Document:

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                                                                     EXHIBIT 4.1

                                                                  EXECUTION COPY
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                        APPLIED MOLECULAR EVOLUTION, INC.

                                       and

                          EQUISERVE TRUST COMPANY, N.A.

                                  Rights Agent

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

                                RIGHTS AGREEMENT

                            Dated as of May 10, 2001

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                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                             Page
                                                                             ----
<S>                                                                          <C>
Exhibit A -- Certificate of Designation, Rights and Preferences of
             Series A Participating Preferred Stock ...................       A-1

Exhibit B -- Form of Rights Certificate ...............................       B-1

Exhibit C -- Form of Summary of Rights ................................       C-1
</TABLE>

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                                RIGHTS AGREEMENT

       THIS AGREEMENT is dated as of May 10, 2001 between APPLIED MOLECULAR
EVOLUTION, INC., a Delaware corporation (the "Company"), and EQUISERVE TRUST
COMPANY, N.A., a National Banking Association (the "Rights Agent").

                              W I T N E S S E T H:

       WHEREAS, on April 16, 2001, 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, $0.001 par value per share, of the
Company (the "Common Stock") outstanding as of the close of business on May 10,
2001 (the "Record Date"), and contemplates the issuance of one Right (subject to
adjustment as provided herein) for each share of Common Stock of the Company
issued between the Record Date and the earlier of the Distribution Date and the
Expiration Date, as such terms are hereinafter defined (with Rights also to be
issued in connection with certain issuances of Common Stock after the
Distribution Date, as provided more fully herein), each Right representing the
right to purchase one one-thousandth of a share of Series A Participating
Preferred Stock of the Company having the rights, powers and preferences set
forth in the form of Certificate of Designation, Rights and Preferences 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 hereto hereby agree as follows:

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

              (a) "Acquiring Person" shall mean any Person (as such term is
       hereinafter defined) who or which, together with all Affiliates (as such
       term is hereinafter defined) and Associates (as such term is hereinafter
       defined) of such Person, shall be the Beneficial Owner (as such term is
       hereinafter defined) of 15% or more of the shares of Common Stock then
       outstanding or who was such a Beneficial Owner at any time after the date
       hereof, whether or not such Person continues to be the Beneficial Owner
       of 15% or more of the outstanding shares of Common Stock. Notwithstanding
       the foregoing, (i) in no event shall a Person who or which, together with
       all Affiliates and Associates of such Person, is the Beneficial Owner of
       less than 15% of the Company's outstanding shares of Common Stock become
       an Acquiring Person solely as a result of a reduction of the number of
       shares of outstanding Common Stock, including repurchases of outstanding
       shares of Common Stock by the Company, which reduction increases the
       percentage of outstanding shares of Common Stock beneficially owned by
       such Person (provided that any subsequent increase in the amount of
       Common Stock beneficially owned by such Person, together with all
       Affiliates and Associates of such Person, without the prior approval of
       the Company shall cause such Person to be an Acquiring Person); (ii) the
       term Acquiring Person shall not

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       mean (A) the Company, (B) any subsidiary of the Company (as such term is
       hereinafter defined), (C) any employee benefit plan of the Company or any
       of its subsidiaries, or (D) any entity holding securities of the Company
       organized, appointed or established by the Company or any of its
       subsidiaries for or pursuant to the terms of any such plan; and (iii) no
       Person shall be deemed to be an Acquiring Person if (A) within five
       business days after such Person would otherwise have become an Acquiring
       Person (but for the operation of this clause (iii)), such Person notifies
       the Board of Directors that such Person did so inadvertently and, within
       two business days after such notification, such Person is the Beneficial
       Owner of less than 15% of the outstanding shares of Common Stock, (B) by
       reason of such Person's Beneficial Ownership of 15% or more of the
       outstanding shares of Common Stock on the date hereof if, prior to the
       Record Date, such Person notifies the Board of Directors that such Person
       is no longer the Beneficial Owner of 15% or more of the then outstanding
       shares of Common Stock or (C) if the Board of Directors determines in
       good faith that a Person who would otherwise be an "Acquiring Person," as
       defined pursuant to the foregoing provisions of this paragraph (a), has
       become such inadvertently, and such Person divests Beneficial Ownership
       as promptly as practicable of a sufficient number of shares of Common
       Stock so that such Person would no longer be an "Acquiring Person," as
       defined pursuant to the foregoing provisions of this paragraph (a).

