Document:

exv10w2

EXHIBIT
10.2

Execution Copy

STOCK PURCHASE AGREEMENT

BY AND AMONG

WILTON REASSURANCE COMPANY

AND

HEALTHMARKETS, LLC

 

Dated as of June 12, 2008

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	ARTICLE I DEFINITIONS
	 	 	1	 
	 
	 	 	 	 
	1.1 Certain Definitions
	 	 	1	 
	1.2 Terms Defined Elsewhere in this Agreement
	 	 	5	 
	1.3 Other Definitional and Interpretive Matters
	 	 	6	 
	 
	 	 	 	 
	ARTICLE II SALE AND PURCHASE OF EQUITY INTERESTS
	 	 	8	 
	 
	 	 	 	 
	2.1 Sale and Purchase of Equity Interests
	 	 	8	 
	 
	 	 	 	 
	ARTICLE III PURCHASE PRICE
	 	 	8	 
	 
	 	 	 	 
	3.1 Purchase Price
	 	 	8	 
	3.2 Closing Date Payment
	 	 	8	 
	3.3 Purchase Price Adjustment
	 	 	8	 
	 
	 	 	 	 
	ARTICLE IV CLOSING AND TERMINATION
	 	 	10	 
	 
	 	 	 	 
	4.1 Closing Date
	 	 	10	 
	4.2 Termination of Agreement
	 	 	10	 
	4.3 Procedure Upon Termination
	 	 	11	 
	4.4 Effect of Termination
	 	 	11	 
	 
	 	 	 	 
	ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER
	 	 	11	 
	 
	 	 	 	 
	5.1 Seller Existence and Authority
	 	 	11	 
	5.2 Taxes
	 	 	12	 
	5.3 Companies
	 	 	15	 
	5.4 Accuracy of Books and Records
	 	 	15	 
	5.5 Compliance with Applicable Law
	 	 	15	 
	5.6 Litigation
	 	 	16	 
	5.7 Title to Assets
	 	 	16	 
	5.8 Real Property
	 	 	16	 
	5.9 Financial Statements
	 	 	16	 
	5.10 Absence of Certain Changes
	 	 	16	 
	5.11 Company Contracts
	 	 	17	 
	5.12 Employees
	 	 	17	 
	5.13 Seller’s Brokers
	 	 	17	 

i

 

TABLE OF CONTENTS

(continued)

	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER
	 	 	17	 
	 
	 	 	 	 
	6.1 Purchaser’s Corporate Existence and Authority
	 	 	17	 
	6.2 Availability of Funds; Financial Impact
	 	 	18	 
	6.3 Absence of Certain Changes
	 	 	18	 
	6.4 Compliance with Applicable Law
	 	 	18	 
	6.5 Litigation Against Purchaser
	 	 	19	 
	6.6 Purchaser’s Brokers
	 	 	19	 
	6.7 Non-Reliance
	 	 	19	 
	6.8 Investment Intent
	 	 	19	 
	6.9 No Knowledge of Material Adverse Effect
	 	 	19	 
	 
	 	 	 	 
	ARTICLE VII COVENANTS
	 	 	19	 
	 
	 	 	 	 
	7.1 Maintenance of Business by the Companies
	 	 	19	 
	7.2 Continued Access to Information by Seller
	 	 	21	 
	7.3 Access Prior to Closing
	 	 	21	 
	7.4 Filings, Consents and Approvals
	 	 	21	 
	7.5 Conduct Pending Closing
	 	 	22	 
	7.6 Further Assurances
	 	 	22	 
	7.7 Expenses
	 	 	23	 
	7.8 Assignment of Assigned Contracts; Modification
	 	 	23	 
	7.9 Notice Contracts
	 	 	23	 
	7.10 Intercompany Balances, Accounts and Agreements
	 	 	24	 
	7.11 Quarterly Financial Information
	 	 	24	 
	 
	 	 	 	 
	ARTICLE VIII CONDITIONS TO CLOSING
	 	 	24	 
	 
	 	 	 	 
	8.1 Conditions to Purchaser’s Obligations to Close
	 	 	24	 
	8.2 Conditions to Seller’s Obligations to Close
	 	 	25	 
	 
	 	 	 	 
	ARTICLE IX INDEMNIFICATION
	 	 	26	 
	 
	 	 	 	 
	9.1 Survival of Representations and Warranties; Covenants
	 	 	26	 
	9.2 Indemnification by Seller
	 	 	26	 
	9.3 Indemnification by Purchaser
	 	 	27	 

ii

 

TABLE OF CONTENTS

(continued)

	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	9.4 Notice of Claim
	 	 	27	 
	9.5 Opportunity to Defend
	 	 	27	 
	9.6 Limitation on Indemnification
	 	 	28	 
	9.7 Certain Limitations on Indemnification
	 	 	28	 
	9.8 Exclusive Remedy
	 	 	28	 
	 
	 	 	 	 
	ARTICLE X TAX MATTERS
	 	 	29	 
	 
	 	 	 	 
	10.1 Access to Tax Records; Cooperation
	 	 	29	 
	10.2 Liability for Taxes and Related Matters
	 	 	29	 
	10.3 Survival of Obligations
	 	 	32	 
	10.4 Tax Sharing Agreement
	 	 	32	 
	10.5 Certain Taxes
	 	 	32	 
	10.6 Allocation
	 	 	32	 
	10.7 Tax Treatment of Payments
	 	 	32	 
	10.8 FIRPTA Affidavit
	 	 	32	 
	10.9 Refunds
	 	 	32	 
	10.10 Election under Section 338(h)(10)
	 	 	33	 
	 
	 	 	 	 
	ARTICLE XI MISCELLANEOUS
	 	 	34	 
	 
	 	 	 	 
	11.1 Notice
	 	 	34	 
	11.2 Entire Agreement
	 	 	35	 
	11.3 Assignment
	 	 	35	 
	11.4 Waivers and Amendments
	 	 	35	 
	11.5 No Third Party Beneficiaries
	 	 	35	 
	11.6 Public Announcements
	 	 	35	 
	11.7 Confidentiality
	 	 	35	 
	11.8 Governing Law
	 	 	36	 
	11.9 Counterparts
	 	 	36	 
	11.10 Headings
	 	 	36	 
	11.11 Severability
	 	 	36	 
	11.12 Arbitration
	 	 	37	 

iii

 

	 	 	 
	 
	 	 
	Schedules
	 	 
	 
	 	 
	Schedule 1.1(a)
	 	Assigned Contracts
	Schedule 1.1(b)
	 	Knowledge of Seller
	Schedule 1.1(c)
	 	Securitization Documents
	Schedule 5.1(c)
	 	No Seller Conflicts
	Schedule 5.2
	 	Taxes
	Schedule 5.6
	 	Litigation
	Schedule 5.7
	 	Transferred Company Assets
	Schedule 5.9
	 	Financial Statements
	Schedule 5.10
	 	Seller Absence of Certain Changes
	Schedule 5.11
	 	Company Contracts
	Schedule 5.13
	 	Seller’s Brokers
	Schedule 7.1
	 	Maintenance of the Business
	Schedule 7.9
	 	Notice Contracts
	Schedule 7.10
	 	Intercompany Agreements
	 
	 	 
	Exhibits
	 	 
	 
	 	 
	Exhibit A
	 	Assignment and Assumption Agreement
	 
	 	 
	Exhibit B
	 	Form of Release

 

 

STOCK PURCHASE AGREEMENT

     This STOCK PURCHASE AGREEMENT, (the “Agreement”), dated as of June 12, 2008, by and
among Wilton Reassurance Company, a Minnesota stock life insurance company (“Purchaser”)
and HealthMarkets, LLC, a Delaware limited liability company (“Seller”).

W I T N
E S S E T H:

     WHEREAS, Seller owns an aggregate of (a) one thousand (1,000) shares of CFLD’s common stock,
$0.01 par value per share, (b) ten (10) shares of UFC2’s common stock, $0.01 par value per share
and (c) limited liability company interests in NSA (collectively, the “Equity Interests”),
which constitute all of the issued and outstanding equity interests of the Companies;

     WHEREAS, Seller desire to sell to Purchaser, and Purchaser desires to purchase from Seller,
the Equity Interests for the purchase price and upon the terms and conditions hereinafter set
forth;

     WHEREAS, concurrently with the execution of this Agreement, Seller and Purchaser, along with
the other parties thereto, are entering into the Master Agreement (as defined below); and

     WHEREAS, certain terms used in this Agreement are defined in Section 1.1.

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

ARTICLE I

DEFINITIONS

     1.1 Certain Definitions.

     (a) For purposes of this Agreement, the following terms shall have the meanings specified in
this Section 1.1:

     “Affiliate” means, with respect to any Person, any other Person that, directly or
indirectly through one or more intermediaries, controls, or is controlled by, or is under common
control with, such Person, and the term “control” (including the terms “controlled by” and “under
common control with”) means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through ownership of voting
securities, by contract or otherwise.

     “Applicable Law” means any domestic or foreign federal, state or local statute, law,
ordinance, code or common law or any rules, regulations, publicly available administrative
interpretations, or orders issued by any Governmental Authority pursuant

1

 

to any of the foregoing, and any order, writ, injunction, directive, administrative
interpretation, judgment or decree applicable to a Person or such Person’s business, subsidiaries,
properties, assets, officers, directors, employees or agents.

     “Assigned Contracts” means those contracts set forth on Schedule 1.1(a).

     “Assignment and Assumption Agreement” means the Assignment and Assumption Agreement
between Seller and Purchaser, related to the Assigned Contracts, in substantially the form attached
hereto as Exhibit A.

     “Business Day” means any day of the year on which national banking institutions in New
York are open to the public for conducting business and are not required or authorized to close.

     “Cash” means cash and Cash Equivalents, including restricted cash.

     “Cash Equivalents” means treasury bills, money market holdings and certificates of
deposit.

     “CFLD” means CFLD-I, Inc., a Delaware corporation.

     “Closing Date” means the date upon which the Closing shall take place, which shall be
the first business day of the month immediately following the month in which the last of the
conditions to Closing set forth in this Agreement is satisfied or waived; provided, however, that
if such conditions are satisfied or waived less than five Business Days before the end of such
month, the Closing Date shall be the first Business Day of the second month immediately following
such month, and provided further, that the Closing may occur on such other date as the parties may
agree to in writing.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Coinsurance Agreement” means each Coinsurance Agreement as defined in the Master
Agreement.

     “Companies” means CFLD, UFC2 and NSA.

     “Excess Liabilities” means the liabilities of UFC2 as of the Closing Date, of a nature
required to be reflected on a balance sheet prepared in accordance with GAAP, that in the aggregate
exceed $75,000 and determined without regard to any deferred revenues, deferred tax payables or any
liabilities to Seller or any of its Affiliates.

     “GAAP” means generally accepted accounting principles, consistently applied throughout
the specified period and in the immediately prior comparable period.

     “Governmental Authority” means any federal, state, local or foreign governmental or
regulatory authority, agency, commission, court or other legislative, executive or judicial
governmental authority.

2

 

     “Independent Accountant” means an accounting or actuarial firm of national standing
selected as follows: No later than sixty (60) days after the delivery by Purchaser of a Dispute
Notice, if no agreement between the parties has been reached in connection with such Dispute
Notice, each of the parties will distribute to the other party a list of three (3) accounting firms
or actuarial firms of national standing. If there is a match on the lists exchanged by the
parties, the firm so identified will be the Independent Accountant. If more than one name on each
list matches, the Independent Accountant shall be chosen by lot from the matching names. If no
names on the list match, the parties will exchange a new list consisting of three (3) additional
accounting firms or actuarial firms within ten (10) Business Days (of which at least two selections
shall not be any of the firms identified on the first list), and repeat the process set forth above
until a match is made, which shall be the Independent Accountant.

     “IRS” means the United States Internal Revenue Service and, to the extent relevant,
the United States Department of Treasury.

     “Knowledge of Seller” means the actual knowledge of those Persons identified on
Schedule 1.1(b) after reasonable inquiry.

     “Legal Proceeding” means any judicial, administrative or arbitral actions, suits or
proceedings (public or private) by or before a Governmental Authority.

     “Losses” means all costs and expenses (including interest, penalties, reasonable
attorneys’, accountants’ and actuaries’ fees, and any other costs and expenses incident to any
suit, action or proceeding), damages, charges, losses, deficiencies, liabilities, obligations,
claims and judgments sustained by any Person who is a party to or entitled to indemnification under
this Agreement.

     “Master Agreement” means that certain Agreement for Reinsurance and Purchase and Sale
of Assets by and among Seller, The Chesapeake Life Insurance Company, Mid-West National Life
Insurance Company of Tennessee, The Mega Life and Insurance Company and Purchaser, dated as of the
date hereof.

     “Material Adverse Effect” means any change, event or effect that is materially adverse
to the Business (as defined in the Master Agreement) and the business or operations of the
Companies, taken as a whole, or any change, event or effect that is materially adverse to the
ability of the Companies or Seller to consummate the transactions contemplated by this Agreement
and the agreements contemplated hereby, or to perform their obligations hereunder, in each case
excluding any such change, event or effect to the extent resulting from the following:

     (b) general political, economic or business conditions or changes therein;

     (c) financial and capital market conditions, including interest rates, or changes therein;

3

 

     (d) general industry conditions affecting the health and life insurance industry generally
(including changes in Applicable Law, GAAP or SAP (as defined in the Master Agreement), or
authoritative interpretations thereof, after the date of this Agreement) to the extent not having a
disproportionate effect on the Business and the business of the Companies relative to other
competitors of the Ceding Companies, the Transferred Companies or the Companies, respectively;

     (e) any action, change or effect attributable to the announcement of this Agreement, the
Master Agreement or the Coinsurance Agreement or the transactions contemplated hereby or thereby,
or the identity of Purchaser; or

     (f) any change, effect or event to the extent affecting solely the Excluded Liabilities (as
defined in the Master Agreement) or policies and assets retained by the Ceding Companies or Seller
pursuant to the Master Agreement;

provided, however, that if the Closing takes place on a date that is after the date
of the closing of the transactions contemplated by the Master Agreement, Material Adverse Effect
with respect to the Business (other than with respect to the Companies) shall be measured as of the
date of the closing of the transactions contemplated by the Master Agreement and Material Adverse
Effect with respect to the Companies shall be measured as of the Closing Date.

     “NSA” means The National Student Association, LLC, a Texas limited liability company.

     “Order” means any order, injunction, judgment, decree, ruling, writ, assessment or
arbitration award of a Governmental Authority.

     “Permitted Exceptions” means (i) statutory liens for current Taxes, assessments or
other governmental charges not yet delinquent or the amount or validity of which is being contested
in good faith by appropriate proceedings, (ii) mechanics’, carriers’, workers’, repairers’ and
similar liens arising or incurred in the ordinary course of business, (iii) title of a lessor under
a capital or operating lease and (iv) any liens arising under the Securitization Documents.

     “Person” means any natural person, corporation, limited liability company, general
partnership, limited partnership, proprietorship, trust, union, association, court, tribunal,
agency, government, department, commission, self-regulatory
organization, arbitrator, board, bureau, instrumentality, or other entity, enterprise,
authority or business organization.

     “Post-Closing Period” means the portion of any Straddle Period that begins after the
Closing Date.

     “Pre-Closing Period” means the portion of any Straddle Period that ends on the Closing
Date.

4

 

     “Richland” means Richland State Bank and Richland Loan Processing Center, Inc.

     “Richland Agreement” means that certain Private Loan Program Loan Origination and Sale
Agreement by and among Richland State Bank, Richland Loan Processing Center, Inc., Seller (formerly
known as UICI), and UCF2, dated July 28, 2005.

     “Securitization Documents” means those documents set forth on Schedule 1.1(c).

     “Straddle Period” means any taxable period that begins on or before the Closing Date
and ends after the Closing Date.

     “Tax” or “Taxes” means all taxes, whether imposed in the United States or
elsewhere and whether imposed by a local, municipal, state, federal, foreign or other body or
instrumentality, including, without limitation, income, sales, use, gross receipts, excise,
payroll, withholding, unemployment, social security, stock, franchise, stamp, minimum, estimated,
value added and premium taxes, together with any related interest, penalties and additional amounts
imposed by any Taxing Authority.

     “Taxing Authority” means the IRS and any other Governmental Authority responsible for
the administration of any Tax.

     “Tax Return” means any report, return, declaration, claim for refund or other
statement or filing, including any schedule or attachment thereto, and any amendment thereof, filed
or required to be filed with any Taxing Authority in connection with the determination, assessment
or collection of any Tax or any Tax information report or statement.

     “UFC2” means UICI Funding Corp. 2, a Delaware corporation.

     “UFC2 Loans” means all of the student loans held by UFC2 on the Closing Date.

     1.2 Terms Defined Elsewhere in this Agreement. For purposes of this Agreement, the
following terms have meanings set forth in the sections indicated:

	 	 	 
	Term	 	Section
	Agreement
	 	Preamble
	Allocation Statement
	 	10.6
	Alternative Arrangements
	 	7.8(b)
	Arrangement Notice
	 	7.8(b)
	CFLD Common Stock
	 	5.3(a)
	Claim
	 	9.4
	Claims Notice
	 	9.4
	Closing
	 	4.1

5

 

	 	 	 
	Term	 	Section
	Company Contracts
	 	5.11
	Confidential Information
	 	11.7
	Controlling Party
	 	10.2(d)
	Dispute Notice
	 	3.3(a)
	Election Request
	 	10.10(a)
	Enforceability Exception
	 	5.1(b)
	Equity Interests
	 	Recitals
	Excess Program Loans
	 	7.8(b)
	Estimated Closing Amount
	 	3.1
	Estimated Closing Amount Statement
	 	3.1
	Final Closing Amount
	 	3.3(c)
	Final Closing Amount Statement
	 	3.3(a)
	Financial Statements
	 	5.9
	FIRPTA Affidavit
	 	10.8
	Modified Richland Arrangements
	 	7.8(b)
	Non-Controlling Party
	 	10.2(d)
	Notice Contracts
	 	7.9
	Purchase Price
	 	3.1
	Purchaser
	 	Preamble
	Quarterly Financial Statements
	 	7.11(a)
	Section 338 Allocation Schedule
	 	10.10(b)
	Section 338(h)(10) Elections
	 	10.10(a)
	Seller
	 	Preamble
	Survival Period
	 	9.1(a)
	Transferred Company Assets
	 	5.7
	UFC2 50% Loan Amount
	 	3.1
	UFC2 100% Loan Amount
	 	3.1
	UFC2 Common Stock
	 	5.3(a)
	UFC2 Loan Amount
	 	3.1

     1.3 Other Definitional and Interpretive Matters. Unless otherwise expressly provided,
for purposes of this Agreement, the following rules of interpretation shall apply:

     (a) Calculation of Time Period. When calculating the period of time before which,
within which or following which any act is to be done or step taken pursuant to this Agreement, the
date that is the reference date in calculating such period shall be excluded. If the last day of
such period is a non-Business Day, the period in question shall end on the next succeeding Business
Day.

     (b) Dollars. Any reference in this Agreement to $ shall mean U.S. dollars.

