease to be Exempted Person(s).

The Rights are not exercisable until the Distribution Date and will expire upon the close of
business on the earlier of (a) March 11, 2019, or (b) July 1, 2010, if the Company’s shareholders
do not approve the Rights Agreement by the close of business on July 1, 2010 (such earlier date,
the “Final Expiration Date”) unless earlier redeemed or exchanged as described below. As soon as
practicable after the Distribution Date, separate Rights Certificates will be mailed to holders of
record of the Common Stock as of the close of business on the Distribution Date and, thereafter,
the separate Rights Certificates alone will represent the Rights. Except as otherwise determined
by the Board of Directors, and except for shares of Common Stock issued upon exercise, conversion
or exchange of then outstanding options, convertible or exchangeable securities or other contingent
obligations to issue shares or pursuant to any employee benefit plan or arrangement, only shares of
Common Stock issued prior to the Distribution Date will be issued with Rights.

In the event that any Person becomes an Acquiring Person, unless the event causing the 15%
threshold to be crossed is a Permitted Offer (as defined in the Rights Agreement), then, promptly
following the first occurrence of such event, each holder of a Right (except as provided below and
in Section 7(e) of the Rights Agreement) shall thereafter have the right to receive, upon exercise,
that number of shares of Common Stock of the Company (or, in certain circumstances, cash, property
or other securities of the Company) which equals the exercise price of the Right divided by 50% of
the current market price (as defined in the Rights Agreement) per share of Common Stock at the date
of the occurrence of such event. However, Rights are not exercisable following such event until
such time as the Rights are no longer redeemable by the Company as described below.
Notwithstanding any of the foregoing, following the occurrence of such event,

C-2

 

all Rights that are, or (under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person will be null and void. The event summarized in this
paragraph is referred to as a “Section 11(a)(ii) Event.”

For example, at an exercise price of $12.50 per Right, each Right not owned by an Acquiring Person
(or by certain related parties) following a Section 11(a)(ii) Event would entitle its holder to
purchase for $12.50 such number of shares of Common Stock (or other consideration, as noted above)
as equals $12.50 divided by one-half of the current market price (as defined in the Rights
Agreement) of the Common Stock. Assuming that the Common Stock had a market price of $1.00 per
share at such time, the holder of each valid Right would be entitled to purchase 25 shares of
Common Stock, having a market value of 25 x $1.00, or $25.00, for $12.50.

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

For example, at an exercise price of $12.50 per Right, each valid Right following a Section 13
Event would entitle its holder to purchase for $12.50 such number of shares of common stock of the
acquiring company as equals $12.50 divided by one-half of the current market price (as defined in
the Rights Agreement) of such common stock. Assuming that such common stock had a market price of
$1.00 per share at such time, the holder of each valid Right would be entitled to purchase 25
shares of common stock of the acquiring company, having a market value of 25 x $1.00, or $25.00,
for $12.50.

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

The Purchase Price payable, and the number of units of Preferred Stock or other securities or
property issuable, upon exercise of the Rights are subject to adjustment from time to time to
prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Preferred Stock, (ii) if holders of the Preferred Stock are granted
certain

C-3

 

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

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

Preferred Stock purchasable upon exercise of the Rights will not be redeemable. Each share of
Preferred Stock will be entitled to receive, when, as and if declared by the Board of Directors, a
minimum preferential quarterly dividend payment of $10 per share or, if greater, an aggregate
dividend of 1000 times the dividend declared per share of Common Stock. In the event of
liquidation, the holders of the Preferred Stock will be entitled to a minimum preferential
liquidation payment of $1000 per share, plus an amount equal to accrued and unpaid dividends, and
will be entitled to an aggregate payment of 1000 times the payment made per share of Common Stock.
Each share of Preferred Stock will have 1000 votes, voting together with the Common Stock. In the
event of any merger, consolidation or other transaction in which Common Stock is changed or
exchanged, each share of Preferred Stock will be entitled to receive 1000 times the amount received
per share of Common Stock. These rights are protected by customary antidilution provisions.
Because of the nature of the Preferred Stock’s dividend, liquidation and voting rights, the value
of one one-thousandth of a share of Preferred Stock purchasable upon exercise of each Right should
approximate the value of one share of Common Stock.

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

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

C-4

 

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

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

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

A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an
Exhibit to the Company’s Current Report on Form 8-K filed on March 12, 2009. A copy of the Rights
Agreement is available free of charge from the Company. This summary description of the Rights
does not purport to be complete and is qualified in its entirety by reference to the Rights
Agreement, which is incorporated herein by reference.

C-5

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