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

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

                     (i) which such Person or any of such Person's Affiliates or
              Associates beneficially owns, directly or indirectly;

                     (ii) which such Person or any of such Person's Affiliates
              or Associates has (A) the right or obligation to acquire (whether
              such right or obligation is exercisable or effective immediately
              or only after the passage of time) pursuant to any agreement,
              arrangement or understanding (whether or not in writing) (other
              than customary agreements with and between underwriters and
              selling group members with respect to a bona fide public offering
              of securities) or upon the exercise of conversion rights, exchange
              rights, rights (other than the Rights), warrants or options, or
              otherwise; provided, however, that a Person shall not be deemed
              under this clause (A) the "Beneficial Owner" of, or to
              "beneficially own," 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 payment or exchange; or (B) the right to vote
              pursuant to any agreement, arrangement or understanding (whether
              or not in writing); provided, however, that a Person shall not be
              deemed under

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              this clause (B) the "Beneficial Owner" of, or to "beneficially
              own," any security if the agreement, arrangement or understanding
              to vote such security (1) 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 rules and
              regulations of the Exchange Act and (2) is not also then
              reportable by such Person on Schedule 13D under the Exchange Act
              (or any comparable or successor report); or

                     (iii) which are beneficially owned, directly or indirectly,
              by any other Person (or any Affiliate or Associate thereof) with
              which such Person or any of such Person's Affiliates or Associates
              has any agreement, arrangement or understanding (whether or not in
              writing) (other than customary agreements with and between
              underwriters and selling group members with respect to a bona fide
              public offering of securities), or with which such Person or any
              of such Person's Affiliates have otherwise formed a group, for the
              purpose of acquiring, holding, voting (except pursuant to a
              revocable proxy as described in clause (B) of subparagraph (ii) of
              this paragraph (c)) or disposing of any securities of the company.

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

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

              (f) "Common Stock" shall have the meaning set forth in the
       Recitals hereof, except that "Common Stock" when used with reference to
       stock issued by any Person other than the Company shall mean the capital
       stock with the greatest voting power, or the equity securities or other
       equity interest having power to control or direct the management, of such
       Person or, if such Person is a subsidiary of another Person, of the
       Person which ultimately controls such first-mentioned Person and which
       has issued and outstanding such capital stock, equity securities or
       equity interests.

              (g) "Person" shall mean any individual, firm, corporation,
       partnership, joint venture, association, trust or other entity.

              (h) "Preferred Stock" shall mean the Series A Participating
       Preferred Stock, $0.001 par value, of the Company.

              (i) "Stock Acquisition Date" shall mean the first date of public
       announcement by the Company or an Acquiring Person that an Acquiring
       Person has become such.

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              (j) A "subsidiary" of any Person shall mean any corporation or
       other entity of which a majority of the voting power of the voting equity
       securities or voting interests is owned, directly or indirectly, by such
       Person, or which is otherwise controlled by such Person.

              (k) "Voting power" shall mean the voting power of all securities
       of the Company then outstanding and generally entitled to vote for the
       election of directors of the Company.

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

       3. Issue of Rights Certificates.

       (a) Until the earlier of (i) the Stock Acquisition Date or (ii) the tenth
day after the date of the commencement of, or first public announcement of the
intent of any Person (other than the Company, any subsidiary of the Company, or
any employee benefit plan of the Company or any of its subsidiaries) to commence
(which intention to commence remains in effect for five Business Days after such
announcement), a tender or exchange offer which would result in such Person
becoming an Acquiring Person, unless such date is extended by the Board of
Directors of the Company (including any such date which is on or after the date
of this Agreement and prior to the issuance of the Rights; the earlier of such
dates being herein referred to as the "Distribution Date"), (x) the Rights shall
be evidenced (subject to the provisions of paragraph (b) of this Section 3) by
the certificates for 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
(and the right to receive certificates therefor) shall be transferable only in
connection with the transfer of the underlying shares of Common Stock. As soon
as practicable after the Distribution Date, the Rights Agent shall 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, a certificate for Rights, in
substantially the form of Exhibit B hereto (the "Rights Certificates"),
evidencing one Right for each share of Common Stock so held. As of and after the
Distribution Date, the Rights shall be evidenced solely by such Rights
Certificates.