6

 

     (c) Exhibits/Schedules. The Exhibits and Schedules to this Agreement are hereby
incorporated and made a part hereof and are an integral part of this Agreement. All Exhibits and
Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this
Agreement as if set forth in full herein. Any matter or item disclosed on one Schedule shall be
deemed to have been disclosed on each other Schedule for which it is readily apparent that the
information in such Schedule is responsive notwithstanding any reference to a specific Schedule.
Disclosure of any item on any Schedule shall not constitute an admission or indication that such
item or matter is material or would have a Material Adverse Effect. No disclosure on a Schedule
relating to (i) a possible breach or violation of any contract, Applicable Law or Order shall be
construed as an admission or indication that breach or violation exists or has actually occurred or
(ii) a required consent shall be construed as an admission or indication that such consent is
required in connection with the transactions contemplated hereby. Any capitalized terms used in
any Schedule or Exhibit but not otherwise defined therein shall be defined as set forth in this
Agreement.

     (d) Gender and Number. Any reference in this Agreement to gender shall include all
genders, and words imparting the singular number only shall include the plural and vice versa.

     (e) Headings. The provision of a Table of Contents, the division of this Agreement
into Articles, Sections and other subdivisions and the insertion of headings are for convenience of
reference only and shall not affect or be utilized in construing or interpreting this Agreement.
All references in this Agreement to any “Section” are to the corresponding Section of this
Agreement unless otherwise specified.

     (f) Herein. The words such as “herein,” “hereinafter,”
“hereof,” and “hereunder” refer to this Agreement as a whole and not merely to a
subdivision in which such words appear unless the context otherwise requires.

     (g) Including. The word “including” or any variation thereof means (unless
the context of its usage otherwise requires) “including, without limitation” and shall not
be construed to limit any general statement that it follows to the specific or similar items or
matters immediately following it.

     (h) Reflected On or Set Forth In. An item arising with respect to a specific
representation or warranty shall be deemed to be “reflected on” or “set forth in” a
balance sheet or financial statements, to the extent any such phrase appears in such representation
or warranty, if (a) there is a reserve, accrual or other similar item underlying a number on such
balance sheet or financial statements that is specifically related to the subject matter of such
representation, (b) such item is otherwise specifically set forth on the balance sheet or financial
statements or (c) such item is reflected on the balance sheet or financial statements and is
specifically set forth in the notes thereto.

     (i) Jointly Drafted. The parties hereto have participated jointly in the negotiation
and drafting of this Agreement and, in the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as jointly drafted by the

7

 

parties hereto
and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of
the authorship of any provision of this Agreement.

ARTICLE II

SALE AND PURCHASE OF EQUITY INTERESTS

     2.1 Sale and Purchase of Equity Interests. Upon the terms and subject to the
conditions contained herein, on the Closing Date, Seller agrees to sell to Purchaser, and Purchaser
agrees to purchase from Seller, the Equity Interests.

ARTICLE III

PURCHASE PRICE

     3.1 Purchase Price. The aggregate consideration for the Equity Interests shall be an
amount equal to (a) the aggregate amount of all Cash held by UFC2 as of the Closing, plus (b) 50%
of the aggregate amount of outstanding principal and accrued and unpaid interest under (i) the UFC2
Loans reflected on the June 30, 2008 balance sheet of UFC2 and (ii) any UFC2 Loans not reflected on
the June 30, 2008 balance sheet of UFC2 that were issued by Richland under the Richland Agreement
on or before May 31, 2008 (the amount described in clauses (a) and (b) being
referred to herein as the “UFC2 50% Loan Amount”), plus (c) 100% of the aggregate amount of
outstanding principal and accrued and unpaid interest under the UFC2 Loans not reflected on the
June 30, 2008 balance sheet of UFC2, excluding any UFC2 Loans included in (b)(ii) above
(the “UFC2 100% Loan Amount”, together with the UFC2 50% Loan Amount, the “UFC2 Loan
Amount”), minus (d) the Excess Liabilities, if any (collectively, the “Purchase
Price”). Seller shall deliver a statement (the “Estimated 
Closing Amount Statement”), which shall set forth in reasonable detail its calculation
of the Purchase Price (the “Estimated Closing Amount”) to Purchaser no later than three (3)
Business Days prior to the Closing Date.

     3.2 Closing Date Payment. On the Closing Date, Purchaser shall pay to Seller the
Estimated Closing Amount, which shall be paid by wire transfer of immediately available United
States funds into an account designated by Seller at least three (3) Business Days prior to the
Closing Date.

     3.3 Purchase Price Adjustment.

     (a) No later than sixty (60) days following the Closing Date, Seller shall prepare and deliver
to Purchaser a statement (the “Final Closing Amount Statement”) setting forth Seller’s good
faith calculation of the final Purchase Price, together with a certification of the chief
accounting officer of Seller certifying that the Final Closing Amount Statement was prepared (i)
based on the books and records of the Companies and (ii) in a manner consistent with GAAP and the
methodologies utilized in preparing the Estimated Closing Amount Statement. If Purchaser disagrees
with Seller’s Final Closing Amount Statement, Purchaser may, within sixty (60) days after the

8

 

Closing, deliver a notice to Seller stating that Purchaser disagrees with such calculation and
specifying in reasonable detail those items or amounts as to which Purchaser disagrees and the
reasons therefor in reasonable detail (a “Dispute Notice”). In connection with Purchaser’s
review of the Final Closing Amount Statement and preparation of the Dispute Notice, Seller shall
provide Purchaser and its representatives with reasonable access, during normal business hours and
upon reasonable notice, to all relevant work papers, schedules, memoranda and other financial
information prepared by Seller or its representatives in connection with its preparation of the
Final Closing Amount Statement, and Seller shall, and shall cause any of its representatives to,
cooperate reasonably with Purchaser and its representatives in connection therewith and provide
timely responses to requests for information from Purchaser and its representatives.

     (b) If Purchaser delivers a Dispute Notice to Seller, Purchaser and Seller shall cooperate in
good faith to resolve such dispute as promptly as practicable and, upon such resolution, any
adjustments to the calculation of any amount contained in the Final Closing Amount Statement shall
be made in accordance with the agreement of Purchaser and Seller. If Purchaser and Seller are
unable to resolve any such dispute within sixty (60) days (or such longer period as Purchaser and
Seller shall mutually agree in writing) of Purchaser’s delivery of such Dispute Notice, such
dispute shall be resolved by the Independent Accountant, and such determination by the Independent
Accountant shall be final and binding on the parties; provided that Purchaser and Seller
shall submit to the Independent Accountant statements with respect to their respective positions on
disputed issues and will cooperate with the Independent Accountant by promptly providing any
requested information. Any expenses relating to the engagement of the Independent Accountant in
respect of its services pursuant to this Section 3.3(b) shall be
shared fifty percent (50%) by Purchaser and fifty percent (50%) by Seller. The Independent
Accountant shall be instructed to use reasonable best efforts to perform its services within thirty
(30) days of submission by Purchaser and Seller of their respective statements with respect to the
disputes and, in any case, as promptly as practicable after such submission.

     (c) If the Final Closing Amount exceeds the Estimated Closing Amount, Purchaser shall pay to
Seller the amount of such excess, as an adjustment to the Purchase Price, in the manner provided in
Section 3.3(d). If the Estimated Closing Amount exceeds the Final Closing Amount, Seller
shall pay to Purchaser the amount of such excess, as an adjustment to the Purchase Price, in the
manner provided in Section 3.3(d). “Final Closing Amount”, for purposes of this
Section 3.3, shall mean the Purchase Price (i) set forth in the Final Closing Amount
Statement if no Dispute Notice is delivered by Purchaser pursuant to Section 3.3(a), (ii)
as agreed by Seller and Purchaser pursuant to Section 3.3(b) or (iii) in the absence of
such agreement, as shown in the Independent Accountant’s calculation delivered pursuant to
Section 3.3(b).

     (d) Any payment pursuant to Section 3.3(c) shall be made within five (5) Business Days
after the Final Closing Amount has been determined pursuant to Section 3.3(c) by wire
transfer of immediately available funds to the account of Seller or Purchaser, as applicable, as
may be designated in writing by such party.

9

 

ARTICLE IV

CLOSING AND TERMINATION

     4.1 Closing Date. The closing of the sale and purchase of the Equity Interests
provided for in Section 2.1 (the “Closing”) shall take place at the offices of
Seller located in North Richland Hills, Texas, unless the parties agree to close by facsimile or
electronic transmission and wire transfer on the Closing Date; provided, that the
satisfaction or waiver of the conditions set forth in Article VIII (other than conditions
that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver
of those conditions at such time) has occurred, unless another time, date or place is agreed to in
writing by the parties hereto.

     4.2 Termination of Agreement. This Agreement may be terminated prior to the Closing
as follows:

     (a) at the election of Seller or Purchaser upon the termination of the Master Agreement;
provided, however, that the right to terminate this Agreement under this
Section 4.2(a) shall not be available to a party if the termination of the Master Agreement
was primarily due to the failure of such party to perform any of its obligations under the Master
Agreement;

     (b) by mutual written consent of Seller and Purchaser; or

     (c) by Seller or Purchaser if there shall be in effect a final nonappealable Order of a
Governmental Authority of competent jurisdiction restraining, enjoining or otherwise prohibiting
the consummation of the transactions contemplated hereby; it being agreed that the parties hereto
shall promptly appeal any adverse determination which is not nonappealable (and pursue such appeal
with reasonable diligence); provided, however, that the right to terminate this
Agreement under this Section 4.2(c) shall not be available to a party if such Order was
primarily due to the failure of such party to perform any of its obligations under this Agreement;

     (d) at the election of Seller or Purchaser if the Closing has not occurred by March 31, 2009,
unless the failure of the Closing to occur by such date arises out of, or results from, a material
breach of this Agreement by the party seeking to terminate this Agreement;

     (e) by Purchaser at any time prior to Closing for material breach by Seller of any of the
terms or conditions of this Agreement or for failure of any condition to Closing, the satisfaction
of which is solely within the control of Seller; provided, however, that Seller
shall have twenty (20) Business Days to cure such breach or satisfy such condition after receipt of
proper written notice by Seller from Purchaser;

     (f) by Seller at any time prior to Closing for material breach by Purchaser of any of the
terms or conditions of this Agreement or for failure of any condition to Closing, the satisfaction
of which is solely within Purchaser’s control; provided, however, that Purchaser
shall have twenty (20) Business Days to cure such

10

 

breach or satisfy such condition after receipt of
proper written notice by Purchaser from Seller; or

     (g) by Purchaser at least two (2) Business Days prior to Closing and after delivery by Seller
to Purchaser of an Arrangement Notice which states that the parties were unable to either (i)
obtain Richland’s consent to the Modified Richland Arrangements or (ii) enter into an Alternative
Arrangement effective on or prior to the Closing Date; provided, however, that if
Purchaser terminates this Agreement pursuant to this Section 4.2(g), Purchaser shall still
be obligated to fund student loans in accordance with the terms of the Policies (as defined in the
Coinsurance Agreement) and pursuant to the terms of Sections 1.22 and 9.18 of the Coinsurance
Agreement (as limited by Section 1.16(h) of the Coinsurance Agreement).

     4.3 Procedure Upon Termination. In the event of termination and abandonment by
Purchaser or Seller, or both, pursuant to Section 4.2 hereof, written notice thereof shall
forthwith be given to the other party or parties, and this Agreement shall terminate, and the
purchase of the Equity Interests and assignment and assumption of the Assigned Contracts hereunder
shall be abandoned, without further action by Purchaser or Seller.

     4.4 Effect of Termination. In the event that this Agreement is validly terminated in
accordance with Section 4.2(a), (b), (c), (d), or (g), this
Agreement will forthwith become null and void, and there will be no liability on the part of
Purchaser or Seller to the other hereunder; provided, however, that in the event
that this Agreement is validly terminated in accordance with Section 4.2(g), Purchaser
shall be obligated to fund student loans issued in accordance with the terms of the Policies as set
forth in such subsection. In the event of termination under Section 4.2(e) or (f),
the parties shall be deemed to have reserved all of their respective rights and remedies hereunder
and at law or in equity.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF SELLER

     Seller hereby represents and warrants to Purchaser that:

     5.1 Seller Existence and Authority.

     (a) Seller is a single member limited liability company duly formed, existing and in good
standing under the laws of the State of Delaware, whose sole member is HealthMarkets, Inc., a
Delaware corporation, and has all requisite limited liability company power and authority to own
lease and operate its assets, properties and business and to carry on the operation of its business
as it is now being conducted. Seller is duly qualified to do business as a foreign limited
liability company and is in good standing in each jurisdiction where such qualification is
necessary for its conduct of its business, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, have a Material Adverse Effect.

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          (b) Seller has all requisite limited liability company power and authority to execute, deliver
and perform its obligations under this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Seller of this Agreement and the consummation
by Seller of the transactions contemplated to be performed by Seller hereby have been duly
authorized by all necessary limited liability company action on the part of Seller. This Agreement
has been duly and validly executed and delivered to Purchaser by Seller and assuming due
authorization, execution, delivery and performance by the other parties hereto, constitutes, when
executed and delivered by Seller (assuming due authorization, execution and delivery by the other
parties thereto) shall constitute, solely to the extent of Seller’s obligations set forth herein,
the valid and legally binding obligation of Seller, enforceable against Seller in accordance with
its terms except (i) as the same may be limited by applicable bankruptcy, insolvency,
rehabilitation, moratorium or similar laws of general application relating to or affecting
creditors’ rights, including, without limitation, the effect of statutory or other laws regarding
fraudulent conveyances and preferential transfers, and (ii) for the limitations imposed by general
principles of equity (the “Enforceability Exception”).

          (c) The execution, delivery and performance by Seller of this Agreement and the consummation
by Seller of the transactions contemplated hereby do not and will not (1) subject to obtaining the
consents, approvals and authorizations set forth in Schedule 5.1(c), conflict with or
result in any breach or violation of or any default under (or give rise to any right of
termination, cancellation or acceleration under) (i) the bylaws or certificate of incorporation,
memorandum of association or similar organizational documents of Seller or any Company or (ii) any
note, bond, mortgage, indenture, lease, license, permit, agreement or other instrument or
obligation to which Seller or any Company is a party or by which Seller or any Company is or may be
bound, excluding from the foregoing immaterial breaches, violations or defaults; and (2) violate
any Applicable Law to which Seller or any Company is subject.

          (d) Except as set forth in Schedule 5.1(c), no consent, approval, non-disapproval,
authorization, ruling, order of, notice to, or registration with, any Governmental Authority or any
other Person is required on the part of Seller or any Company in connection with the execution and
delivery of this Agreement or the consummation by Seller, of the transactions contemplated hereby.

          5.2 Taxes. Except as set forth in Schedule 5.2:

          (a) Taxes and Tax Returns.

     (i) All Tax Returns required to be filed on or before the Closing Date by or on behalf
of any Company have been or will be timely filed with the appropriate Taxing Authority or
appropriate requests for extensions have been timely filed and any such extensions have
been granted and have not expired.

     (ii) Each such Tax Return was or will be when filed true, accurate and complete in all
material respects.

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     (iii) All Taxes (including estimated Taxes) of each of the Companies that have or will
become due before the Closing Date (after giving effect to applicable extensions) have been
or will be timely paid in full on or before the Closing Date or are properly reflected on
the Financial Statements.

     (iv) Each of the Companies has withheld and timely paid to the appropriate Taxing
Authority all Taxes required to be withheld and paid in connection with amounts due or
owing to any Person.

     (b) Audits.

     (i) All Taxes due with respect to any completed and settled audit, examination or
deficiency action with any Taxing Authority for which any of the Companies are or might
otherwise be liable have been paid in full.

     (ii) There is no audit, examination, deficiency or refund action pending with respect
to any Taxes for which any of the Companies are or might otherwise be liable, and no Taxing
Authority has given written notice of the commencement of any audit, examination or
deficiency action with respect to any such Taxes.

     (c) Procedural Issues.

     (i) There are no liens for Taxes upon the assets of any of the Companies other than
for Taxes not yet due and payable.

     (ii) No written claim has been made by any Taxing Authority in the last three years in
a jurisdiction where any of the Companies does not file Tax Returns that it is or may be
subject to taxation in that jurisdiction.

     (iii) There are no outstanding commitments or agreements with any Taxing Authority
extending or waiving the statutory period of limitations applicable to any claim for, or
the period for the collection or assessment of, Taxes of any Company due for any taxable
period and no power of attorney is currently in force or has been requested with respect to
any matter relating to Taxes that could affect such Company following the Closing.

     (d) Additional Tax Representations.

     (i) None of the Companies is party to any formal or informal Tax-sharing, allocation,
indemnity or similar agreement or arrangement (whether written or unwritten) that will be
in effect following the Closing; and each Company is in compliance in all material respects
with respect to all backup withholding and information reporting requirements in the Code
and the regulations thereunder, including, but not limited to, the proper and timely filing
of all Internal Revenue Service forms.

     (ii) None of the Companies (A) is required to include in income any adjustment
pursuant to Section 481(a) of the Code (or analogous provisions of

13

 

state or local laws) in
its current or any future taxable period by reason of a change in accounting method, (B)
has knowledge that the Internal Revenue Service (or any other Taxing Authority) has
proposed in writing any such change in accounting method, or (C) has an application pending
with any Taxing Authority requesting permission for any change in accounting method.

     (iii) Each of the Companies has disclosed, or has had disclosed on its behalf, in its
federal income Tax Returns, all positions required by law to be disclosed therein by or on
behalf of such Company.

     (iv) None of the Companies has constituted a “distributing corporation” or a
“controlled corporation” (within the meaning of Section 355(a)(1)(A) of the
Code) in a distribution of shares qualifying for Tax-free treatment under Section 355
of the Code (A) in the two (2) years prior to the date of this Agreement or (B) in a
distribution that could otherwise constitute part of a “plan” or “series of related
transactions” (within the meaning of Section 355(e) of the Code), in conjunction with this
Agreement.

     (v) Since January 1, 2006, none of the Companies has agreed to, and is required to
make, any adjustment under Section 446(e) of the Code (or any analogous provisions of state
or local laws), has entered into any closing agreement pursuant to Section 7121 of the Code
or any other agreement with similar Tax effect, has requests for rulings, determinations or
advice pending with or before any Governmental Authority, or has received any such rulings
or determinations.

     (vi) Seller is not a foreign person within the meaning of Section 1445 of the Code.

     (vii) None of the Companies was a member of any consolidated, affiliated, combined or
unitary group for Tax purposes other than the current group or has any liability for the
Taxes of any Person under Treas. Reg. Section 1.1502-6 (or any similar provision of state,
local or foreign law), as a transferee or successor, by contract or operation of law or
otherwise, other than with respect to the current consolidated group.

     (viii) As of the date hereof, (A) none of the assets of any Company is “tax exempt use
property” within the meaning of Section 168(h) of the Code, (B) none of the Companies has
filed a consent under Section 341(f) of the Code (or corresponding provision of state,
local or foreign law) concerning collapsible corporations and (C) the sale of any Company
will not trigger deferred intercompany gains in such Company.

     (ix) NSA is disregarded as an entity separate from its owner for federal income tax
purposes.

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     5.3 Companies.

     (a) CFLD is a Delaware corporation duly organized, existing and in good standing under the
laws of the State of Delaware and has all requisite power and authority to own, lease and operate
its assets, properties and business and to carry on the operation of its business as it is now
being conducted. The authorized capital stock of CFLD consists of one thousand (1,000) shares of
common stock, $0.01 par value per share (the “CFLD Common Stock”), of which one thousand
(1,000) shares of CFLD Common Stock are validly issued and outstanding, fully paid and
non-assessable, all of which are held by Seller, free and clear of all liens. UFC2 is a Delaware
corporation duly organized, existing and in good standing under the laws of the State of Delaware
and has
all requisite power and authority to own, lease and operate its assets, properties and
business and to carry on the operation of its business as it is now being conducted. The
authorized capital stock of UFC2 consists of one hundred (100) shares of common stock, $0.01 par
value per share (the “UFC2 Common Stock”), of which ten (10) shares of UFC2 Common Stock
are validly issued and outstanding, fully paid and non-assessable, all of which are held by Seller,
free and clear of all liens. NSA is a Texas limited liability company duly organized, existing and
in good standing under the laws of the State of Texas and has all requisite power and authority to
own, lease and operate its assets, properties and business and to carry on the operation of its
business as it is now being conducted. All of the outstanding equity interests in NSA are held by
Seller free and clear of all liens.