       As soon as practicable following the Record Date, the Company shall send
a copy of a Summary of Rights, in substantially the form attached hereto as
Exhibit C (the "Summary of Rights"), by first-class, postage prepaid mail, to
each record holder of the Common Stock as of the close of business on the Record
Date, at the address of such holder shown on the records of

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the Company. With respect to certificates for the Common Stock outstanding as of
the Record Date, until the Distribution Date (or earlier redemption, expiration
or termination of the Rights), the Rights shall 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
Distribution Date (or earlier redemption, expiration or termination of the
Rights), the surrender for transfer of any of the certificates for the Common
Stock outstanding on the Record Date, even without a copy of the Summary of
Rights attached thereto, shall also constitute the transfer of the Rights
associated with the Common Stock represented by such certificate.

       (b) Certificates issued for Common Stock (including, without limitation,
certificates issued upon transfer or exchange of Common Stock) after the Record
Date, but prior to the earlier of the Distribution Date or the Expiration Date
(as such term is defined in Section 7 hereof), shall have impressed, printed,
stamped, written or otherwise affixed onto them the following legend:

              This certificate also evidences and entitles the holder hereof to
       certain Rights as set forth in a Rights Agreement between Applied
       Molecular Evolution, Inc. (the "Company") and EquiServe Trust Company,
       N.A. (the "Rights Agent") dated as of May 10, 2001 (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 may be redeemed, may expire, or may be evidenced
       by separate Certificates and will no longer be evidenced by this
       Certificate. The Company will mail to the holder of this certificate a
       copy of the Rights Agreement without charge within five days after
       receipt of a written request therefor. Under certain circumstances,
       Rights issued to Acquiring Persons (as defined in the Rights Agreement)
       or certain related Persons and any subsequent holder of such Rights may
       become null and void.

With respect to such certificates containing the foregoing legend, until the
Distribution Date (or earlier redemption, expiration or termination of the
Rights), the Rights associated with the Common Stock represented by such
certificates shall be evidenced by such certificates alone, and the surrender
for transfer of any of such certificates shall also constitute the transfer of
the Rights associated with the Common Stock represented by such certificate.

       4. Form of Rights Certificates.

       (a) The Rights Certificates (and the forms of election to purchase shares
and of assignment and certificates to be printed on the reverse thereof) shall
each be substantially in the form set forth in Exhibit B hereto and may have
such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange 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 23 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

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Preferred Stock as shall be set forth therein at the price per one
one-thousandth of a share set forth therein, such price to be initially equal to
the amount set forth in Section 7(b) below (the "Purchase Price"), but the
number of such shares and the Purchase Price shall be subject to adjustment as
provided herein.

       (b) Any Rights Certificate issued pursuant to Section 3(a) hereof that
represents Rights beneficially owned by an Acquiring Person or any Associate or
Affiliate thereof, any Rights Certificate issued at any time upon the transfer
of any Rights to such an Acquiring Person or any Associate or Affiliate thereof
or to any nominee of such Acquiring Person, Associate or Affiliate, and any
Rights Certificate issued pursuant to Section 6 or Section 11 upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain the following legend:

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

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

       5. Countersignature and Registration. The Rights Certificates shall be
executed on behalf of the Company by its Chairman of the Board, any Vice
Chairman of the Board, 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 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.

       Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its office designated for such purpose, books for registration and
transfer of the Rights Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Rights Certificates, the
number of Rights evidenced on its face by each of the Rights Certificates and
the date of each of the Rights Certificates.

       6. Transfer, Split Up, Combination and Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights Certificates. Subject to the
provisions of Section 15 hereof, at

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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 may be transferred, split up, combined or exchanged for another
Rights Certificate or Rights Certificates, entitling the registered holder to
purchase a like number of shares of Preferred Stock as the Rights Certificate or
Rights Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any Rights
Certificate shall make such request in writing delivered to the Rights Agent,
and shall surrender the Rights Certificate or Rights Certificates to be
transferred, split up, combined or exchanged at the principal office of the
Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the
Person entitled thereto a Rights Certificate or Rights Certificates, as the case
may be, as so requested. 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.

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

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

       (a) The registered holder of any Rights Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date upon presentation of the Rights
Certificate, with the appropriate form of election to purchase on the reverse
side thereof duly executed, to the Rights Agent at the principal office of the
Rights Agent, together with payment of the Purchase Price for each one
one-thousandth of a share of Preferred Stock (or such other number of shares or
other securities) as to which the Rights are exercised, at or prior to the
earliest of (i) the close of business on May 10, 2011 (the "Final Expiration
Date"), (ii) the time at which the Rights are redeemed as provided in Section 24
hereof, (iii) the consummation of a transaction contemplated by Section 13(d)
hereof or (iv) the time at which the Rights are exchanged as provided in Section
24(c) hereof (such earliest time being herein referred to as the "Expiration
Date"). Notwithstanding any other provision of this Agreement, any Person who
prior to the Distribution Date becomes a record holder of shares of Common Stock
may exercise all of the rights of a registered holder of a Rights Certificate
with respect to the Rights associated with such shares of Common Stock in
accordance with and subject to the provisions of this Agreement, including the
provisions of Section 7(e) hereof, as of the date such Person becomes a record
holder of shares of Common Stock.

       (b) The Purchase Price for each one one-thousandth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be $100.00,
shall be subject to adjustment from

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time to time as provided in Sections 11 and 13 hereof and shall be payable in
lawful money of the United States of America in accordance with paragraph (c)
below.

       (c) Upon receipt of a Rights Certificate representing exercisable Rights,
with the appropriate form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the shares (or other securities or property)
to be purchased and an amount equal to any applicable transfer tax (as
determined by the Rights Agent) in the form of certified check or bank draft
payable to the order of the Company, the Rights Agent shall, subject to Section
21(k), 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) certificates for the number of one one-thousandth 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, in
its sole discretion, shall have elected to deposit the shares of Preferred Stock
issuable upon exercise of the Rights hereunder into a depositary, requisition
from the depositary agent depositary receipts representing such number of one
one-thousandth 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 shall direct the depositary agent to comply with such request, (ii) when
appropriate, requisition from the Company the amount of cash, if any, to be paid
in lieu of issuance of fractional shares in accordance with Section 15, (iii)
promptly 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) when appropriate after receipt, promptly deliver such cash
to or upon the order of the registered holder of such Rights Certificate. In the
event that the Company is obligated to issue other securities of the Company
and/or distribute other property pursuant to Section 11(a), the Company shall
make all arrangements necessary so that such other securities and/or property
are available for distribution by the Rights Agent, if and when appropriate. In
addition, in the case of an exercise of the Rights by a holder pursuant to
Section 11(a)(ii), the Rights Agent shall return such Rights Certificate to the
registered holder thereof after imprinting, stamping or otherwise indicating
thereon that the rights represented by such Rights Certificate no longer include
the rights provided by Section 11(a)(ii) of the Rights Agreement and if less
than all the Rights represented by such Rights Certificate were so exercised,
the Rights Agent shall indicate on the Rights Certificate the number of Rights
represented thereby which continue to include the rights provided by Section
11(a)(ii).

       (d) In case the registered holder of any Rights Certificate shall
exercise (except pursuant to Section 11(a)(ii)) less than all the Rights
evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the
Rights remaining unexercised shall be issued by the Rights Agent and delivered
to the registered holder of such Rights Certificate or to such holder's duly
authorized assigns, subject to the provisions of Section 15 hereof.

       (e) Notwithstanding anything in this Agreement to the contrary, if there
occurs any of the events set forth in Section 11(a)(ii) or Section 13(a) then
any Rights that are or were on or after the Distribution Date beneficially owned
by an Acquiring Person or any Associate or Affiliate of an Acquiring Person
shall become null and void, without any further action, and any holder of such
Rights shall thereafter have no rights whatsoever with respect to such Rights,
whether under any provision of this Agreement or otherwise.

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       (f) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Company shall be obligated to undertake any action with
respect to a registered holder upon the occurrence of any purported exercise as
set forth in this Section 7 unless the certificate contained in the appropriate
form of election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such exercise shall have been properly completed and
duly executed by the registered holder thereof and the Company shall have been
provided with 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.

       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 Rights Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other 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.

       9. Reservation and Availability of Preferred Stock. The Company covenants
and agrees that it shall cause to be reserved and kept available out of its
authorized and unissued shares of Preferred Stock, or any authorized and issued
shares of Preferred Stock held in its treasury, the number of shares of
Preferred Stock that will be sufficient to permit the exercise in full of all
outstanding Rights and, after the occurrence of an event specified in Sections
11 or 13, shall so reserve and keep available a sufficient number of shares of
Common Stock (and/or other securities) which may be required to permit the
exercise in full of the Rights pursuant to this Agreement.