     (b) There are no outstanding securities, obligations, rights, subscriptions, warrants,
options, phantom stock rights, or (except for this Agreement) other contracts or agreements of any
kind that give any Person the right to (a) purchase or otherwise receive or be issued any equity
interest in any of the Companies or any security or liability of any kind convertible into or
exchangeable for any equity interest in any of the Companies, or (b) receive any benefits or rights
similar to any rights enjoyed by or accruing to a holder of any equity interest in any of the
Companies, or any rights to participate in the equity, income, or election of directors or officers
of any of the Companies.

     5.4 Accuracy of Books and Records. The books and records of the Companies have been
maintained in accordance with Applicable Law and Seller’s and the Companies’ customary business
practices, including the maintenance of a commercially reasonable system of internal control. All
of the books and records of each Company are current, complete and accurate in all material
respects.

     5.5 Compliance with Applicable Law. (a) Each of the Companies is conducting, and
since January 1, 2006, has conducted its business in compliance in all material respects with
Applicable Law applicable to such Company; (b) no Company has committed any breach of any
Applicable Law that may reasonably be expected to result in a Material Adverse Effect; and (c)
since January 1, 2006, each Company has complied in all material respects with all requirements to
file reports with Governmental Bodies required to be filed by such Company under Applicable Law.

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     5.6 Litigation. Except as set forth on Schedule 5.6, there are no actions,
suits, investigations, arbitrations or proceedings pending or, to the Knowledge of Seller,
threatened against any of the Companies or any properties or rights thereof, by or before any
court, arbitrator or administrative or Governmental Authority. Except as set forth on
Schedule 5.6, since January 1, 2006, there has not been any action, suit, investigation,
arbitration or proceeding pending or, to the Knowledge of Seller, threatened against any Company or
any properties or rights thereof, by or before any court, arbitrator or administrative or
Governmental Authority.

     5.7 Title to Assets. Except as set forth on Schedule 5.7, each Company has
good and marketable title to all of the assets shown on the most recent balance sheet of such
Company included in the Financial Statements (the “Transferred Company Assets”), except for
assets disposed of in the ordinary course of business between the date hereof and the Closing Date.
Except as set forth on Schedule 5.7, none of the Transferred Company Assets is subject to
any lien. Except as set forth on Schedule 5.7, as of the Closing Date Purchaser and the
Companies, taken together and assuming the receipt of all of the consents set forth on Schedule
5.1(c), will own, possess, license, lease or have control of all tangible and intangible assets
and contractual rights necessary to conduct the business and operations of each of the Companies in
a manner consistent with the conduct of such business and operations as of the date hereof.

     5.8 Real Property. None of the Companies own or lease any real property.

     5.9 Financial Statements. Seller has made available to Purchaser copies of (i) the
unaudited consolidated balance sheets of CFLD, UFC2 and NSA as at December 31, 2007, and March 31,
2008, and the related unaudited consolidated statements of income of CFLD, UFC2 and NSA for the
periods then ended (such unaudited statements are referred to herein as the “Financial
Statements”). Except for the absence of footnote disclosures and as set forth on Schedule
5.9, the Financial Statements have been prepared in accordance with GAAP consistently applied
and present fairly in all material respects the financial position and results of operations of
CFLD, UFC2 and NSA as at the dates and for the periods indicated therein. Since December 31, 2007,
none of the Companies has made any distribution to Seller nor has any Company disposed of or
acquired any assets other than investment assets disposed of or acquired in the ordinary course of
business. Except as set forth in Schedule 5.9, none of the Companies has liabilities
that should be reflected in the Financial Statements, including, without limitation, contingent
liabilities required to be disclosed under GAAP, except for liabilities that were incurred after
March 31, 2008, in the ordinary course of business.

     5.10 Absence of Certain Changes. Except as set forth in Schedule 5.10, since
December 31, 2007, there has not been any event, occurrence or development which has had, or would
be reasonably expected to have, a Material Adverse Effect on any of the Companies. Except as set
forth in Schedule 5.10 and as otherwise contemplated hereby, since December 31, 2007, the
Companies have conducted their business in the ordinary course of business consistent with past
practice and have not taken any action that, if taken during the period from the date of this
Agreement through

16

 

the Closing without Purchaser’s consent, would be prohibited under Section
7.1(b) of this Agreement.

     5.11 Company Contracts. Schedule 5.11 contains an accurate and complete list
of each contract or agreement (a) to which any Company is a party, (b) by which any of the
Companies’ assets are bound or (c) to which Seller or any of its Affiliates (other than the
Companies) is a party that primarily relates to the operations of
the Companies (collectively, the “Company Contracts”). Schedule 5.11 and the
definition of the term “Company Contracts” exclude any and all student loans. True and correct
copies of the Company Contracts, including amendments thereto, have been made available or provided
to Purchaser. Each such contract is in full force and effect and enforceable against any Company,
as applicable, and no Company is in default under any of the Company Contracts and no party thereto
has received or provided written notice to or from the other party thereto of any termination or
cancellation thereof, and, to the Knowledge of Seller, no event has occurred that, with the passage
of time or the giving of notice (or both), would constitute a default by the Companies with
material consequences to the Companies, or would permit material modification, acceleration or
termination or cancellation thereof by the other parties thereto. Except as set forth on
Schedule 5.1(c), no notice to, or consent, approval or waiver is required from, any other
Person under the Company Contracts in connection with the consummation of the transactions
contemplated hereby.

     5.12 Employees. None of the Companies has any employees or any liability pursuant to
any “employee benefit plan” (as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended).

     5.13 Seller’s Brokers. Except for Merrill Lynch & Co. (for whose compensation Seller
shall be solely responsible), no broker or finder has acted directly or indirectly for Seller or
the Companies, nor has Seller or any of the Companies incurred any obligation to pay any brokerage
or finder’s fee or other commission in connection with this Agreement and the transactions
contemplated hereby.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF PURCHASER

     Purchaser hereby represents and warrants to Seller that:

     6.1 Purchaser’s Corporate Existence and Authority.

     (a) Purchaser is a stock life insurance company duly organized, existing and in good standing
under the laws of the State of Minnesota and is duly qualified and possesses all licenses, permits,
approvals, authorizations and consents necessary to transact life, accident, and health insurance
and/or reinsurance on an authorized basis, and possesses a certificate of authority, permit or
license (or is exempted from such requirements) to act as a third party administrator in each of
the jurisdictions in the United States shown on Schedule 5.1(a) to the Master Agreement. All

17

 

of such licenses, permits, approvals, authorizations and consents are valid and in full force and
effect, except where the failure of which to be in full force and effect would not reasonably be
expected to cause a material adverse effect on Purchaser. Purchaser is duly qualified to do
business as a foreign corporation and it is in good standing in each jurisdiction where such
qualification is necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate, have a material
adverse effect on Purchaser.

     (b) Purchaser has all requisite corporate power and authority to execute, deliver and perform
its obligations under this Agreement, and to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement and the consummation by Purchaser of the
transactions contemplated hereby have been duly authorized by all necessary corporate action on the
part of Purchaser. This Agreement has been duly and validly executed and delivered to the
Companies and Seller by Purchaser and assuming due authorization, execution, delivery and
performance by the other parties hereto, constitutes, when executed and delivered by Purchaser
(assuming due authorization, execution and delivery by the other parties thereto) shall constitute,
the valid and legally binding obligation of Purchaser, enforceable in accordance with its terms
except as the same may be limited by the Enforceability Exception.

     (c) The execution, delivery and performance by Purchaser of this Agreement does not and will
not (i) conflict with or result in any breach or violation of or any default under (or give rise to
any right of termination, cancellation or acceleration under) (A) the bylaws or certificate of
incorporation of Purchaser or (B) any note, bond, mortgage, indenture, lease, license, permit,
agreement or other instrument or obligation to which Purchaser is a party or by which Purchaser is
or may be bound, excluding from the foregoing such breaches, violations or defaults that would not
have a material adverse effect on Purchaser; and (ii) violate any Applicable Law to which Purchaser
is subject.

     (d) No consent, approval, non-disapproval, authorization, ruling, order of, notice to, or
registration with, any Governmental Authority or any other Person is required on the part of
Purchaser in connection with the execution and delivery of this Agreement or the consummation by
Purchaser, of the transactions contemplated hereby.

     6.2 Availability of Funds; Financial Impact. At Closing, Purchaser will have
sufficient cash or immediately available funds necessary to enable it to consummate the
transactions contemplated by this Agreement.

     6.3 Absence of Certain Changes. Since December 31, 2007, there has not been any
event, occurrence or development which has had, or would be reasonably expected to have, a material
adverse effect on Purchaser. Since December 31, 2007, Purchaser has conducted its business in the
ordinary course consistent with past practice.

     6.4 Compliance with Applicable Law. Purchaser is (and, after giving effect to the
transactions contemplated by this Agreement, Purchaser will be) in compliance with all Applicable
Law with respect to the conduct of its business and

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operations (including capital requirements),
except where the failure to so comply would not reasonably be expected to have a material adverse
effect on Purchaser.

     6.5 Litigation Against Purchaser. There are no actions, suits, investigations or
proceedings pending or (to the knowledge of Purchaser) threatened against Purchaser at law or in
equity, in, before, or by any Person, that individually or in the aggregate have or would
reasonably be expected to have a material adverse effect on Purchaser.

     6.6 Purchaser’s Brokers. Except for Fletcher Financial (for whose compensation
Purchaser shall be solely responsible), no broker or finder has acted directly or indirectly for
Purchaser, nor has Purchaser incurred any obligation to pay any brokerage or finder’s fee or other
commission in connection with this Agreement and the transactions contemplated hereby.

     6.7 Non-Reliance. Purchaser is an informed and sophisticated purchaser, and has
undertaken such investigation with respect to the business of the Companies as it has deemed
necessary to make an informed decision with respect to the execution, delivery and performance of
this Agreement.

     6.8 Investment Intent. Purchaser is acquiring the Equity Interests for its own
account and not with a view to their distribution within the meaning of Section 2(11) of the
Securities Act of 1933, as amended.

     6.9 No Knowledge of Material Adverse Effect. As of the date hereof, to the knowledge
of Purchaser, no material adverse effect exists as to the ability of Purchaser to enter into this
Agreement and consummate the transactions contemplated hereby.

ARTICLE VII

COVENANTS

     7.1 Maintenance of Business by the Companies.

     (a) From the date of this Agreement until the Closing Date, Seller shall cause each of the
Companies to: (i) carry on its business in the ordinary course and consistent with past practice,
using reasonable efforts, equivalent in all material respects to those business methods and
practices historically followed by the respective Company; and (ii) maintain all licenses,
qualifications and authorizations of each Company to do business in each jurisdiction in which it
is presently licensed, qualified or authorized.

     (b) Without limiting the generality of Section 7.1(a), during the period from the date
of this Agreement to the Closing Date, to the extent it affects any Company and except as set forth
on Schedule 7.1 or as expressly permitted by this Agreement, Seller shall not, and shall
cause the Companies not to, without the prior written consent of Purchaser:

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     (i) (A) reallocate any assets currently owned, used or held for use by any Company to
any other line of business, unit or division of either Seller or any Affiliate of Seller,
(B) distribute or dispose of any asset of the Companies; provided, however,
that the provisions of this Section 7.1(b)(i) shall not apply to the acquisition or
disposition of assets by any Company in the ordinary course of business consistent with
past practice;

     (ii) (A) enter into, modify or make any substantial change to any Company Contract or
(B) acquire any assets for any Company the cost of which in the aggregate exceeds $50,000;
provided, however, that the provisions of this Section 7.1(b)(ii)
shall not apply to the acquisition or disposition of Cash Equivalents by any Company in the
ordinary course of business consistent with past practice;

     (iii) (A) permit or allow any of the assets of the Companies to become subject to any
lien other than Permitted Exceptions, or (B) waive any claims or rights relating to any
Company, except in the ordinary course of business consistent with past practices;

     (iv) with respect to any Company, except (A) as set forth on Schedule 7.1 and
(B) pursuant to the agreements set forth on Schedule 7.10, (1) pay any dividend or
make any distribution with respect to its stock, or split, combine, reclassify or otherwise
amend the terms of such stock, or make any direct or indirect redemption, purchase or other
acquisition of shares of such stock, or (2) make any payment to Seller or any Affiliate of
Seller;

     (v) with respect to any Company, (A) issue any equity securities (including, but not
limited to, additional shares of its authorized but not issued capital stock) or grant any
options, warrants, or other rights to purchase or obtain any of its equity securities or
issue, sell, pledge or otherwise dispose of any of its equity securities, (B) make any loan
or advance under any loan to or guarantee any obligation of any Person, or (C) issue any
note, bond, or other debt security, or create, incur, assume, refinance, or guarantee any
indebtedness or any material capitalized lease obligation;

     (vi) maintain or cause any Company to maintain its books and records other than in the
same manner and with the same care that such books and records have been maintained prior
to the execution of this Agreement;

     (vii) request any ruling from, or enter into any agreement with, any Governmental
Authority with respect to any Company, insofar as such ruling or agreement relates to Taxes
for which any Company may be liable;

     (viii) with respect to any Company, (A) make or terminate any Tax election or take any
Tax Return position inconsistent with past practices, or (B)
authorize or effect any amendment to or change its certificate of incorporation,

20

 

memorandum
of association or other similar organizational documents in any
respect;

     (ix) make any change in the historical practices in the timing of its purchase of
student loans under the Richland Agreement;

     (x) undertake any action that would cause any of the representations and warranties
contained in Section 5.10 to be untrue; or

     (xi) agree in writing or otherwise to take any of the actions described above in this
Section 7.1(b).

          7.2 Continued Access to Information by Seller. From the Closing Date until seven (7)
years after the Closing Date, Purchaser will give Seller reasonable access during Purchaser’s
regular business hours upon reasonable advance notice and under reasonable circumstances and shall
be subject to restrictions under applicable Law to books and records transferred to Purchaser to
the extent necessary for the preparation of financial statements, regulatory filings or Tax returns
of Seller or its Affiliates in respect of periods prior to Closing, or in connection with any Legal
Proceedings. Seller shall be entitled, at its sole cost and expense, to make copies of the books
and records to which they are entitled to access pursuant to this Section 7.2.

          7.3 Access Prior to Closing. Subject to Section 11.7 hereof, prior to
Closing, upon reasonable prior written notice, Seller shall cause its officers, managers,
directors, employees, auditors and other agents to afford the officers, managers, directors,
employees, auditors and other agents of Purchaser reasonable access during normal business hours to
the officers, directors, employees, subcontractors, agents, properties, offices and other
facilities of the Companies and their books and records, and shall furnish Purchaser with such
financial, operating and other data and information with respect to the business of the Companies,
as Purchaser, through its officers, employees, subcontractors or agents, may reasonably request.
In exercising its rights hereunder, Purchaser shall conduct itself so as not to unreasonably
interfere in the conduct of the business of the Companies prior to Closing. Purchaser and Seller
shall undertake measures reasonably designed to preserve any relevant privilege or confidentiality
obligations that might otherwise be lost or breached in connection with such access.

          7.4 Filings, Consents and Approvals. The parties shall cooperate and use commercially
reasonable efforts to obtain all approvals and consents to the transactions contemplated by this
Agreement, including consents to the assignment of the Assigned Contracts and the consents of the
third parties set forth on Schedule 5.1(c); provided that neither Purchaser nor
Seller shall bear any cost or be required to undertake any additional obligation, risk or
arrangement in connection with obtaining such consents. Except in connection with the Modified
Richland Arrangements or an Alternative Arrangement, in the event and to the extent that the
parties are unable to
obtain any required approval, modification or consent of one or more Persons to any such
consents, (i) Seller shall use commercially reasonable efforts in cooperation with Purchaser to (a)
cause to be provided to Purchaser the intended benefits of any such

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agreement or modification,
(b) cooperate in any arrangement, reasonable and lawful as to Seller and Purchaser, designed to
provide such benefits to Purchaser and (c) enforce for the account of Purchaser any rights of the
Seller or its Affiliates arising from such agreements, including the right to elect to terminate in
accordance with the terms thereof on the advice of Purchaser, and (ii) Purchaser shall use
commercially reasonable efforts to perform the obligations of Seller and its Affiliates arising
under such agreements and licenses, to the extent that, by reason of the transactions consummated
pursuant to this Agreement or otherwise, Purchaser is placed in the same position as Seller or its
Affiliates under such agreements, as intended to be modified. Following Closing, Seller shall
continue to use commercially reasonable efforts to obtain such approvals, consents, and
modifications and if and when any such approval, consent, or modification shall be obtained or such
agreement or license shall otherwise become assignable or modified, Seller and its Affiliates shall
promptly assign, and Purchaser shall assume, all of the rights and obligations thereunder.

     7.5 Conduct Pending Closing. From the date of this Agreement to the Closing Date, (a)
Seller shall, and shall cause the Companies to, use their best efforts to conduct their affairs in
such a manner so that, except as otherwise contemplated or permitted by this Agreement, the
representations and warranties of Seller contained in Article V hereof shall continue to be
true and correct in all material respects on and as of the Closing Date as if made on and as of the
Closing Date (unless such representations and warranties relate to a specified date); (b) Purchaser
shall use its best efforts to conduct its affairs in such a manner so that, except as otherwise
contemplated or permitted by this Agreement, the representations and warranties of Purchaser
contained in Article VI hereof shall continue to be true and correct in all material
respects on and as of the Closing Date as if made on and as of the Closing Date (unless such
representations and warranties relate to a specified date); (c) Seller shall notify Purchaser
promptly of any event, condition or circumstance which, if existing or known on the date hereof,
would have been required to be set forth in any schedule or disclosed pursuant to this Agreement or
of any fact which, if existing or known on the date hereof, would have made any of the
representations of such party contained herein untrue in any material respect; and (d) Purchaser
shall notify Seller promptly of any event, condition or circumstance which, if existing or known on
the date hereof, would have been required to be set forth in any schedule or disclosed pursuant to
this Agreement or of any fact which, if existing or known on the date hereof, would have made any
of the representations of Purchaser contained herein untrue in any material respect. No such
information shall impact any representation or warranty of the party disclosing such information in
connection with any breach of any representation or warranty; provided that a breach of
this Section 7.5 shall not be considered for purposes of determining the satisfaction of
the closing conditions set forth in Article VIII or give rise to a right of termination
under Article IV if the underlying breach or breaches with respect to which the other party
failed to give notice would not result in the failure of the closing conditions set forth in
Article VIII or would not result in the ability of such non-breaching Party to terminate
this Agreement under Article IV, as the case may be.

     7.6 Further Assurances. Subject to the terms and conditions of this Agreement, Seller
and Purchaser will use their best efforts to take, or cause to be taken,

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all actions or to do, or
cause to be done, all things or execute any documents reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement. On and after the
Closing Date, Seller and Purchaser will take all appropriate action and execute any documents,
instruments or conveyances of any kind which may be reasonably necessary or advisable to carry out
any of the provisions hereof.