       So long as the shares of Preferred Stock (and, after the occurrence of an
event specified in Section 11 or 13, any other securities) issuable 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 (or other securities) reserved for such
issuance to be listed on such exchange upon official notice of issuance upon
such exercise.

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

       The Company further covenants and agrees that it shall 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 or of
any certificates for shares of Preferred Stock and/or other securities 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

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Rights Certificates to a Person other than, or in respect of the issuance or
delivery of the shares of Preferred Stock and/or other securities in 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
shares of Preferred Stock, and/or other securities in a name other than that of
the registered holder upon the exercise of any Rights until such tax shall have
been paid (any such tax being payable by the holder of such Rights Certificate
at the time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.

       The Company shall use its best efforts to (i) file, if required by law,
as soon as practicable following the Distribution Date, a registration statement
on an appropriate form under the Securities Act of 1933, as amended (the "Act"),
with respect to the securities purchasable upon exercise of the Rights, (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
and the rules and regulations thereunder) until the Expiration Date (unless and
until the Company shall have received an opinion of counsel to the effect that
the maintenance of such registration statement in effect is no longer
necessary). The Company will also take such action as may be appropriate under
the blue sky laws of the various states.

       10. Preferred Stock Record Date. Each Person in whose name any
certificate for shares of Preferred Stock (or other securities) is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the shares of Preferred Stock (or other securities)
represented thereby on, and such certificate shall be dated, the date upon which
the Rights Certificate evidencing such Rights was duly presented and payment of
the Purchase Price (and any applicable transfer taxes) was made; provided,
however, that if the date of such presentation and payment is a date upon which
the Preferred Stock (or other securities) transfer books of the Company are
closed, such Person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Stock (or other securities) transfer books of the Company
are open. Prior to the exercise of the Rights evidenced thereby, the holder of a
Rights Certificate, as such, shall not be entitled to any rights of a
stockholder of the Company with respect to 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.

       11. Adjustment of Purchase Price, Number and Kind of Shares or Number of
Rights. The Purchase Price, the number 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 in Section 7(e), the
       Purchase Price in effect at

                                     - 10 -
<PAGE>   13

       the time of the record date for such dividend or of the effective date of
       such subdivision, combination or reclassification, and the number and
       kind of shares of capital stock issuable upon exercise of a Right on such
       date, shall be proportionately adjusted so that the holder of any Right
       exercised after such time shall be entitled to receive the aggregate
       number and kind of shares of capital stock and other securities 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 Section 11(a)(i) and Section 11(a)(ii), the adjustment
       provided for in this Section 11(a)(i) shall be in addition to, and shall
       be made prior to, any adjustment required pursuant to Section 11(a)(ii).

              (ii) Subject to Section 24(c) of this Agreement, in the event any
       Person, alone or together with its Affiliates and Associates, shall
       become an Acquiring Person (except pursuant to a tender or exchange offer
       for all outstanding shares of Common Stock at a price and on terms
       determined, prior to the date of the first acceptance of payment for any
       of such shares, by at least a majority of the members of the Board of
       Directors who are not officers of the Company and are not Acquiring
       Persons, or the offeror, or Affiliates or Associates thereof to be in the
       best interests of the Company and its stockholders (other than the Person
       or an Affiliate or Associate thereof on whose behalf the offer is being
       made) (a "Permitted Offer")), then, promptly following the first
       occurrence of an event described in this Section 11(a)(ii), proper
       provision shall be made so that each holder of a Right, except as
       provided in Section 7(e) hereof, shall, for a period of 60 days after the
       later of the occurrence of any such event and the effective date of an
       appropriate registration statement pursuant to Section 9, have a right to
       receive, upon exercise thereof at the then current Purchase Price in
       accordance with the terms of this Agreement, in lieu of shares 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-thousandth of a share of
       Preferred Stock for which a Right is then exercisable and (y) dividing
       that product by 50% of the current market price per one share of Common
       Stock (determined pursuant to Section 11(d)) on the date of the
       occurrence of the event set forth in this subparagraph (ii) (such number
       of shares being referred to as the "number of Adjustment Shares");
       provided, however, that if the transaction that would otherwise give rise
       to the foregoing adjustment is also subject to the provisions of Section
       13 hereof, then only the provisions of Section 13 hereof shall apply and
       no adjustment shall be made pursuant to this Section 11(a)(ii); and
       provided, further, that such 60-day period shall not be deemed to run
       during any period in which the exercise of the Rights or the fulfillment
       by the Company or the Rights Agent of its or their obligations under
       their Agreement shall be enjoined or otherwise prohibited in full or in
       part by any court or other governmental agency or body.

                                     - 11 -
<PAGE>   14
               (iii) In lieu of issuing shares of Common Stock in accordance
       with Section 11(a)(ii) hereof, the Company may, if a majority of the
       Board of Directors then in office determines that such action is
       necessary or appropriate and not contrary to the interests of holders of
       Rights, elect to (and, in the event that the Board of Directors has not
       exercised the exchange right contained in Section 24(c) hereof and there
       are not sufficient treasury shares and authorized but unissued shares of
       Common Stock to permit the exercise in full of the Rights in accordance
       with the foregoing subparagraph (ii), the Company shall) take all such
       action as may be necessary to authorize, issue or pay, upon the exercise
       of the Rights, cash (including by way of a reduction of the Purchase
       Price), property, shares of Common Stock, other securities or any
       combination thereof having an aggregate value equal to the value of the
       shares of Common Stock which otherwise would have been issuable pursuant
       to Section 11(a)(ii), which aggregate value shall be determined by a
       nationally recognized investment banking firm selected by a majority of
       the Board of Directors. For purposes of the preceding sentence, the value
       of the Common Stock shall be determined pursuant to Section 11(d) hereof
       and the value of any preferred stock or preference stock which a majority
       of the Board of Directors determines to be a "common stock equivalent"
       shall be deemed to have the same value as the Common Stock. Any such
       election by the Board of Directors must be made and publicly announced
       within 60 days following the date on which the event described in Section
       11(a)(ii) shall have occurred. Following the occurrence of the event
       described in Section 11(a)(ii) hereof, a majority of the Board of
       Directors then in office may suspend the exercisability of the Rights for
       a period of up to 60 days following the date on which the event described
       in Section 11(a)(ii) shall have occurred to the extent that such
       directors have not determined whether to exercise their rights of
       election under this Section 11(a)(iii). In the event of any such
       suspension, the Company shall issue a public announcement stating that
       the exercisability of the Rights has been temporarily suspended.

              (b) If the Company shall fix a record date for the issuance of
       rights, options or warrants to all holders of Preferred Stock entitling
       them (for a period expiring within 45 calendar days after such record
       date) to subscribe for or purchase Preferred Stock (or shares having the
       same or more favorable rights, privileges and preferences as the
       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 defined in Section 11(d)) 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 to be offered (and/or the aggregate initial conversion
       price of the convertible securities so to be offered) would purchase at
       such current

                                     - 12 -
<PAGE>   15

       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 in a consideration part or all of which
       shall be in a form other than cash, the value of such consideration shall
       be determined reasonably and with good faith to the holders of Rights 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 conclusive for all purposes. Shares of Preferred
       Stock owned by or held for the account of the Company shall not be deemed
       outstanding for the purpose of any such computation. Such adjustment
       shall be made successively whenever such a record date is fixed; and in
       the event that such rights, options or warrants are not so issued, the
       Purchase Price shall be adjusted to be the Purchase Price which would
       then be in effect if such record date had not been fixed.

              (c) If the Company shall fix a record date for the making of a
       distribution to all holders of Preferred Stock (including any such
       distribution made in connection with a consolidation or merger in which
       the Company is the continuing corporation) of evidences of indebtedness,
       cash (other than a regular quarterly cash dividend out of the earnings or
       retained earnings of the Company), assets (other than a dividend payable
       in Preferred Stock, but including any dividend payable in stock other
       than Preferred Stock) or subscription rights, options or warrants
       (excluding those referred to in Section 11(b)), the Purchase Price to be
       in effect after such record date shall be determined by multiplying the
       Purchase Price in effect immediately prior to such record date by a
       fraction, the numerator of which shall be the current market price (as
       defined in Section 11(d)) per share of Preferred Stock on such record
       date, less the fair market value (as determined reasonably and with good
       faith to the holders of Rights 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 conclusive for
       all purposes) of the portion of the cash, assets or evidences of
       indebtedness so to be distributed or of such subscription rights, options
       or warrants distributable in respect of one share of Preferred Stock and
       the denominator of which shall be the current market price (as defined in
       Section 11(d)) per share of the 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
       again be adjusted to be the Purchase Price which would be in effect if
       such record date had not been fixed.