     7.7 Expenses. Except as otherwise specifically provided in this Agreement, the
parties hereto shall each bear their own respective expenses incurred in connection with the
preparation, execution and performance of this Agreement, including without limitation all fees and
expenses of counsel, actuaries and accountants.

     7.8 Assignment of Assigned Contracts; Modification.

     (a) Subject to Section 7.4, at the Closing, Seller shall assign (or cause its
Affiliates to assign) to Purchaser all of Seller’s (or, if applicable, its Affiliates’) rights and
obligations in, to and under the Assigned Contracts pursuant to the Assignment and Assumption
Agreement and Seller and its Affiliates shall have no further obligations or liabilities with
respect to the Assigned Contracts.

     (b) The parties shall use commercially reasonable efforts to modify the Richland Agreement so
that (i) any obligations to purchase or service Excess Program Loans shall be the obligation of
Seller or any of its Affiliates (other than the Companies) and not of UFC2 and (ii) any obligations
to purchase and service Program Loans (as defined in the Richland Agreement) that are not Excess
Program Loans shall be the obligation of UFC2 and Purchaser or any of its Affiliates and not of
Seller or any of its Affiliates (other than the Companies) (as modified, the “Modified Richland
Arrangements”). The Modified Richland Arrangements shall be one three-party agreement or two
separate two-party agreements. “Excess Program Loans” means those Program Loans required
to be purchased pursuant to the Richland Agreement in excess of the first $10,000,000 in par value
of Program Loans not reflected as an asset on the June 30, 2008 balance sheet of UFC2. If the
parties are unable to obtain Richland’s consent to the Modified Richland Arrangements, the parties
shall use commercially reasonable efforts to enter into a loan origination and sale agreement with
a third party on terms substantially similar to those contained in the Richland Agreement, as if
modified as set forth in the preceding sentence (an “Alternative Arrangement”). No later
than five (5) Business Days prior to the Closing Date, Seller shall provide a notice to Purchaser
(the “Arrangement Notice”) stating whether or not (i) Seller has obtained Richland’s
consent
to the Modified Richland Arrangements or (ii) a third party has either entered into, or agreed
to enter into an Alternative Arrangement.

     7.9 Notice Contracts. As promptly as practicable after the Closing (and in no event
later than five (5) Business Days after the Closing), Seller shall provide notice to the other
parties to the contracts set forth on Schedule 7.9 (the “Notice Contracts”), that
all notices or copies thereof required to be given by such other parties to Seller pursuant to the
Notice Contracts shall no longer be given to Seller but shall instead be given to Purchaser.

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     7.10 Intercompany Balances, Accounts and Agreements. Seller and Purchaser hereby
agree that, except as provided on Schedule 7.10, all intercompany balances, accounts and
agreements between the Companies on the one hand, and Seller and its Affiliates on the other hand,
shall be eliminated and terminated, without any payment by any Company, and, after the Closing
Date, no Company shall be bound thereby or have any liability thereunder. Without limiting the
generality of the foregoing sentence, any amount payable under Seller’s line of credit with UFC2
(the outstanding balance of which was reflected on UFC2’s March 31, 2008 balance sheet as
$5,345,442) will be eliminated, as of the Closing Date, without any payment of unpaid principal or
accrued and unpaid interest by UFC2 to Seller at any time following the date hereof.

     7.11 Quarterly Financial Information.

     (a) From the date hereof through the Closing Date, within forty-five (45) days following the
end of each fiscal quarter, Seller shall make available to Purchaser, the unaudited financial
statements of the Companies, as of the end of, and for, each fiscal quarter (collectively, the
“Quarterly Financial Statements”).

     (b) The Quarterly Financial Statements when completed, will present fairly, in all material
respects, the financial condition and results of operations of each Company, as of and for the
dates and periods therein specified, and will be prepared in accordance with GAAP, except as
expressly set forth within the subject financial statements, including the notes thereto (subject
to normal year-end audit adjustments).

ARTICLE VIII

CONDITIONS TO CLOSING

     8.1 Conditions to Purchaser’s Obligations to Close. The obligation of Purchaser to
close the transactions contemplated under this Agreement shall be subject to the fulfillment of the
following conditions, any one or more of which may be waived by Purchaser to the extent permitted
by law:

     (a) the representations and warranties of Seller contained in this Agreement shall be true and
correct in all material respects on the date hereof and as of the Closing Date;

     (b) Seller shall have performed and complied with all agreements, covenants, obligations and
conditions required by this Agreement to be so performed or complied with by Seller at or before
the Closing;

     (c) there shall be in effect no injunction, writ, preliminary restraining order or any order
of any nature directing that the transactions contemplated by this Agreement not be consummated as
herein provided;

     (d) Seller shall have delivered, or caused to be delivered, to Purchaser stock certificates
representing the Equity Interests, duly endorsed in blank or accompanied by stock transfer powers
executed by an authorized officer of Seller;

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     (e) the consents set forth on Schedule 5.1(c) shall have been obtained and copies
thereof shall have been delivered to Purchaser without any material conditions, restrictions or
limitations;

     (f) Purchaser and Seller shall have entered into and executed the Assignment and Assumption
Agreement in substantially the form of Exhibit A;

     (g) Purchaser and Seller shall concurrently close the transactions contemplated under the
Master Agreement or such closing shall have previously occurred;

     (h) Purchaser shall have received the written resignations of each of the directors and
officers of the Companies requested by Purchaser; and

     (i) Seller shall have executed and delivered to Purchaser a release, in substantially the form
of Exhibit B, of all claims against any Company by Seller or any Affiliate of Seller.

     8.2 Conditions to Seller’s Obligations to Close. The obligation of Seller to close
the transactions contemplated under this Agreement shall be subject to the fulfillment of the
following conditions, any one or more of which may be waived by Seller to the extent permitted by
law:

     (a) the representations and warranties of Purchaser contained in this Agreement shall be true
and correct in all material respects on the date hereof and as of the Closing Date;

     (b) Purchaser shall have performed and complied with all agreements, covenants, obligations
and conditions required by this Agreement to be so performed or complied with by Purchaser at or
before the Closing;

     (c) there shall be in effect no injunction, writ, preliminary restraining order or any order
of any nature directing that the transactions contemplated by this Agreement not be consummated as
herein provided;

     (d) Purchaser shall have delivered, or caused to be delivered, to Seller evidence of the wire
transfer referred to in Section 3.2;

     (e) the consents set forth on Schedule 5.1(c) shall have been obtained and copies
thereof shall have been delivered to Seller without any material conditions, restrictions or
limitations;

     (f) Purchaser and Seller shall have entered into and executed the Assignment and Assumption
Agreement in substantially the form of Exhibit A; and

     (g) Purchaser and Seller shall concurrently close the transactions contemplated under the
Master Agreement or such closing shall have previously occurred.

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ARTICLE IX

INDEMNIFICATION

          9.1 Survival of Representations and Warranties; Covenants.

          (a) The representations and warranties of the parties contained in this Agreement, any
certificate delivered pursuant hereto or any Seller Document, Companies Document or Purchaser
Document shall survive the Closing through and including the eighteen (18) month anniversary of the
Closing Date; provided, however, that the representations and warranties (i) of
Seller set forth in (A) Sections 5.1 (Seller Existence and Authority), 5.3
(Companies) and 5.13 (Seller’s Brokers) shall survive the Closing indefinitely and (B)
Section 5.2 (Taxes) shall survive until the expiration of the applicable statute of
limitations, and (ii) of Purchaser set forth in Sections 6.1 (Purchaser Existence and
Authority) and 6.6 (Purchaser’s Brokers) shall survive the Closing indefinitely (in each
case, the “Survival Period”); provided, however, that any obligations under
Sections 9.2(a) and 9.3(a) shall not terminate with respect to any Losses as to
which the Person to be indemnified shall have given notice (stating in reasonable detail the basis
of the claim for indemnification) to the indemnifying party in accordance with Section 9.4
before the termination of the applicable Survival Period.

          (b) All covenants and agreements made by the parties to the extent that the foregoing, by
their express terms, are to have effect or be performed after the Closing Date, shall survive the
Closing in accordance with their terms.

          9.2 Indemnification by Seller. Subject to Section 9.5, Seller hereby agrees
to indemnify and hold Purchaser, the Companies, and their respective directors, officers,
employees, Affiliates, stockholders, agents, attorneys, representatives, successors and permitted
assigns harmless from and against any and all Losses based upon or arising out of:

          (a) subject to Section 9.1(a), any breach of any of the representations or warranties
made by Seller in this Agreement as of the date hereof and at and as of the Closing Date (ignoring
for purposes of this Section 9.2(a), any materiality or Material Adverse Effect qualifier
therein);

          (b) the breach of any covenant on the part of Seller;

          (c) any existing or threatened action, suit or proceeding identified or required to be
identified on Schedule 5.6; and

          (d) (i) the breach by Seller, CFLD, UFC2 or any of their Affiliates of any Securitization
Documents prior to the Closing, (ii) the failure of Seller, CFLD, UFC2 or any of their Affiliates
to comply prior to the Closing with any requirement with respect to bankruptcy remoteness, legal
(not accounting or tax) corporate separateness or any requirement with respect to the activities of
CFLD or UFC2 contained in any of the
Securitization Documents or organizational documents of CFLD or UFC2 or (iii) the breach of
any Applicable Law by Seller, CFLD, UFC2 or any of their Affiliates prior to

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the Closing that has
an adverse effect on the financial condition of CFLD or UFC2 or the transactions contemplated by
the Securitization Documents. For purposes of this Section 9.2(d), Losses shall be reduced
(A) to the extent that such Losses can be satisfied with any available assets of CFLD, (B) by any
amounts recoverable by CFLD or Purchaser or any of its Affiliates pursuant to third-party
guarantees, and (C) by the adverse effect on such assets or guarantees resulting from any breaches,
failures or violations of the nature described in clauses (i) through (iii) of this
subsection (d) by Purchaser, the Companies or any of their Affiliates after the Closing.

          9.3 Indemnification by Purchaser. Subject to Section 9.7, Purchaser hereby
agrees to indemnify and hold Seller and their respective directors, officers, employees,
Affiliates, stockholders, agents, attorneys, representatives, successors and permitted assigns
harmless from and against any and all Losses based upon or arising out of:

          (a) subject to Section 9.1(a), any breach of any of the representations or warranties
made by Purchaser in this Agreement as of the date hereof and at and as of the Closing Date
(ignoring for purposes of this Section 9.3(a), any materiality or material adverse effect
qualifier therein); and

          (b) the breach of any covenant on the part of Purchaser.

          9.4 Notice of Claim. As soon as reasonably possible, but in no event subsequent to
thirty (30) days after receipt by an indemnified party hereunder of written notice of any demand,
claim or circumstances which, upon the lapse of time, would give rise to a claim or the
commencement (or threatened commencement) of any action, proceeding or investigation (a
“Claim”) that may result in a Loss, such indemnified party shall give notice thereof
(“Claims Notice”) to the indemnifying party. The Claims Notice shall describe the Claim in
reasonable detail, and shall indicate the amount (estimated, if necessary) of the Loss that has
been or may be suffered by such indemnified party. The failure of the indemnified party to give
the Claims Notice within in the time provided for herein shall not affect the indemnifying party’s
obligation under this Article IX except if, and then only to the extent that, such failure
materially prejudices the indemnifying party or its ability to defend such Claim.

          9.5 Opportunity to Defend. Within thirty (30) days of receipt of any Claims Notice
given pursuant to Section 9.4, the indemnifying party shall notify the indemnified party in
writing of the acceptance of or objection to the Claim and whether the indemnifying party will
indemnify the indemnified party and defend the same at the expense of the indemnifying party with
counsel selected by the indemnifying party (who shall be approved in writing by the indemnified
party, such approval not to be unreasonably withheld); provided that the indemnified party
shall at all times have the right to fully participate in the defense of the Claim at its own
expense or, as provided herein below, at the expense of the indemnifying party. Failure by the
indemnifying party to object in writing within such thirty (30) day period shall be deemed to be
acceptance of the Claim by the indemnifying party. In the event that the indemnifying party
objects to a Claim within said thirty (30) days or does not object but fails to meet its

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indemnification obligations hereunder, the indemnified party shall have the right, but not the
obligation, to undertake the defense, and to compromise and/or settle (in the exercise of
reasonable business judgment) the Claim, all at the risk and expense (including, without
limitation, reasonable attorneys fees and expenses) of the indemnifying party. Except as provided
in the preceding sentence, the indemnified party shall not compromise and/or settle any Claim
without the prior written consent of the indemnifying party, such consent not to be unreasonably
withheld. If the Claim is one that cannot by its nature be defended solely by the indemnifying
party, the indemnified party shall make available all information and assistance that the
indemnifying party may reasonably request, provided that any associated expense shall be paid by
the indemnifying party.

          9.6 Limitation on Indemnification. Neither party shall be entitled to indemnification
unless the party seeking indemnification makes claim therefore pursuant to the procedures set forth
in Section 9.4 of this Agreement.

          9.7 Certain Limitations on Indemnification. Notwithstanding the provisions of this
Article IX, Seller and Purchaser’s indemnification obligations for Losses under
Sections 9.2(a) and 9.3(a), respectively, shall be subject to the limitations set
forth in Sections 10.2.4 and 10.2.5 of the Master Agreement. Any Losses for which (i) Seller has
indemnification obligations pursuant to Section 9.2(a) shall subject to the limitations
contained in Section 10.2.4 of the Master Agreement (including the Min-Threshold (as defined in the
Master Agreement)) and shall be aggregated with any Losses for which Seller and/or the Ceding
Companies have indemnification obligations pursuant to Sections 10.2.1(i) or 10.2.2(i) of the
Master Agreement in determining whether the Indemnification Threshold (as defined in the Master
Agreement) or the thirty-five percent (35%) cap contained in Section 10.2.4 of the Master Agreement
has been met and (ii) Purchaser has indemnification obligations pursuant to Section 9.3(a)
shall subject to the limitations contained in Section 10.2.5 of the Master Agreement (including the
Min-Threshold) and shall be aggregated with any Losses for which Purchaser has indemnification
obligations pursuant to Section 10.2.3 of the Master Agreement in determining whether the
Indemnification Threshold or the thirty-five percent (35%) cap contained in Section 10.2.5 of the
Master Agreement has been met. The limitation contained in this Section 9.7 shall not
apply, expressly or by implication, to claims based on Sections 5.1, 5.2,
5.3, 5.13, 6.1, or 6.6.

          9.8 Exclusive Remedy. Except with respect to intentional fraud, from and after the
Closing, the sole and exclusive remedy for any breach or failure to be true and correct, or alleged
breach or failure to be true and correct, of any representation or warranty or any covenant or
agreement in this Agreement, shall be indemnification in accordance with this Article IX
and Article X. Notwithstanding the foregoing, this Section 9.8 shall not (a)
operate to interfere with or impede the operation of the provisions of Article III
providing for the resolution of certain disputes relating to the Purchase Price between the parties
and/or by an Independent Accountant or (b) limit the
rights of the parties to seek equitable remedies (including specific performance or injunctive
relief).

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ARTICLE X

TAX MATTERS

          10.1 Access to Tax Records; Cooperation. After the Closing, Seller and Purchaser
shall cooperate, and shall cause their respective Affiliates, officers, employees, agents, auditors
and representatives to cooperate, and will each afford (or cause the Companies and their respective
Affiliates to afford) to the other or to such other’s representatives or agents reasonable access
during normal business hours (on terms not unreasonably disruptive to the business, operations or
employees of the party or parties of which access is sought) to the records and all other data and
information relating to Taxes of the Companies pertaining to taxable periods ending on or prior to
the Closing Date (and any Straddle Period) for the purpose of obtaining information relating to
Taxes of the Companies, to the extent such cooperation or access is reasonably necessary: (a) to
prepare, complete and file any Tax Returns (including amended Tax Returns and claims for refunds or
credits); (b) to prosecute or defend on behalf of the Companies litigation or administrative
controversies controlled by Seller or Purchaser, as the case may be, under this Agreement; (c) to
comply with requests made by any Taxing Authority conducting a Tax audit, investigation or inquiry
relating to the Companies’ activities, assets or capital stock; and (d) to satisfy any other
request of Seller or Purchaser, as the case may be, that is reasonable under the circumstances.

          10.2 Liability for Taxes and Related Matters.

          (a) Seller’s Liability for Taxes. Seller shall be liable for (i) in the case of all
Taxes imposed on the Companies for taxable periods for which the applicable Tax Return is filed or
due to be filed on or before the Closing Date (taking into account extensions), all Taxes required
to be shown on such Tax Returns, (ii) in the case of all Taxes imposed on the Companies for any
other taxable period that ends on or before the Closing Date, except to the extent reflected in the
Financial Statements, all Taxes required to be shown on such Tax Returns, (iii) all Taxes
attributable to the Pre-Closing Period of any Straddle Period of the Companies, (iv) all Taxes
imposed on or attributable to Seller or its Affiliates (other than the Companies) for any taxable
period, and (v) all Taxes or Tax-related liabilities imposed on the Companies with respect to
taxable periods or portions thereof ending on or before the Closing Date as a consequence of the
Companies’ liability for the Taxes of any other Person under Treas. Reg. § 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by contract or operation
of law or otherwise.

          (b) Taxes for Short Taxable Year of Companies. To the extent such action is permitted
by applicable law, Seller and Purchaser shall close all relevant taxable periods of the Companies
as of the close of business on the Closing Date. In any case in which a taxable period of the
Companies cannot be closed as of the Closing Date, then, for purposes of this Agreement, the
determination of Taxes of the Companies for each of
the Pre-Closing Period and the Post-Closing Period of any resulting Straddle Period shall be
determined on the basis of an interim closing of the books of the Companies as of the close of
business on the Closing Date, except that exemptions, allowances, deductions or

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similar amounts
that are calculated on an annual basis, such as the deduction for depreciation, and Taxes that are
imposed ratably during a taxable period, shall be ratably apportioned on a per diem basis.

          (c) Preparation and Filing of Tax Returns.

     (i) Seller shall cause to be prepared and timely filed, taking into account all valid
extensions of time to file (A) all Tax Returns that are required to be filed by or with
respect to the Companies on an affiliated, consolidated, combined or unitary basis with
Seller or with at least one Affiliate of Seller that is not one of the Companies for
taxable periods beginning on or before the Closing Date, and (B) all Tax Returns of the
Companies (or Tax Returns in which the Companies are required to be included) that are due
to be filed (taking into account extensions) on or before the Closing Date. Seller
represents, warrants and covenants that (1) all such Tax Returns shall be prepared
consistent with past practices and shall be true, accurate and complete in all material
respects, and (2) it shall pay or cause to be paid to the appropriate Taxing Authority on a
timely basis the full amount of Taxes required to be shown on such Tax Returns. Seller
shall provide Purchaser a copy of each such Tax Return or portion thereof related to the
Companies, as filed.

     (ii) Except as provided in Section 10.2(c)(i), Purchaser shall cause to be
prepared and timely filed (taking into account extensions) (A) all Tax Returns of the
Companies that are due to be filed (taking into account extensions) after the Closing Date
and (B) all Tax Returns of the Companies for any Straddle Period. Purchaser represents,
warrants and covenants that (1) all such Tax Returns shall be prepared consistent with past
practices and shall be true, accurate and complete in all material respects, and (2) it
shall pay or cause to be paid to the appropriate Taxing Authority on a timely basis the
full amount of Taxes required to be shown on such Tax Returns. Purchaser shall provide to
Seller a copy of such Tax Return at least 30 days prior to the due date thereof for
Seller’s review and approval, which approval shall not be unreasonably withheld. Seller
shall provide Purchaser its comments within 20 days of the receipt of such Tax Returns.
Seller shall remit to Purchaser no later than 3 days prior to the filing of any such Tax
Return the portion of the Taxes shown on such Tax Return for which Seller is liable under
this Agreement.

     (iii) Seller shall have the right to file (or cause to be filed or require Purchaser
to file or cause to be filed) any amended Tax Return with respect to the Companies to the
extent that such amended Tax Return is (i) in respect of any taxable period or portion
thereof ending on or before the Closing Date and (ii) does not have an adverse effect on
the Companies or Purchaser for any taxable period or portion thereof beginning after the
Closing Date. Purchaser may only file amended Tax Returns in respect of any taxable period
or portion thereof
ending on or before the Closing Date, following receipt of Seller’s written approval,
which approval shall not be unreasonably withheld.

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          (d) Tax Proceedings.

     (i) Each party hereto shall provide the other with prompt notice of any Tax adjustment
proposed by any Taxing Authority or other claim which could give rise to a claim for
indemnification under Article IX or this Article X; provided that
the failure to provide such notice shall not affect any right to indemnification under this
Agreement except to the extent the party not receiving notice is materially prejudiced
thereby. If the resolution of any Tax proceeding would be grounds for indemnification
under this Agreement by the party not in control of the conduct of such Tax proceeding
pursuant to this Section 10.2(d) (the “Non-Controlling Party”), (A) the
party in control of such Tax proceeding (the “Controlling Party”) shall keep the
Non-Controlling Party fully informed of any proceedings, events and developments relating
to or in connection with such Tax Proceeding; (B) the Non-Controlling Party shall be
entitled to receive copies of all correspondence and documents relating to such Tax
proceeding; and (C) at its own cost and expense, the Non-Controlling Party shall have the
right to participate in (but not control) the conduct of such Tax proceeding.
Notwithstanding any such control (1) Purchaser shall not, and shall not permit the
Companies to, enter into any settlement or admit any fault or liability with respect to any
Tax proceeding that could give rise to a claim for indemnification hereunder without
Seller’s express written prior consent, which consent shall not be unreasonably withheld or
delayed, and (2) Seller shall not enter into any settlement or admit any fault or liability
that is or purports to be binding on the Companies for any taxable period that could have
any adverse effect on the liability of Purchaser or the Companies for Taxes for any period
(or portion thereof) beginning after the Closing Date, without Purchaser’s express written
prior consent, which consent shall not be unreasonably withheld or delayed.

     (ii) Seller shall have the sole right to control any Tax proceeding relating to
taxable periods of the Companies ending on or before the Closing Date, and to employ
counsel of its choice and expense.

     (iii) With respect to Straddle Periods, the parties shall jointly control any Tax
proceedings, and neither party shall admit any fault or liability, or settle or compromise
any matter, without the prior written consent of the other party, which consent shall not
be unreasonably withheld or delayed.

     (iv) Purchaser shall have the sole right to control any Tax proceeding relating to
taxable periods of the Companies beginning on or after the Closing Date.

          (e) Record Retention. Any tax books, records and information of or relating to the
Companies shall be retained by Seller and Purchaser until the expiration of the relevant statute of
limitations applicable to the Taxes at issue. If Seller or Purchaser
shall desire to dispose of any of such Tax books, records and information after the expiration
of such period, such disposing party shall, prior to such disposition, give the

31

 

other party a
reasonable opportunity, at the other party’s expense, to segregate and remove such books, records
and information as the other party may select.

          10.3 Survival of Obligations. The obligations of the parties set forth in this
Article X shall remain in effect until the later of (a) the closing of the period of the
relevant statute of limitations applicable to the Taxes at issue or (b) resolution of any claims
made pursuant to this Article X prior to such date.

          10.4 Tax Sharing Agreement. All Tax sharing agreements, Tax allocation agreements or
similar agreements relating to Taxes (other than this Agreement) with respect to or involving the
Companies shall be terminated as of the Closing, and, after the Closing Date, neither Purchaser and
the Companies nor Seller (or any of its direct or indirect Affiliates) shall be bound thereby or
have any liability thereunder.

          10.5 Certain Taxes. All transfer, documentary, sales, use, stamp, registration and
similar Taxes and fees (including any penalties and interest) incurred in connection with this
Agreement shall be borne equally by Purchaser on the one hand and Seller on the other hand, and
Purchaser and Seller shall cooperate in the filing of all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp, registration and
other Taxes and fees. If required by applicable legal requirements, Purchaser and Seller will join
in the execution of any such Tax Returns and other documentation. Purchaser or Seller, as the case
may be, shall promptly, but in no case later than the due date for payment, reimburse Seller or
Purchaser, as the case may be, in full for the reimbursing party’s one-half share of any amounts
paid by the other party in connection with any such Taxes or Tax Returns.

          10.6 Allocation. No later than thirty (30) days following the Closing Date, Seller
shall prepare and deliver to Purchaser, for Purchaser’s review and approval, a statement (the
“Allocation Statement”) allocating the Purchase Price among the Companies and then among
the assets of NSA, in accordance with Section 1060 of the Code and the Treasury Regulations
thereunder. Unless otherwise required by a determination (as defined in Section 1313 of the Code),
neither Seller (or its Affiliates) nor Purchaser (or its Affiliates) shall file any Tax Return or
take a position before any Governmental Authority that is inconsistent with the Allocation
Statement.

          10.7 Tax Treatment of Payments. Seller and Purchaser shall treat any indemnity
payments made pursuant to Article IX and this Article X as adjustments to the
allocable portion of the Purchase Price for Tax purposes unless otherwise required pursuant to a
“determination” within the meaning of Section 1313(a) of the Code or a similar or analogous
provision of state, local or foreign Tax law.

          10.8 FIRPTA Affidavit. An affidavit of non-foreign status from Seller that complies
with Section 1445 of the Code (a “FIRPTA Affidavit”) will be delivered to Purchaser at the
Closing.

          10.9 Refunds. Purchaser shall pay (or cause to be paid) to Seller any refunds or
credits of Taxes received or realized by Purchaser with respect to which Seller

32

 

has agreed to
provide indemnification under this Agreement (including any interest paid thereon and net of any
Taxes incurred in respect of the receipt or accrual of the refund).

          10.10 Election under Section 338(h)(10).

          (a) At Purchaser’s written request received by Seller within thirty (30) days following the
Closing (the “Election Request”), Seller and Purchaser shall join in making (or causing to
be made) an election under Section 338(h)(10) of the Code (and all corresponding elections
available under any other law) (collectively, the “Section 338(h)(10) Elections”) with
respect to the sale of CFLD and/or UFC2. Seller and Purchaser shall take (or cause to be taken)
all steps necessary in order to effectuate the Section 338(h)(10) Elections in accordance with
applicable laws (including, without limitation, the preparation and timely filing of IRS Form 8023
and all similar state and local forms) and Seller and Purchaser shall cooperate with each other in
making such elections. Purchaser shall deliver (or cause to be delivered) to Seller, within ten
(10) days after delivery of the Election Request to Seller, three (3) original executed IRS Forms
8023 (and all applicable corresponding state or local forms) with respect to CFLD and UFC2. Seller
shall thereafter prepare and file such forms and Seller shall provide Purchaser with copies of all
such forms so filed within fifteen (15) days after filing.

          (b) Within sixty (60) days following Purchaser’s request, Purchaser shall prepare (or cause to
be prepared) and deliver to Seller a schedule (the “Section 338 Allocation Schedule”)
allocating the Aggregate Deemed Sales Price, as defined in Treasury Regulation Section 1.338-4, for
the assets of CFLD and UFC2 among such assets of CFLD and UFC2 (based on the portion of the
Purchase Price allocated to these entities pursuant to the Allocation Statement). The Section 338
Allocation Schedule shall be reasonable and shall be prepared in accordance with Section 338(h)(10)
and, as applicable, Section 1060, of the Code and the Treasury Regulations promulgated thereunder.
The Section 338 Allocation Schedule shall be deemed to be accepted by and shall be conclusive and
binding on Seller except to the extent, if any, that Seller shall have delivered, within thirty
(30) days after the date on which the Section 338 Allocation Schedule is delivered to Seller, a
written notice to Purchaser stating each and every item to which Seller takes exception (it being
understood that any amounts not disputed shall be final and binding). If a change proposed by the
Seller is disputed by Purchaser, then Seller and Purchaser shall negotiate in good faith to resolve
such dispute. If, after a period of twenty (20) days following the date on which Seller gives
Purchaser notice of any such proposed change, any such proposed change still remains disputed, then
Seller and Purchaser shall submit the remaining disputes to the Independent Accountant. The
decision of the Independent Accountant shall be final and binding. All of the fees and expenses of
the Independent Accountant shall be equally paid by Purchaser, on the one hand, and Seller, on the
other hand. Promptly upon receiving the final and binding Section 338 Allocation Schedule,
Purchaser and Seller shall return an executed copy thereof to the other party. Purchaser and
Seller shall file (or cause to be filed) all federal, state and local Tax Returns in accordance
with the Section 338 Allocation Schedule, and shall take no Tax position contrary thereto or
inconsistent therewith (including, without
limitation, in any amended return or claim for refund, any examination or audit by any Taxing
Authority, or any other Tax proceeding), except to the extent otherwise required

33

 

by a
“determination” within the meaning of Section 1313(a) of the Code or a similar or analogous
provision of state, local or foreign law.

ARTICLE XI

MISCELLANEOUS

          11.1 Notice. Any and all notices and other communications required or permitted under
this Agreement shall be in writing and shall be deemed to have been duly given when (a) received
by the receiving party if mailed via United States registered or certified mail, return receipt
requested, (b) received by the receiving party if mailed by United States overnight express mail,
(c) sent by facsimile or telecopy machine, followed by confirmation mailed by United States
first-class mail or overnight express mail, or (d) delivered in person or by commercial courier, in
each case to the parties at the following addresses:

If to Seller, to:

HealthMarkets, LLC

9151 Boulevard 26

North Richland Hills, TX 76180

Attention: General Counsel

Facsimile: (817) 255-5391

With a copy (which shall not constitute notice) to:

Weil, Gotshal & Manges LLP

200 Crescent Court, Suite 300

Dallas, TX 75201-6950

Attention: Michael A. Saslaw

Facsimile: (214) 746-7777

If to Purchaser, to:

Wilton Reassurance Company

187 Danbury Rd.

Riverview Building, Third Floor

Wilton, Connecticut 06897-4122

Attention: Chief Executive Officer

Facsimile: (203) 762-4445

With a copy to:

David A. Massey

Sutherland Asbill & Brennan LLP

1275 Pennsylvania Avenue, NW

34

 

Washington, DC 20004-2415

Facsimile: (202) 637-3593

Either party may change the names or addresses where notice is to be given by providing notice to
the other party of such change in accordance with this Section 11.1.

          11.2 Entire Agreement. This Agreement (including the Exhibits and Schedules thereto)
and the Master Agreement constitute the sole and entire agreement between the parties hereto with
respect to the subject matter hereof, and supersede all prior discussions and agreements between
the parties with respect to the subject matter hereof and thereof, which are merged with and into
this Agreement. 

          11.3 Assignment. This Agreement shall not be assigned by any of the parties hereto
without the prior written approval of the other parties; provided, however, that
Purchaser may assign its rights and obligations hereunder relating to the purchase of the Companies
to one or more of its Affiliates existing as of the date hereof provided Purchaser remains
primarily liable.

          11.4 Waivers and Amendments. Any term or condition of this Agreement may be waived at
any time by the party that is entitled to the benefit thereof. Such waiver must be in writing and
must be executed by an executive officer of such party. A waiver on one occasion will not be
deemed to be a waiver of the same or any other term or condition on a future occasion. This
Agreement may be modified or amended only by a writing duly executed by an executive officer of
each Company, Seller and Purchaser, respectively.

          11.5 No Third Party Beneficiaries. The terms and provisions of this Agreement are
intended solely for the benefit of Seller and Purchaser and their permitted successors and assigns,
and it is not the intention of the parties to confer rights as a third-party beneficiary to this
Agreement upon any other person.

          11.6 Public Announcements. At all times at or before the Closing, Seller and
Purchaser will each consult with the other before issuing or making any reports, statements or
releases to the public with respect to this Agreement or the transactions contemplated hereby and
will use good faith efforts to obtain the other party’s approval of the form, content and timing of
any public report, statement or release to be made solely on behalf of a party. If Seller and
Purchaser are unable to agree upon or approve the form, content and timing of any such public
report, statement or release and such report, statement or release is, in the opinion of legal
counsel to the party wishing to issue or make such report, statement or release, required by
Applicable Law or by legal disclosure obligations, then such party may make or issue the legally
required report, statement or release.

          11.7 Confidentiality. Each of Seller and Purchaser will hold, and will cause its
respective officers, directors, employees, agents, consultants, attorneys and other representatives
to hold, in strict confidence, unless compelled to disclose by judicial
or administrative process or by other requirements of Applicable Law (provided,

35

 

however, that such disclosure shall be limited only to the extent that it is required by
regulatory authorities or to satisfy such legal process, and the party having such obligation of
disclosure notifies the other party of such process in a timely fashion sufficient to allow the
party whose Confidential Information is the subject of such disclosure to take appropriate legal
action to quash or limit such disclosure), all confidential documents and confidential information
concerning the other party furnished to it by the other party or such other party’s officers,
directors, employees, agents, consultants, attorneys or representatives in connection with this
Agreement or the transactions contemplated hereby (“Confidential Information”), except to
the extent that such documents or information can be shown to have been (a) previously lawfully
known by the party receiving such documents or information, (b) in the public domain through no
fault of the receiving party, or later acquired by the receiving party from other sources not
themselves bound by, and in breach of, a confidentiality agreement. Neither Seller nor Purchaser
will disclose or otherwise provide any such Confidential Information to any other person, except to
that party’s respective auditors, actuaries, attorneys, financial advisors and other consultants
who need access to such Confidential Information in connection with this Agreement and the
transactions contemplated herein. Each of Seller and Purchaser will be responsible for any breach
of the terms of this Section 11.7 by its respective officers, directors, employees, agents,
consultants, attorneys and other representatives. If this Agreement is terminated pursuant to
Article IV, each of the parties will return to the other party all Confidential Information
furnished to that party by the other party, and retrieve and destroy all copies of such
Confidential Information distributed to any other person.

          11.8 Governing Law. This Agreement will be governed by and construed in accordance
with the laws of the State of Texas, without regard to its conflicts of law doctrine.

          11.9 Counterparts. This Agreement may be executed in counterparts, each of which will
be deemed an original, but all of which shall constitute one and the same instrument.

          11.10 Headings. The headings in this Agreement have been inserted for convenience and
do not constitute matter to be construed or interpreted in connection with this Agreement.

          11.11 Severability. If any provision of this Agreement is held to be illegal, invalid
or unenforceable under any present or future Applicable Law or if determined by a court of
competent jurisdiction to be unenforceable, and if the rights or obligations of Seller or Purchaser
under this Agreement will not be materially and adversely affected thereby, such provision shall be
fully severable, and this Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement, and the remaining provisions
of this Agreement shall remain in full force and effect and will not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom.

36

 

          11.12 Arbitration. All disputes (other than disputes relating to the operation of the
provisions of Article III providing for the resolution of certain disputes relating to the
Purchase Price between the parties and/or by an Independent Accountant) between Purchaser and
Seller arising out of or relating to this Agreement, including the formation and validity thereof,
on which an amicable understanding cannot be reached will be decided by arbitration between the
parties in accordance with the provisions of Article IX of the Master Agreement. Notwithstanding
the foregoing, if either Purchaser or Seller seeks, consents to, or acquiesces in the appointment
of or otherwise becomes subject to any trustee, receiver, liquidator or conservator (including any
state insurance regulatory agency or authority acting in such a capacity), the other party shall
not be obligated to resolve any claim, dispute or cause of action under this Agreement by
arbitration. Notwithstanding any other provision of this Section 11.12, nothing contained
in this Agreement shall require arbitration of any issue for which equitable or injunctive relief,
including specific performance, is sought.

[SIGNATURE PAGE FOLLOWS]

37

 

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

	 	 	 	 	 
	 	 	HEALTHMARKETS, LLC
	 
	 	 	 	 
	 

	 	By:
	 	HEALTHMARKETS, INC., its sole
	 	 	member

	 	 	 	 	 
	 	 	 
	 	By:  	
 	 
	 	Name: David W. Fields 	 
	 	Title: President and Chief Operating Officer 	 
	 

[SIGNATURE
PAGE TO STOCK PURCHASE AGREEMENT]

 

 

	 	 	 	 	 
	 	WILTON REASSURANCE COMPANY

 	 
	 	By:  	 	 
	 	Name:  	 
	 	Title:  	 
	 

[SIGNATURE
PAGE TO STOCK PURCHASE AGREEMENT]exv4w1

EXHIBIT 4.1

RIGHTS AGREEMENT

DATED
AS OF JUNE 13, 2008

BETWEEN

CPEX PHARMACEUTICALS, INC.

AND

AMERICAN
STOCK TRANSFER & TRUST COMPANY, LLC

 

 

Table of Contents

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	Section 1.
	 	Certain Definitions

	 	 	1	 
	 	 	 
	 	 	 	 
	Section 2.
	 	Appointment of Rights Agent

	 	 	6	 
	 	 	 
	 	 	 	 
	Section 3.
	 	Issuance of Rights Certificates

	 	 	6	 
	 	 	 
	 	 	 	 
	Section 4.
	 	Form of Rights Certificates

	 	 	7	 
	 	 	 
	 	 	 	 
	Section 5.
	 	Countersignature and Registration

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

	 	 	9	 
	 	 	 
	 	 	 	 
	Section 7.
	 	Exercise of Rights; Purchase Price; Expiration Date of Rights

	 	 	10	 
	 	 	 
	 	 	 	 
	Section 8.
	 	Cancellation and Destruction of Rights Certificates

	 	 	12	 
	 	 	 
	 	 	 	 
	Section 9.
	 	Reservation and Availability of Capital Stock

	 	 	12	 
	 	 	 
	 	 	 	 
	Section 10.
	 	Preferred Stock Record Date

	 	 	13	 
	 	 	 
	 	 	 	 
	Section 11.
	 	Adjustment of Purchase Price, Number and Kind of Shares or Number of
Rights

	 	 	14	 
	 	 	 
	 	 	 	 
	Section 12.
	 	Certificate of Adjusted Purchase Price or Number of Shares

	 	 	21	 
	 	 	 
	 	 	 	 
	Section 13.
	 	Consolidation, Merger or Sale or Transfer of Assets Cash Flow or
Earning Power

	 	 	22	 
	 	 	 
	 	 	 	 
	Section 14.
	 	Fractional Rights and Fractional Shares

	 	 	24	 
	 	 	 
	 	 	 	 
	Section 15.
	 	Rights of Action

	 	 	25	 
	 	 	 
	 	 	 	 
	Section 16.
	 	Agreement of Rights Holders

	 	 	26	 
	 	 	 
	 	 	 	 
	Section 17.
	 	Rights Certificate Holder Not Deemed a Stockholder

	 	 	26	 
	 	 	 
	 	 	 	 
	Section 18.
	 	Duties of Rights Agent

	 	 	27	 
	 	 	 
	 	 	 	 
	Section 19.
	 	Concerning the Rights Agent

	 	 	27	 
	 	 	 
	 	 	 	 
	Section 20.
	 	Merger or Consolidation or Change of Name of Rights Agent

	 	 	28	 
	 	 	 
	 	 	 	 
	Section 21.
	 	Change of Rights Agent

	 	 	30	 

ii

 

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	Section 22.
	 	Issuance of New Rights Certificates

	 	 	31	 
	 	 	 
	 	 	 	 
	Section 23.
	 	Redemption and Termination

	 	 	31	 
	 	 	 
	 	 	 	 
	Section 24.
	 	Exchange

	 	 	32	 
	 	 	 
	 	 	 	 
	Section 25.
	 	Notice of Certain Events

	 	 	33	 
	 	 	 
	 	 	 	 
	Section 26.
	 	Notices

	 	 	34	 
	 	 	 
	 	 	 	 
	Section 27.
	 	Supplements and Amendments

	 	 	35	 
	 	 	 
	 	 	 	 
	Section 28.
	 	Successors

	 	 	35	 
	 	 	 
	 	 	 	 
	Section 29.
	 	Determinations and Actions by the Board of Directors, etc

	 	 	35	 
	 	 	 
	 	 	 	 
	Section 30.
	 	Benefits of this Agreement

	 	 	36	 
	 	 	 
	 	 	 	 
	Section 31.
	 	Severability

	 	 	36	 
	 	 	 
	 	 	 	 
	Section 32.
	 	Governing Law

	 	 	36	 
	 	 	 
	 	 	 	 
	Section 33.
	 	Counterparts

	 	 	36	 
	 	 	 
	 	 	 	 
	Section 34.
	 	Descriptive Headings

	 	 	36	 

iii

 

RIGHTS AGREEMENT

     RIGHTS AGREEMENT, dated as
of June 13, 2008 (the “Agreement”), between CPEX
Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and American Stock Transfer
& Trust Company, LLC, a New York limited liability trust company (the “Rights Agent”).

W I T N E S S E T H

     WHEREAS,
on June 13, 2008 (the “Rights Dividend Declaration Date”), the Board
of Directors of the Company authorized and declared a dividend distribution of one Right (as
hereinafter defined) for each share of common stock, par value $0.01 per share, of the Company (the
“Common Stock”) outstanding at the Close of Business
on June 23, 2008 (the “Record
Date”), and has authorized the issuance of one Right (as such number may hereinafter be
adjusted pursuant to the provisions of 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 Distribution Date (as hereinafter defined) each Right initially representing the
right to purchase one one-thousandth of a share of Series A Preferred Stock of the Company (the
“Preferred Stock”) having the rights, powers and preferences set forth in the form of
Certificate of Designation, Preferences and Rights of 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 fifteen percent (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, or any Person or entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan, (iv) any Person who becomes the Beneficial Owner of fifteen
percent (15%) or more of the shares of Common Stock then outstanding as a result of a reduction in
the number of shares of Common Stock outstanding due to the repurchase of shares of Common Stock by
the Company unless and until such Person, after becoming aware that such Person has become the
Beneficial Owner of fifteen percent (15%) or more of the then outstanding shares of Common Stock,
acquires beneficial ownership of additional shares of Common Stock representing one percent (1%) or
more of the shares of Common Stock then outstanding, (v) any such Person who has reported or is
required to report such ownership (but less than 20%) on Schedule 13G under the Exchange Act (or
any comparable or successor report) or on Schedule 13D under the Exchange Act (or any comparable or
successor report) which Schedule 13D does not state any intention to or reserve the right to
control or influence the management or policies of the Company or engage in any of the actions

 

 

specified in Item 4 of such schedule (other than the disposition of the Common Stock) and, within
10 Business Days of being requested by the Company to advise it regarding the same, certifies to
the Company that such Person acquired shares of Common Stock in excess of 14.9% inadvertently or
without knowledge of the terms of the Rights and who or which, together with all Affiliates and
Associates, thereafter does not acquire additional shares of Common Stock while the Beneficial
Owner of fifteen percent (15%) or more of the shares of Common Stock then outstanding; provided,
however, that if the Person requested to so certify fails to do so within 10 Business Days, then
such Person shall become an Acquiring Person immediately after such 10- Business-Day period, (vi)
Bentley Pharmaceuticals, Inc. prior to the Spin-Off Distribution Date, or (vii) any member of the
Existing Group; provided that any member of the Existing Group who or which,
together with all Affiliates and Associates of such Person, increases his or its Beneficial
Ownership by 15% or more of the shares of Common Stock then outstanding, from the number of shares
of Common Stock beneficially owned by such Person as of the date hereof, shall be deemed 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 Exchange Act.

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

               (i) which such Person or any of such Person’s Affiliates or Associates, directly or
indirectly, has the right to acquire (whether such right is exercisable immediately or only after
the passage of time) pursuant to any agreement, arrangement or understanding (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 such Person or any of such Person’s Affiliates or Associates until such tendered securities are
accepted for purchase or exchange, (B) securities issuable upon exercise of Rights at any time
prior to the occurrence of a Triggering Event (as hereinafter defined), 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 (as hereinafter defined) or pursuant to Section 3(a) or Section 22 hereof (the “ Original
Rights”) or pursuant to Section 11(i) hereof in connection with an adjustment made with respect to
any Original Rights;

               (ii) which such Person or any of such Person’s Affiliates or Associates, directly or
indirectly, has the right to vote or dispose of or has “beneficial ownership” of (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including
pursuant to any agreement, arrangement or understanding, whether or not in
writing; provided, however, that a Person shall not be deemed the “Beneficial Owner” of, or to

2

 

“beneficially own,” any security under this subparagraph (ii) as a result of an agreement,
arrangement or understanding to vote such security if such agreement, arrangement or understanding:
(A) arises solely from a revocable proxy given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable provisions of the General
Rules and Regulations under the Exchange Act, and (B) is not reportable by such Person on Schedule
13D under the Exchange Act (or any comparable or successor report); or

               (iii) which are beneficially owned, directly or indirectly, by any other Person (or any
Affiliate or Associate thereof) with which such Person (or any of such Person’s Affiliates or
Associates) has any agreement, arrangement or understanding (whether or not in writing), for the
purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the
proviso to subparagraph (ii) of this paragraph (d)) or disposing of any voting securities of the
Company; provided, however that nothing in this paragraph (d) shall cause a Person engaged in
business as an underwriter of securities to be the “Beneficial Owner” of, or to “beneficially own,”
any securities acquired through such Person’s participation in good faith in a firm commitment
underwriting until the expiration of forty days after the date of such acquisition, and then only
if such securities continue to be owned by such Person at such expiration of forty days.

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

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

          (g) “Common Stock” shall mean the common stock, par value $0.01 per share, 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.

          (h) “Common Stock Equivalents” shall have the meaning set forth in Section 11(a)(iii)
hereof.

          (i) “Current Market Price” shall have the meaning set forth in Section 11(d)(i)
hereof.

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

3

 

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

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

          (m) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

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

          (o) “Existing Group” shall mean Mr. Michael McGovern and his Affiliates and
Associates.

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

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

          (r) “Person” shall mean any individual, firm, corporation, partnership, limited
liability company or other entity, and shall include any successor (by merger or otherwise) of such
entity.

          (s) “Preferred Stock” shall mean shares of Series A Preferred Stock, par value $0.01
per share, of the Company, and, to the extent that there are not a sufficient number of shares of
Series A Preferred Stock authorized to permit the full exercise of the Rights, any other series of
preferred stock of the Company designated for such purpose containing terms substantially similar
to the terms of the Series A Preferred Stock.

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

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

          (v) “Qualified Offer” shall have the meaning set forth in Section 11(a)(ii) hereof.

          (w) “Record Date” shall have the meaning set forth in the preamble of this Agreement.

4

 

          (x) “Rights” shall have the meaning set forth in the preamble of this Agreement.

          (y) “Rights Agent” shall have the meaning set forth in the preamble of this Agreement.

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

          (aa) “Rights Dividend Declaration Date” shall have the meaning set forth in the
preamble of this Agreement.

          (bb) “Section 11(a)(ii) Event” shall mean any event described in Section 11(a)(ii)
hereof.

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

          (dd) “Spin-Off Distribution Date” shall mean the date on which Bentley
Pharmaceuticals, Inc. distributes all of the Company’s
outstanding shares to Bentley’s shareholders.

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

          (ff) “Stock Acquisition Date” shall mean the first date of public announcement (which,
for purposes of this definition, shall include, without limitation, a report filed or amended
pursuant to Section 13(d) under the Exchange Act) by the Company or an Acquiring Person that an
Acquiring Person has become such other than pursuant to a Qualified Offer.

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

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

          (ii) “Summary of Rights” shall have the meaning set forth in Section 3(b) hereof.

5

 

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

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

     Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of
the Rights (who, in accordance with Section 3 hereof, shall prior to the Spin-Off Distribution Date
also be the holders of the Common Stock) in accordance with the terms and conditions hereof, and
the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such
co-rights agents as it may deem necessary or desirable.

     Section 3. Issuance of Rights Certificates.

          (a) Until the earlier of (i) the Close of Business on the tenth day after the Stock
Acquisition Date (or, if the tenth 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 the Board of Directors shall determine) after the date that a
tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity
organized, appointed or established by the Company for or pursuant to the terms of any such plan,
or any member of the Existing Group) is first published or sent or given within the meaning of Rule
14d-2(a) of the General Rules and Regulations under the Exchange Act, if, upon consummation
thereof, such Person would become an Acquiring Person, in either instance other than pursuant to a
Qualified Offer (the earlier of (i) and (ii) being herein referred to as the “Distribution
Date”), (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this
Section 3) by the certificates for the Common Stock registered in the names of the holders of the
Common Stock (which certificates for Common Stock shall be deemed also to be certificates for
Rights) and not by separate certificates, and (y) the Rights will be transferable only in
connection with the transfer of the underlying shares of Common Stock (including a transfer to the
Company). As soon as practicable after the Distribution Date, the Rights Agent will send by
first-class, insured, postage prepaid mail, to each record holder of the Common Stock as of the
Close of Business on the Distribution Date, at the address of such holder shown on the records of
the Company, one or more rights certificates, in substantially the form of Exhibit B hereto (the
“Rights Certificates”), evidencing one Right for each share of Common Stock so held,
subject to adjustment as provided herein. In the event that an adjustment in the number of Rights
per share of Common Stock has been made pursuant to Section 11(p) hereof, at the time of
distribution of the Rights Certificates, the Company shall make the necessary and appropriate
rounding adjustments (in accordance with Section 14(a) hereof) so
that Rights Certificates representing only whole numbers of Rights are distributed and cash is
paid in lieu of any fractional Rights. As of and after the Distribution Date, the Rights will be
evidenced solely by such Rights Certificates.

          (b) The Company will make available, as promptly as practicable following the Record Date, a
copy of a Summary of Rights, in substantially the form attached hereto as

6

 

Exhibit C (the
“Summary of Rights”) to any holder of Rights who may so request from time to time prior to
the Expiration Date. With respect to certificates for the Common Stock outstanding as of the Record
Date, or issued subsequent to the Record Date, unless and until the Distribution Date shall occur,
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. Until the
earlier of the Distribution Date or the Expiration Date (as such term is defined in Section 7(a)
hereof), 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.

          (c) Rights shall be issued in respect of all shares of Common Stock which are issued (whether
originally issued or from the Company’s treasury) after the Record Date but prior to the earlier of
the Distribution Date or the Expiration Date. Certificates representing such shares of Common Stock
shall also be deemed to be certificates for Rights, and shall bear the following legend if such
certificates are issued after the Record Date but prior to the earlier of the Distribution Date or
the Expiration Date:

     This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in the Rights Agreement between CPEX Pharmaceuticals, Inc. (the
“Company”) and the Rights Agent thereunder (the “Rights Agent”)
dated as of June 13, 2008 (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 Rights Agent will mail to the
holder of this certificate a copy of the Rights Agreement, as in effect on the date
of mailing, without charge, promptly after receipt of a written request therefor.
Under certain circumstances set forth in the Rights Agreement, Rights issued to, or
held by, any Person who is, was or becomes an Acquiring Person or any Affiliate or
Associate thereof (as such terms are defined in the Rights Agreement), whether
currently held by or on behalf of such Person or by any subsequent holder, may
become null and void.

With respect to such certificates containing the foregoing legend, until the earlier of (i) the
Distribution Date or (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, and the
transfer of any of such certificates shall also constitute the transfer of the Rights associated
with the Common Stock represented by such certificates.

     Section 4. Form of Rights Certificates.

          (a) The Rights Certificates (and the forms of election to purchase and of 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,

7

 

summaries or
endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with
the provisions of this Agreement, or as may be required to comply with any applicable law or with
any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange
on which the Rights may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 11 and Section 22 hereof, the Rights Certificates, whenever distributed,
shall be dated as of the Record Date and on their face shall entitle the holders thereof to
purchase such number of one one-thousandth 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(a), Section 11(i) or Section 22 hereof
that represents Rights beneficially owned by: (i) an Acquiring Person or any Associate or Affiliate
of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee
of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity
interests in such Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a
transfer which the Board of Directors of the Company has determined is part of a plan, arrangement
or understanding which has as a primary purpose or effect the avoidance of Section 7(e) hereof, and
any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange,
replacement or adjustment of any other Rights Certificate referred to in this sentence, shall
contain (to the extent feasible) the following legend:

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

     Section 5. Countersignature and Registration.

          (a) The Rights Certificates shall be executed on behalf of the Company by its Chairman of the
Board, its Chief Executive Officer, its 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 countersigned by the Rights Agent, either
manually or by facsimile signature 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

8

 

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.

          (b) Following the Distribution Date, the Rights Agent will keep, or cause to be kept, at its
principal office or offices designated as the appropriate place for surrender of Rights
Certificates upon exercise or transfer, books for registration and transfer of the Rights
Certificates issued hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face by each of the
Rights Certificates 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 may 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 entitles 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 at the principal office or offices of the Rights
Agent designated for such purpose. Neither the Rights Agent nor the Company shall be obligated to
take any action whatsoever with respect to the transfer of any such surrendered
Rights Certificate until the registered holder shall have completed and signed the certificate
contained in the form of assignment on the reverse side of such Rights Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial
Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Thereupon the
Rights Agent shall, subject to Section 4(b), Section 7(e), Section 14 hereof and Section 24 hereof,
countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates,
as the case may be, as so requested. The Company may require payment of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any transfer, split up,
combination or exchange of Rights Certificates.

          (b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to
them of the loss, theft, destruction or mutilation of a Rights Certificate,

9

 

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

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

          (a) Subject to Section 7(e) hereof, at any time after the Distribution Date 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(a) hereof) in whole or in part upon surrender of
the Rights Certificate, with the form of election to purchase and the certificate on the reverse
side thereof duly executed, to the Rights Agent at the principal office or offices 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 (or other securities, cash or other
assets, as the case may be) as to which such surrendered Rights are then exercisable, at or prior
to the earlier of (i) 5:00 P.M., New York City time, on
June 13, 2018, or such later date as may
be established by the Board of Directors prior to the expiration of the Rights (such date, as it
may be extended by the Board, the (“Final Expiration Date”), or (ii) the time at which the
Rights are redeemed or exchanged as provided in Section 23 and Section 24 hereof (the earlier of
(i) and (ii) being herein referred to as the “Expiration Date”).

         
 (b) The Purchase Price for each
one one-thousandth of a share of Preferred Stock pursuant to
the exercise of a Right initially shall be $100 (one hundred dollars), shall be subject to adjustment from time to
time as provided in Section 11 and Section 13(a) hereof and shall be payable in accordance with
paragraph (c) below.

          (c) Upon receipt of a Rights Certificate representing exercisable Rights, with the form of
election to purchase and the certificate duly executed, accompanied by payment, with respect to
each Right so exercised, of the Purchase Price per one one-thousandth of a share of Preferred
Stock (or other shares, securities, cash or other assets, as the case may be) to be purchased as
set forth below and an amount equal to any applicable transfer tax, the Rights Agent shall, subject
to Section 20(k) hereof, thereupon promptly (i) (A) requisition from any transfer agent of the
shares of Preferred Stock (or make available, if the Rights Agent is the transfer agent for such
shares) certificates for the total number of one one-thousandths of a share of Preferred Stock to
be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all
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 will

10

 

direct the depositary agent to comply with such request,
(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) shall be made in cash or by certified bank check or bank draft
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 will make all arrangements necessary so that such
other securities, cash and/or other property are available for distribution by the Rights Agent, if
and when appropriate. The Company reserves the right to require prior to the occurrence of a
Triggering Event that, upon any exercise of Rights, a number of Rights be exercised so that only
whole shares of Preferred Stock would be issued.

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

          (e) Notwithstanding anything in this Agreement to the contrary, from and after the first
occurrence of a Section 11(a)(ii) Event, any Rights beneficially owned by (i) an Acquiring Person
or an Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes
such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives
such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring
Person to holders of equity interests in such Acquiring
Person or to any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer which a majority of
the Board of Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the 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.
The Company shall use all reasonable efforts to ensure that the provisions of this Section 7(e) and
Section 4(b) hereof are complied with, but shall have no liability to any holder of Rights
Certificates or any other Person as a result of its failure to make any determinations with respect
to an Acquiring Person or any of its Affiliates, Associates or transferees hereunder.

          (f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor
the Company shall be obligated to undertake any action with respect to a registered holder upon the
occurrence of any purported exercise as set forth in this Section 7

11

 

unless such registered holder
shall have (i) completed and signed the certificate contained in the form of election to purchase
set forth on the reverse side of the Rights Certificate surrendered for such exercise, and (ii)
provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial
Owner) or Affiliates or Associates thereof as the Company shall reasonably request.

     Section 8. Cancellation and Destruction of Rights Certificates.

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

     Section 9. Reservation and Availability of Capital Stock.

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

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

          (c) The Company shall use its best efforts to (i) file, as soon as practicable following the
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, 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, and (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

12

 

exercisable for
such securities, and (B) the date of the expiration 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. 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 has been rescinded. In addition, if the Company shall determine that a registration
statement is required following the Distribution Date, the Company may temporarily suspend the
exercisability of the Rights until such time as a registration statement has been declared
effective. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be
exercisable in any jurisdiction if the requisite qualification in such jurisdiction shall not have
been obtained, the exercise thereof shall not be permitted under applicable law, or a registration
statement shall not have been declared effective.

          (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 which 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 to pay
any transfer tax which 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 Certificates evidencing Rights
surrendered for exercise or to issue or deliver any certificates for a number of one
one-thousandths of a share of Preferred Stock (or Common Stock and/or other securities, as the
case may be) in a name other than that of the registered holder upon the exercise of any Rights
until such tax shall have been paid (any such tax being payable by the holder of such Rights
Certificates at the time of surrender) or until it has been established to the Company’s
satisfaction that no such tax is due.

     Section 10. Preferred Stock Record Date. Each person in whose name any certificate for a number of one one-thousandths of a share of
Preferred Stock (or Common Stock and/or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of record of such
fractional shares of Preferred Stock (or Common Stock and/or other securities, as the case may be)
represented

13

 

thereby on, and such certificate shall be dated, the date upon which the Rights
Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and all
applicable transfer taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Stock (or Common Stock and/or other securities, as the
case may be) transfer books of the Company are closed, such 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 shall not be entitled to any
rights of a stockholder of the Company with respect to shares for which the Rights shall be
exercisable, including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.

     Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of
Rights. The Purchase Price, the number 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, such holder would have owned upon
such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. If an event occurs which would require an adjustment under both this Section
11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall
be in addition to, and shall be made prior to, any adjustment required pursuant to Section
11(a)(ii) hereof.

               (ii) In the event that any Person shall, at any time after the Rights Dividend Declaration
Date, become an Acquiring Person, unless the event causing such Person to become an Acquiring
Person is a transaction set forth in Section 13(a) hereof, or is an acquisition of shares of Common
Stock pursuant to a tender offer or an exchange offer for all outstanding shares of Common Stock at
a price and on terms determined by at least a majority of the members of the Board of Directors who
are not officers of the Company and who are not

14

 

representatives, nominees, Affiliates or Associates
of an Acquiring Person, after receiving advice from one or more investment banking firms, to be (a)
at a price which is fair to stockholders and not inadequate (taking into account all factors which
such members of the Board deem relevant including, without limitation, prices which could
reasonably be achieved if the Company or its assets were sold on an orderly basis designed to
realize maximum value) and (b) otherwise in the best interests of the Company and its stockholders
(hereinafter, a “Qualified Offer”), then, promptly following the occurrence of such event,
proper provision shall be made so that, upon the expiration of the Redemption Period (as defined in
Section 23(a)), each holder of a Right (except as provided below and in Section 7(e) hereof) shall
thereafter have the right to receive, 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 as shall equal 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 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 which is authorized by the
Company’s Amended and Restated Certificate of Incorporation, but not outstanding or reserved for
issuance for purposes other than upon exercise of the Rights, is 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 value of the
Adjustment Shares issuable upon the exercise of a Right (the “Current Value”), and (B)
with respect to each Right (subject to Section 7(e) hereof), make adequate provision to substitute
for the Adjustment Shares, upon the exercise of a Right and 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, such
as the Preferred Stock, which the Board has deemed to have essentially the same value or economic
rights as shares of Common Stock (such shares of preferred stock being referred to as “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 (less the amount
of any reduction in the Purchase Price), 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 that 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 avail able) and then, if necessary, cash, which shares and/or cash have
an aggregate value equal to the Spread. For purposes of the preceding sentence, the term “Spread”
shall mean the excess of (i) the Current Value over (ii) the Purchase Price. If the Board
determines in good faith that it is likely that sufficient additional

15

 

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 stockholder approval for the
authorization of such additional shares (such thirty (30) day period, as it may be extended, is
herein called the “Substitution Period”). To the extent that the Company determines that
action should be taken pursuant to the first and/or third sentences of this Section 11(a)(iii), the
Company (1) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly
to all outstanding Rights, and (2) may suspend the exercisability of the Rights until the
expiration of the Substitution Period in order to seek such stockholder approval for such
authorization of additional shares and/or to decide the appropriate form of distribution to be made
pursuant to such first sentence and to determine the value thereof. In the event of any such
suspension, the Company shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of each
Adjustment Share shall be the Current Market Price per share of the Common Stock on the Section
11(a)(ii) Trigger Date and the per share or per unit value of any Common Stock Equivalent shall be
deemed to equal the Current Market Price per share of 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 of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of
the Rights. 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 or warrants
are not so issued, the Purchase

16

 

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), 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
evidences of indebtedness, or of subscription rights or warrants (excluding those referred to in
Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the Current Market Price (as determined pursuant to
Section 11(d) hereof) per share of Preferred Stock on such record date, less the fair market value
(as determined in good faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and
the holders of the Rights) of the portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a 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. 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 Common Stock for the thirty (30) consecutive Trading Days immediately prior to such date,
and for purposes of computations made pursuant to Section 11(a)(iii) hereof, the Current Market
Price per share of the Common Stock on any date shall be deemed to be the average of the daily
closing prices per share of Common Stock for the ten (10) consecutive Trading Days immediately
following such date; provided, however, that in the event that the Current Market Price per share
of Common Stock is determined during a period following the announcement by the issuer of such
share of Common Stock of (A) a dividend or distribution on such share of Common Stock payable in
shares of Common Stock or securities convertible into shares of such Common Stock (other than the
Rights), or (B) any subdivision, combination or reclassification of such shares of Common Stock,
and the ex-dividend date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification shall not have occurred prior to the commencement of
the requisite thirty (30) Trading Day or ten (10) Trading Day period, as set forth above, then, and
in each such case, the Current Market Price shall be appropriately adjusted to take into account
ex-dividend trading. The closing price for each day shall be the last sale price, regular way, or,
in case no such sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated transaction reporting

17

 

system
with respect to securities listed or admitted to trading on the NASDAQ Capital Market or, if the
shares of Common Stock are not listed or admitted to trading on the NASDAQ Capital Market, as
reported in the principal consolidated transaction reporting system with respect to securities
listed 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 low asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System (the “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. 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 as
determined in good faith by the Board shall be used. The term “Trading Day” shall mean a
day on which the principal 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 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 1,000 (as such number may be appropriately adjusted for such
events as stock splits, stock dividends and recapitalizations with respect to the
Common Stock occurring after the date of this Agreement) multiplied by the Current Market
Price per share of 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, whose determination shall be
described in a statement filed with the Rights Agent and shall be conclusive for all purposes.

          (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-thousandth of a share of Common Stock or other share or ten-millionth of a share of
Preferred Stock, 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 (3)
years from the date of the transaction which mandates such adjustment, or (ii) the Expiration Date.

18

 

          (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 shares of
capital stock other than Preferred Stock, thereafter the number of such other shares 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 shares.

          (g) All Rights originally issued by the Company subsequent to any adjustment made to the
Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the
number of 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 one 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 ten-thousandth) obtained by
dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make
a public announcement of its election to adjust the number of Rights, indicating the record date
for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record
date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the
Rights Certificates have been issued, shall be at least ten (10) business 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

19

 

replacement for the Rights
Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if
required by the Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein (and may bear, at the option of the
Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record
of Rights Certificates on the record date specified in the public announcement.

          (j) Irrespective of any adjustment or change in the Purchase Price or the number of
one one-thousandths of a share of Preferred Stock issuable upon the exercise of the Rights, the 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-thousandth 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 stated 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 fully
paid and nonassessable such number of one one-thousandths of a share of Preferred Stock at such
adjusted Purchase Price.

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

          (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled
to make such reductions in the Purchase Price, in addition to those adjustments expressly required
by this Section 11, as and to the extent that in their good faith judgment the Board of Directors
of the Company shall determine to be advisable in order that any (i) consolidation or subdivision
of the Preferred Stock, (ii) issuance wholly for cash of any shares of Preferred Stock at less than
the Current Market Price, (iii) issuance wholly for cash of shares of Preferred Stock or securities
which by their terms are convertible into or exchangeable for shares of Preferred Stock, (iv) stock
dividends or (v) issuance of rights, options or warrants referred to in this Section 11, hereafter
made by the Company to holders of its Preferred Stock shall not be taxable to such stockholders.

20

 

          (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 which complies with Section 11(o) hereof), (ii) merge with or into any other Person
(other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof),
or (iii) other than pursuant to a pro rata dividend and/or distribution to all of the then current
holders of Common Stock, sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets, cash flow 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 rights, warrants or other
instruments or securities outstanding or agreements in effect which 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 stockholders of
the Person who constitutes, or would constitute, the “Principal Party” for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of
its Affiliates and Associates.

          (o) The Company covenants and agrees that, after the Distribution Date, it will not, except as
permitted by Section 23 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 Rights Dividend Declaration Date and prior to the Distribution Date (i)
declare a dividend on the outstanding shares of Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding shares of Common Stock, or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, the number of Rights associated with each share of
Common Stock then outstanding, or issued or delivered thereafter but prior to the Distribution
Date, shall be proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock following any such event shall equal the result obtained by multiplying
the number of Rights associated with each share of Common Stock immediately prior to such event by
a fraction the numerator which shall be the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of which shall be the total
number of shares of Common Stock outstanding immediately following the occurrence of such event.

     Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Section 11 and Section 13 hereof, the Company
shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the
facts accounting for such adjustment, (b) promptly file with the Rights Agent, and with each
transfer agent for the Preferred Stock and the Common Stock, a copy of such certificate and (c) if
a Distribution Date has occurred, 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

21

 

shares of
Common Stock) in accordance with Section 26 hereof. The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment therein contained.

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

          (a) In the event that, following the Stock Acquisition Date, directly or indirectly, (x) the
Company shall consolidate with, or merge with and into, any other Person (other than a Subsidiary
of the Company in a transaction which complies with Section 11(o) hereof), and the Company shall
not be the continuing or surviving corporation of such consolidation or merger, (y) any Person
(other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof)
shall consolidate with, or merge with or into, the Company, and the Company shall be the continuing
or surviving corporation of such consolidation or merger and, in connection with such consolidation
or merger, all or part of the outstanding shares of Common Stock shall be changed into or exchanged
for stock or other securities of any other Person or cash or any other property, or (z) other than
pursuant to a pro rata dividend and/or distribution by the Company to all of the then current
holders of Common Stock, 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, cash flow or earning power aggregating more than 50% of the assets, cash flow
or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons
(other than the
Company or any Subsidiary of the Company in one or more transactions each of which complies
with Section 11(o) hereof), then, and in each such case (except as may be 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), not 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 of a
Section 11(a)(ii) Event), 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, for all purposes of this Agreement,
thereafter be deemed to refer to such Principal Party, it being specifically intended that 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

22

 

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 or consolidation, and if no securities are so issued, the
Person that is the other party to such merger or consolidation; and

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

provided, however, that in any such case, (1) if the Common Stock of such Person is not at such
time and has not been continuously over the preceding twelve (12) month period registered under
Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another
Person the Common Stock of which is and has been so registered, “Principal Party” shall
refer to such other Person; and (2) in case such Person is a Subsidiary, directly or indirectly, of
more than one Person, the Common Stock 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.

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

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

23

 

               (ii) take all such other action as may be necessary to enable the Principal Party to issue the
securities purchasable upon exercise of the Rights, including but not limited to the registration
or qualification of such securities under all requisite securities laws of jurisdictions of the
various states and the listing of such securities on such exchanges and trading markets as may be
necessary or appropriate; and

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

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

          (d) Notwithstanding anything in this Agreement to the contrary, Section 13 shall not be
applicable to a transaction described in subparagraphs (x) and (y) of Section 13(a) if (i) such
transaction is consummated with a Person or Persons who acquired shares of Common Stock pursuant to
a tender offer or exchange offer for all outstanding shares of Common Stock which is a Qualified
Offer as such term is defined in Section 11(a)(ii)(B) hereof (or a wholly
owned subsidiary of any such Person or Persons), (ii) the price per share of Common Stock
offered 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 tender offer or
exchange offer and (iii) the form of consideration being offered to the remaining holders of shares
of Common Stock pursuant to such transaction is the same as the form of consideration paid pursuant
to such tender offer or exchange 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(p) hereof, or to distribute Rights Certificates which
evidence fractional Rights. In lieu of such fractional Rights, the Company shall pay 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 NASDAQ Capital Market or, if the Rights are not listed or admitted to trading on
the NASDAQ Capital Market, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities

24

 

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 low asked prices in the over-the-counter market, as reported by NASDAQ or such other system
then in use or, if on any such date the Rights are not quoted by any such organization, the average
of the closing bid and asked prices as furnished by a professional market maker making a market in
the Rights, selected by the Board of Directors of the Company. If on any such date no such market
maker is making a market in the Rights, the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.

          (b) The Company shall not be required to issue fractions of shares of Preferred Stock (other
than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock)
upon exercise of the Rights or to distribute certificates which evidence fractional shares of
Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock). In lieu of fractional shares of Preferred Stock that are not integral
multiples of one one-thousandth of a share of Preferred Stock, the Company may 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 may 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 (1) share of Common Stock. For purposes of this Section 14(c), the current market
value of one share of Common Stock shall be the closing price per share of Common Stock (as
determined pursuant to Section 11(d)(i) hereof) on the Trading Day immediately prior to the date of
such exercise.

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

     Section 15. Rights of Action. All rights of action in respect of this Agreement are vested in the respective registered
holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of
the Common Stock); and any registered holder of any Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder
of any other Rights Certificate (or, prior to the Distribution Date, of the Common Stock), may, in
his or her own behalf and for his or her own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Company to

25

 

enforce, or otherwise act in respect of, his or
her 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 principal office or offices of the
Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument
of transfer and with the appropriate forms and certificates duly completed and fully executed;

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

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

     Section 17. Rights Certificate Holder Not Deemed a Stockholder. No holder, as such, of any Rights Certificate shall be entitled to vote, receive dividends or be
deemed for any purpose the holder of the number of one one-thousandths of a share of Preferred
Stock or any other securities of the Company which may at any time be issuable on the exercise of
the Rights

26

 

represented thereby, nor shall anything contained herein or in any Rights Certificate be
construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate
action, or to receive notice of meetings or other actions affecting stockholders (except as
provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance
with the provisions hereof.

     Section 18. Concerning the Rights Agent.

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

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

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

          (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or
with which it may be consolidated, or any corporation resulting from any merger or consolidation to
which the Rights Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust, stock transfer or other stockholder 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; but only if such corporation would be eligible for appointment as a successor
Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Rights Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of a predecessor Rights Agent and deliver such Rights Certificates so
countersigned; and in case at that time any of the Rights Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Rights

27

 

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

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

          (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem
it necessary or desirable that any fact or matter (including, without limitation, the identity of
any Acquiring Person and the determination of Current Market Price) be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by the Chairman of the Board, the Chief Executive
Officer, the President, the Chief Financial Officer, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and delivered to the
Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such
certificate.

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

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

28

 

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

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

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

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

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

29

 

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

          (k) 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 either not been completed or indicates an affirmative response to clause 1
and/or 2 thereof, 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, by registered or certified mail, and,
if such registration occurs after the Distribution Date to the registered 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 if such removal occurs after the Distribution Date to the
registered 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, her or its 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 legal entity organized
and doing business under the laws of the United States or of the State of New York (or of any other
state of the United States), in good standing, having an office in the State of New York, which is
authorized under such laws to exercise corporate trust or stock transfer or stockholder services
powers and which has at the time of its appointment as Rights Agent a combined capital and surplus
of at least $100,000,000 (one hundred million dollars) or (b) an affiliate of a legal business entity described in clause (a)
of this sentence. After appointment, the successor Rights Agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named as Rights Agent
without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the
successor Rights Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment, the Company shall file notice thereof in writing with the predecessor
Rights Agent and each transfer agent of the Common Stock and the Preferred Stock, and, if such
appointment occurs after the Distribution Date, 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

30

 

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 of Directors 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. 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 (a) shall, with respect to shares of Common
Stock so issued or sold pursuant to the exercise of stock options or under any employee plan or
arrangement, granted or awarded as of the Distribution Date, or upon the exercise, conversion or
exchange of securities hereinafter issued by the Company, and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Rights Certificates
representing the appropriate number of Rights in connection with such
issuance or sale; provided, however, that (i) 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 (ii) 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.

     Section 23. Redemption and Termination.

          (a) The Board of Directors of the Company may, at its option, at any time prior to the earlier
of (i) the Close of Business on the tenth day 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 day following the Record Date) as such period may be extended or shortened in the discretion
of the Board of Directors (the “Redemption Period”), or (ii) the Final Expiration Date,
cause the Company to redeem all but not less than all of 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”).
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. 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 deemed appropriate by the Board of Directors.

          (b) Immediately upon the action of the Board of Directors of the Company ordering the
redemption of the Rights, evidence of which shall have been filed with the Rights Agent and without
any further action and without any notice, the right to exercise the Rights will 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 of Directors ordering the

31

 

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

          (c) Notwithstanding the provisions of Section 23(a) hereof, in the event that a majority of
the Board of Directors of the Company is comprised of persons elected at a meeting of stockholders
who were not nominated by the Board of Directors of the Company in office immediately prior to such
meeting, then for a period of one hundred and eighty (180) days following the effectiveness of such
election the Rights shall not be redeemed if such redemption is reasonably likely to have the purpose or effect of allowing any Person to become an
Acquiring Person or otherwise facilitating the occurrence of a Triggering Event or a transaction
with an Acquiring Person.

     Section 24. Exchange.

          (a) The Board of Directors of the Company may, at its option, at any time after any Person
becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the provisions of Section 7(e)
hereof) for 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 of Directors of the Company 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 or, until the completion of the spin-off
distribution of all of the outstanding shares of Common Stock by Bentley Pharmaceuticals, Inc. to
its stockholders) together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the Common Stock then outstanding.

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

32

 

the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the 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 paragraph (b) of Section
11 hereof) for Common Stock exchangeable for Rights, at the initial rate of one one-hundredth of a
share of Preferred Stock (or Equivalent Preferred Stock) for each share of Common Stock, as
appropriately adjusted to reflect stock splits, stock dividends and other similar transactions
after the date hereof.

          (d) In the event that there shall not be sufficient shares of Common 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 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 Rights
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 (d), the current market value of a whole share
of Common Stock shall be the closing price of a share of Common Stock (as determined pursuant to
the second sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date
of exchange pursuant to this Section 24.

     Section 25. Notice of Certain Events.

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

33

 

cash flow 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 each
holder of a Rights Certificate, to the extent feasible and in accordance with Section 26 hereof, a
notice of such proposed action, which shall specify the record date for the purposes of such stock
dividend, distribution of rights or warrants, or the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and
the date of participation therein by the holders of the shares of Preferred Stock, if any such date
is to be fixed, and such notice shall be so given in the case of any action covered by clause (i)
or (ii) above at least twenty (20) days prior to the record date for determining holders of the
shares of Preferred Stock for purposes of such action, and in the case of any such other action, at
least twenty (20) days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the shares of Preferred Stock, whichever shall be the
earlier.

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

     Section 26. Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by
the holder of any 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 by
the Rights Agent with the Company) as follows:

CPEX Pharmaceuticals, Inc.

2 Holland Way

Exeter, New Hampshire 03833

Attention: Corporate Secretary

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 by the Rights Agent with the Company) as follows:

34

 

American
Stock Transfer & Trust Company, LLC

59 Maiden Lane, Plaza Level

New York, New York 10038

Attention: Corporate Trust Department

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

     Section 27. Supplements and Amendments. Prior to the Distribution Date the Company and the Rights Agent shall, if the Company so
directs, supplement or amend any provision of this Agreement without the approval of any holders of
certificates representing shares of Common Stock. From and after the Distribution
Date, the Company and the Rights Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Rights Certificates in order (i) to cure any
ambiguity, (ii) to correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) to shorten or lengthen any time period
hereunder, or (iv) to change or supplement the provisions hereunder in any manner which the Company
may deem necessary or desirable and which shall not adversely affect the interests of the holders
of Rights Certificates (other than an Acquiring Person or an Affiliate or Associate of an Acquiring
Person). Upon the delivery of a certificate from an appropriate officer of the Company which states
that the proposed supplement or amendment is in compliance with the terms of this Section 27, the
Rights Agent shall execute such supplement or amendment. Notwithstanding anything herein to the
contrary, this Agreement may not be amended (other than pursuant to clauses (i) or (ii) of the
preceding sentence) at a time when the Rights are not redeemable.

     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. Determinations and Actions by the Board of Directors, etc. For all purposes of this Agreement, any calculation of the number of shares of Common Stock or
any other class of capital 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)
(1) (i) of the General Rules and Regulations under the Exchange Act. The Board of Directors of the
Company shall have the exclusive power and authority to administer this Agreement and to exercise
all rights and powers specifically granted to the Board or 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 the 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

35

 

holders of the Rights and all other
parties, and (y) not subject the Board, or any of the directors on the Board to any liability to
the holders of the Rights.

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

     Section 31. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated; provided, however, that
notwithstanding anything in this Agreement to the contrary, if any such term, provision, covenant
or restriction is held by such court or authority to be invalid, void or unenforceable and the
Board of Directors of the Company determines in its good faith judgment that severing the invalid
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 of Directors. Without limiting the foregoing, if any provision requiring a specific group
of directors to act is held to by any court of competent jurisdiction or other authority to be
invalid, void or unenforceable, such determination shall then be made by the Board of Directors of
the Company in accordance with applicable law and the Company’s Amended and Restated Certificate of
Incorporation and Amended and Restated By-laws.

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

36

 

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

	 	 	 	 	 
	 	CPEX Pharmaceuticals, Inc.

 	 
	 	By:  	 /s/
John A. Sedor	 
	 	 	Name: 	 John A. Sedor	 
	 	 	Title:  	 President and Chief Executive Officer	 
	 
	 	American Stock Transfer & Trust
Company, LLC

 	 
	 	By:  	 /s/
Herbert J. Lemmer	 
	 	 	Name:  	 Herbert J. Lemmer	 
	 	 	Title:  	 Vice President	 

37

 

	 	 	 	 	 

Exhibit A 

FORM OF

SERIES A

CERTIFICATE OF DESIGNATION

PREFERENCES AND RIGHTS OF PREFERRED STOCK

OF

CPEX PHARMACEUTICALS, INC.

Pursuant to Section 151 of the General Corporation Law of the State of Delaware

     We, the undersigned, Chairman of the Board, and, Secretary of CPEX Pharmaceuticals, Inc. a
corporation organized and existing under the General Corporation Law of the State of Delaware (the
“Corporation”), in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY:

     That pursuant to the authority conferred upon the Board of Directors by the Amended and
Restated Certificate of Incorporation of the said Corporation, the
said Board of Directors on June 12, 2008, adopted the following resolution creating a series of Class A shares of Preferred Stock
designated as Series A Preferred Stock:

     RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation
in accordance with the provisions of its Amended and Restated Certificate of Incorporation, a
series of Preferred Stock of the Corporation be and it hereby is created, and that the designation
and amount thereof and the voting powers, preferences and relative, participating, optional and
other special rights of the shares of such series, and the qualifications, limitations or
restrictions thereof are as follows:

     Section 1. Designation and Amount. The shares of such series shall be designated as
“Series A Preferred Stock” and the number of shares constituting such series shall be
1,000,000.

38

 

     Section 2. Dividends and Distributions.

          (A) Subject to the prior and superior rights of the holders of any shares of any series of
Preferred Stock ranking prior and superior to the shares of Series A Preferred Stock with respect
to dividends, the holders of shares of Series A Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the last day of March, June, September and December in each year (each such date being
referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $ 0.01 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, par value $ 0.01 per share,
of the Corporation (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 after June 12, 2008 (the
“Rights Dividend Declaration Date”) (i) declare
any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, 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.

          (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock
as provided in Paragraph (A) above immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock); 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 $ 0.01  per share on the Series A Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.

          (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A
Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such
shares of Series A Preferred Stock, 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

39

 

shares shall be allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors 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 no more than 30 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 after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in Common Stock, (ii)
subdivide the outstanding shares of Common Stock, or (iii) combine the outstanding Common Stock
into a smaller number of shares, 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.

          (B) Except as otherwise provided herein or by law, the holders of shares of Series A Preferred
Stock and the holders of Common Stock 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 (6) quarterly dividends thereon, the occurrence of such contingency shall mark
the beginning of a period (herein called a “default period”) which shall extend until such
time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all shares of Series A Preferred Stock then outstanding shall
have been declared and paid or set apart for payment. During each default period, all holders of
Preferred Stock (including holders of the Series A Preferred Stock) with dividends in arrears in an
amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series,
shall have the right to elect two (2) directors.

               (ii) During any default period, such voting right of the holders of Series A Preferred Stock
may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this
Section 3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of
stockholders, provided that such voting right shall not be exercised unless the holders of ten
percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by
proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the
holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred
Stock shall exercise such voting right initially during an existing default period, they shall have
the right, voting as a class, to elect directors to fill such vacancies, if any, in the Board of
Directors as may then exist up to one (1) director or, if such right is exercised at

40

 

an annual meeting, to elect one (1) director. If the number which may be so elected at any special
meeting does not amount to the required number, the holders of the Preferred Stock shall have the
right to make such increase in the number of directors as shall be necessary to permit the election
by them of the required number. After the holders of the Preferred Stock shall have exercised their
right to elect a director in any default period and during the continuance of such period, the
number of directors shall not be increased or decreased except by vote of the holders of Preferred
Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or
pari passu with the Series A Preferred Stock.

               (iii) Unless the holders of Preferred Stock shall, during an existing default period, have
previously exercised their right to elect directors, the Board of Directors may order, or any
stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total
number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling
of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by
the President, a Vice-President or the Secretary of the Corporation. Notice of such meeting and of
any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this
Paragraph (C) (iii) shall be given to each holder of record of Preferred Stock by mailing a copy of
such notice to him or her at such person’s last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than 20 days and not later than 60
days after such order or request or in default of the calling of such meeting within 60 days after
such order or request, such meeting may be called on similar notice by any stockholder or
stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares
of Preferred Stock out standing. Notwithstanding the provisions of this Paragraph (C) (iii), no
such special meeting shall be called during the period within 60 days immediately preceding the
date fixed for the next annual meeting of the stockholders.

               (iv) In any default period, the holders of Common Stock, and other classes of stock of the
Corporation if applicable, shall continue to be entitled to elect the whole number of directors
until the holders of Preferred Stock shall have exercised their right to elect one (1) director
voting as a class, after the exercise of which right (x) the director so elected by the holders of
Preferred Stock shall continue in office until their successor shall have been elected by such
holders or until the expiration of the default period, and (y) any vacancy in the Board of
Directors may (except as provided in Paragraph (C)(ii) of this Section 3) be filled by vote of a
majority of the remaining directors thereto fore elected by the holders of the class of stock which
elected the director whose office shall have become vacant. References in this Paragraph (C) to
directors elected by the holders of a particular class of stock shall include directors elected by
such directors to fill vacancies as provided in clause (y) of the foregoing sentence.

               (v) Immediately upon the expiration of a default period, (x) the right of the holders of
Preferred Stock as a class to elect directors shall cease, (y) the term of any directors elected by
the holders of Preferred Stock as a class shall terminate, and (z) the number of directors shall be
such number as may be provided for in the certificate of incorporation or by-laws irrespective of
any increase made pursuant to the provisions of Paragraph (C)(ii) of this Section 3 (such number
being subject, however, to change thereafter in any manner provided by law or in the certificate of
incorporation or by-laws). Any vacancies in the Board of Directors

41

 

effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a
majority of the remaining directors.

          (D) Except as set forth herein or as otherwise required 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 on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration 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 on 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 on
a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity 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) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock,
except in accordance with a purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.

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

42

 

     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 to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.

     Section 6. Liquidation, Dissolution or Winding Up.

          (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made 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 an
amount equal to $1,000 per share of Series A Preferred Stock, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the date of such payment
(the “Series A Liquidation Preference”). Following the payment of the full amount of the
Series A Liquidation Preference, no additional distributions shall be made to the holders of shares
of Series A Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have
received an amount per share (the “Common Adjustment”) equal to the quotient obtained by
dividing (i) the Series A Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set
forth in subparagraph (C) below to reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number in clause (ii), the
“Adjustment Number”). Following the payment of the full amount of the Series A Liquidation
Preference and the Common Adjustment in respect of all outstanding shares of Series A Preferred
Stock and Common Stock, respectively, holders of Series A Preferred Stock and holders of shares of
Common Stock shall receive their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and
Common Stock, on a per share basis, respectively.

          (B) In the event, however, that there are not sufficient assets available to permit payment in
full of the Series A Liquidation Preference and the liquidation preferences of all other series of
preferred stock, if any, which rank on a parity with the Series A Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of such parity shares in proportion to
their respective liquidation preferences. In the event, however, that there are not sufficient
assets available to permit payment in full of the Common Adjustment, then such remaining assets
shall be distributed ratably to the holders of Common Stock.

          (C) In the event the Corporation shall at any time after the Rights Declaration Date (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after

43

 

such event and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

     Section 7. Consolidation, Merger, etc. 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 the shares of Series A Preferred Stock shall at the same time be similarly exchanged
or changed in 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 after the Rights Declaration
Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of
shares, 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.

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

     Section 9. Ranking. The Series A Preferred Stock shall rank junior to all other
series of the Corporation’s Preferred Stock as to the payment of dividends and the distribution of
assets, unless the terms of any such series shall provide otherwise.

     Section 10. Amendment. At any time when any shares of Series A Preferred Stock are
outstanding, neither the Amended and Restated Certificate of Incorporation of the Corporation nor
this Certificate of Designation shall 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 66 2/3% or more of the outstanding
shares of Series A Preferred Stock, voting separately as a 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 to have the benefit of
all other rights of holders of Series A Preferred Stock.

44

 

     IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the
foregoing as true under the penalties of perjury this [
      ] day of June 2008.

	 	 	 	 	 
	 	CPEX Pharmaceuticals, Inc.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	Chairman of the Board 	 
	 
	 	CPEX Pharmaceuticals, Inc.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	Secretary 	 

45

 

	 	 	 	 	 

Exhibit B 

Form of Rights Certificate

Certificate No. R-      
               Rights

NOT
EXERCISABLE AFTER JUNE 13, 2018 OR EARLIER IF REDEEMED BY THE COMPANY. THE RIGHTS ARE
SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $    PER RIGHT 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

Rights Certificate

CPEX PHARMACEUTICALS, INC.

This certifies that                     , or registered assigns, is the registered owner of the number
of Rights set forth above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Rights Agreement, dated as of
June 13, 2008 (the “Rights
Agreement”), between CPEX Pharmaceuticals, Inc., a Delaware corporation (the
“Company”), and American Stock Transfer & Trust
Company, LLC, a New York limited liability trust company
(the “Rights Agent”), to purchase from the Company at any time prior to 5:00 P.M. (New York
City time) on June 13, 2018 (unless such date is extended prior thereto by the Board of Directors)
at the office or offices 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 Preferred
Stock (the “Preferred Stock”) of the Company, at a
purchase price of $100 (one hundred dollars) 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

 

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

46

 

evidenced by this Rights Certificate (and the number of shares which may be purchased upon exercise
thereof) set forth above, and the Purchase Price per share set forth above, are the number and
Purchase Price as of June 13, 2008, based on the Preferred Stock as constituted at such date. The
Company reserves the right to require prior to the occurrence of a Triggering Event (as such term
is defined in the Rights Agreement) that a number of Rights be exercised so that only whole shares
of Preferred Stock will be issued.

     Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined in the Rights
Agreement), 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, or (iii) under certain circumstances specified in the Rights Agreement, a transferee of
a person who, after such transfer, became an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, such Rights shall become null and void and no holder hereof shall have any right
with respect to such Rights from and after the occurrence of 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 Triggering 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
above-mentioned office of the Rights Agent and are also available upon written request to the
Rights Agent.

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

     Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate
may be redeemed by the Company at its option at a redemption price of
$0.001 per Right at any
time prior to the earlier of the Close of Business on (i) the tenth day following the Stock
Acquisition Date (as such time period may be extended pursuant to the Rights Agreement), and (ii)
the Final Expiration Date (as such term is defined in the Rights Agreement). Immediately upon the
action of the Board of Directors of the Company authorizing any such exchange, and without any
further action or any notice, the Rights (other than Rights which are not subject to

47

 

such exchange) will terminate and the Rights will only enable holders to receive the shares
issuable upon such exchange.

     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. The Company, at its election, may require that a number of Rights be exercised so that
only whole shares of Preferred Stock would be issued.

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

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

48

 

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

Dated as of                      ___,

	 	 	 	 	 
	 	CPEX Pharmaceuticals, Inc.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	American Stock Transfer & Trust
Company, LLC

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

49

 

	 	 	 	 	 

[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:

50

 

Certificate

     The undersigned hereby certifies by checking the appropriate boxes that:

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

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

Dated:                     , ___

	 	 	 	 	 
	 

	 	 

	 	 
	 

	 	Signature	 	 

Signature Guaranteed:

51

 

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.

52

 

FORM OF ELECTION TO PURCHASE

(To be executed if holder desires to exercise Rights represented by the Rights Certificate.)

To: CPEX PHARMACEUTICALS, INC.:

     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:

53

 

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 of any such
Acquiring Person (as such terms are defined pursuant to the Rights Agreement);

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

Dated:                                         , ___

	 	 	 	 	 
	 

	 	 

Signature
	 	 

Signature Guaranteed:

54

 

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.

55

 

Exhibit C 

SUMMARY OF RIGHTS TO PURCHASE

SERIES A PREFERRED STOCK

     On
June 13, 2008, the Board of Directors of CPEX Pharmaceuticals, Inc. (the
“Company”) declared a dividend distribution of one Right for each outstanding share of
Company Common Stock to stockholders of record at the close of
business on June 23, 2008 (the “Record Date”). Each Right entitles the registered holder to purchase from the
Company a unit consisting of one one-thousandth of a share (a “Unit”) of Series A
Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”) at a Purchase
Price of $100 (one hundred dollars) per Unit, subject to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement (the “Rights Agreement”) between the Company and American Stock
& Transfer Company, LLC, as Rights Agent.

     Initially, the Rights will be attached to all Common Stock certificates representing shares
then outstanding, and no separate Rights Certificates will be distributed. Subject to certain
exceptions specified in the Rights Agreement, the Rights will separate from the Common Stock and a
Distribution Date will occur upon the earlier of (i) ten (10) business days following 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 more of
the shares of Common Stock then outstanding (the “Stock Acquisition Date”), other than as a
result of repurchases of stock by the Company or certain inadvertent actions by institutional or
certain other stockholders or (ii) ten (10) business days (or such later date as the Board shall
determine) following the commencement of a tender offer or exchange offer that would result in a
person or group becoming an Acquiring Person. The definition of Acquiring Person excludes Michael
McGovern, one of the Company’s directors, and his affiliates and associates (the “Existing
Group”), unless any member of the Existing Group, together with his or its affiliates and
associates, increases his or its beneficial ownership by 15% or more of the shares of Common Stock
then outstanding from the number of shares of Common Stock beneficially owned by him or it on the
date that shares of Company Common Stock are distributed by Bentley to its shareholders pursuant to
the spin-off of the Company to Bentley’s shareholders. Under the Rights Agreement, for purposes of
calculating percentages of Common Stock outstanding, shares of Common Stock outstanding shall
include all shares of Common Stock deemed to be beneficially owned (as defined in the Rights
Agreement) by a person and its affiliates and associates, even if not actually then outstanding.

     Until the Distribution Date (or earlier redemption, exchange or expiration of the Rights), (i)
the Rights will be evidenced by the Common Stock certificates and will be transferred with and only
with such Common Stock certificates, (ii) new Common Stock certificates issued after the Record
Date will contain a notation incorporating the Rights Agreement by reference and (iii) the
surrender for transfer of any certificates for Common Stock outstanding will also constitute the
transfer of the Rights associated with the Common Stock represented by such certificate. Pursuant
to the Rights Agreement, the Company reserves the right to require prior to the

56

 

occurrence of a Triggering Event (as defined below) that, upon any exercise of Rights, a
number of Rights be exercised so that only whole shares of Preferred Stock will be issued.

     The Rights are not exercisable until the Distribution Date and will expire at 5:00 P.M. (New
York City time) on June 13, 2018, unless such date is extended or the Rights are earlier
redeemed or exchanged by the Company as described below.

     As soon as practicable after the Distribution Date, 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 (i) with
respect to certain shares of Common Stock issued or sold pursuant to the exercise of stock options
or under any employee plan or arrangement, granted or awarded as of the Distribution Date, or upon
the exercise, conversion or exchange of certain securities of the Company, or (ii) as otherwise
determined by the Board of Directors, only shares of Common Stock issued prior to the Distribution
Date will be issued with Rights.

     In the event that a Person becomes an Acquiring Person, except pursuant to an offer for all
outstanding shares of Common Stock which the independent directors determine to be fair and not
inadequate and to otherwise be in the best interests of the Company and its stock holders, after
receiving advice from one or more investment banking firms (a “Qualified Offer”), each
holder of a Right will thereafter have the right to receive, upon payment of the Purchase Price,
shares of Common Stock (or, in certain circumstances, cash, property or other securities of the
Company) having a value (based on a formula set forth in the Rights Agreement) equal to two times
the Purchase Price of the Right. Notwithstanding any of the foregoing, following the occurrence of
the event set forth in this paragraph (the “Flip-in Event”), all Rights that are, or (under
certain circumstances specified in the Rights Agreement) were, beneficially owned by an Acquiring
Person (or by certain related parties) shall be null and void. However, Rights are not exercisable
following the occurrence of the Flip-in Event until such time as the Rights are no longer
redeemable by the Company as set forth below.

     For
example, at an exercise price of $100 (one hundred dollars) per Right, each Right not owned by an Acquiring
Person (or by certain related parties) following an event set forth in the preceding paragraph
would entitle its holder to purchase $200 (two hundred dollars) worth of Common Stock (or other consideration, as noted
above) for $100 (one hundred dollars). Assuming that the Common Stock
had a per share value of $10 (ten dollars) at
such time, the holder of each valid Right would be entitled to
purchase 20 (twenty) shares of Common Stock for
$100 (one hundred dollars).

     In the event that, at any time following the Stock Acquisition Date, (i) the Company engages
in a merger or other business combination transaction in which the Company is not the surviving
corporation (other than with an entity which acquired the shares pursuant to a Qualified Offer),
(ii) the Company engages in a merger or other business combination transaction in which the Company
is the surviving corporation and the Common Stock of the Company is changed or exchanged, or (iii)
50% or more of the Company’s assets, cash flow or earning power is sold or transferred, each holder
of a Right (except Rights which have previously been voided as set forth above) shall thereafter
have the right to receive, upon exercise, common stock of the acquiring company having a value
equal to two times the exercise price of the Right.

57

 

The events set forth in this paragraph and in the second preceding paragraph are referred to
as the “Triggering Events.”

     At any time after a person becomes an Acquiring Person and prior to the acquisition by such
person or group of fifty percent (50%) or more of the outstanding Common Stock, the Board may
exchange the Rights (other than Rights owned by such person or group 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 rights or warrants to subscribe for Preferred Stock or convertible securities at less than
the current market price of the Preferred Stock, or (iii) upon the distribution to holders of the
Preferred Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends)
or of subscription rights or warrants (other than those referred to above).

     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 Units 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.

     At any time prior to the earlier of (i) ten (10) business days following the Stock Acquisition
Date or (ii) such later date as may be established by the Board of Directors prior to the
expiration of the Rights (the “Final Expiration Date”), the Company may redeem the Rights
in whole, but not in part, at a price of $ per Right (payable in cash, Common Stock or other
consideration deemed appropriate by the Board of Directors). Immediately upon the action of the
Board of Directors ordering redemption of the Rights the Rights will terminate and the only right
of the holders of Rights will be to receive the $ redemption price.

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

     Any of the provisions of the Rights Agreement may be amended by the Board of Directors of the
Company prior to the Distribution Date. After the Distribution Date, the provisions of the Rights
Agreement may be amended by the Board in order to cure any ambiguity, to make changes which do not
adversely affect the interests of holders of Rights, or to shorten or lengthen any time period
under the Rights Agreement. The foregoing notwithstanding, no amendment may be made at such time as
the Rights are not redeemable.

58

 

     A
copy of the Rights Agreement has been filed with the Securities and Exchange Commission as
an Exhibit to a Information Statement on Form 10 dated
June 12, 2008.

     A copy of the Rights Agreement is available free of charge from the Rights Agent. 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.

59

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