              (d) (i) For the purpose of any computation hereunder, other than
       in Section 11(a)(iii), the "current market price" per share of Common
       Stock on any date shall be deemed to be the average of the daily closing
       prices per share of such Common Stock for the 30 consecutive Trading Days
       (as such term is hereinafter defined) immediately prior to such date;
       provided, however, that in the event that the current per share market
       price of the Common Stock is determined

                                     - 13 -
<PAGE>   16

       in whole or in part during a period following the announcement by the
       issuer of such Common Stock of (A) a dividend or distribution on such
       Common Stock payable in shares of such Common Stock or securities
       convertible into shares of such Common Stock or (B) any subdivision,
       combination or reclassification of such Common Stock, and prior to the
       expiration of 30 Trading Days after the ex-dividend date for such
       dividend or distribution, or the record date for such subdivision,
       combination or reclassification, then, and in each such case, the
       "current market price" shall be properly adjusted to take into account
       ex-dividend trading. The closing price for each day shall be the last
       sale price, regular way, or, in case no such sale takes place on such
       day, the average of the closing bid and asked prices, regular way, in
       either case as reported in the principal consolidated transaction
       reporting system with respect to securities listed or admitted to trading
       on the New York Stock Exchange or, if the shares of Common Stock are not
       listed or admitted to trading on the New York Stock Exchange, as reported
       in the principal consolidated transaction reporting system with respect
       to securities listed on the principal national securities exchange on
       which the 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 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 of Directors of the Company. 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 reasonably and with good
       faith by the Board of Directors of the Company shall be used and shall be
       binding on the Rights Agent. 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
       determined reasonably and with good faith to the holders of Rights 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.

              (ii) For the purpose of any computation hereunder, the "current
       market price" per share (or one one-thousandth of a share) of Preferred
       Stock shall be determined in the same manner as set forth above for the
       Common Stock in Section 11(d) (i) (other than the last sentence thereof).
       If the current market price per share (or one one-thousandth of a 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 Section 11(d)(i), 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 recapitalization with respect
       to the

                                     - 14 -
<PAGE>   17

       Common Stock occurring after the date of this Agreement) multiplied by
       the current market price per share of the Common Stock and the "current
       market price" per one one-thousandth of a share of Preferred Stock shall
       be equal to the current market price per share of the Common Stock (as
       appropriately adjusted). If neither the Common Stock nor the Preferred
       Stock is publicly held or so listed or traded, "current market price" per
       share shall mean the fair value per share as determined in good faith by
       the Board of Directors of the Company, whose determination shall be
       described in a statement filed with the Rights Agent and shall be
       conclusive for all purposes.

              (e) 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 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 thousandth of a
       share of Common Stock or other share or one 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 years from the date of the
       transaction which mandates such adjustment or (ii) the Expiration Date.

              (f) If as a result of any provision of Section 11(a), the holder
       of any Right shall become entitled to receive any shares of capital stock
       of the Company other than Preferred Stock, thereafter the number of such
       other shares so receivable upon exercise of any Right shall be subject to
       adjustment from time to time in a manner and on terms as nearly
       equivalent as practicable to the provisions with respect to the shares
       contained in Section 11(a) through (c), inclusive, and the provisions of
       Sections 7, 9, 10, 13 and 15 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 shares 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 Section 11(b) and (c), each Right
       outstanding immediately prior to the making of such adjustment shall
       thereafter evidence the right to purchase, at the adjusted Purchase
       Price, that number of one one-thousandth of a share of Preferred Stock
       (calculated to the nearest one-millionth) obtained by (i) multiplying (x)
       the number of one one-thousandth of a share of Preferred Stock 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

                                     - 15 -
<PAGE>   18

       (ii) dividing the product so obtained by the Purchase Price in effect
       immediately after such adjustment of the Purchase Price.

              (i) The Company may elect on or after the date of any adjustment
       of the Purchase Price to adjust the number of Rights, in substitution for
       any adjustment in the number of shares 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-thousandth 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 millionth) 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 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 15 hereof, the
       additional Rights to which such holders shall be entitled as a result of
       such adjustment, or, at the option of the Company, shall cause to be
       distributed to such holders of record in substitution and replacement for
       the 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 shares 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 share and the number of shares
       which were expressed in the initial Rights Certificates issued hereunder.

              (k) Before taking any action that would cause an adjustment
       reducing the Purchase Price below the then par value, if any, of the
       shares of Preferred Stock, Common Stock or other securities 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 shares
       of Preferred Stock, Common Stock or other securities at such adjusted
       Purchase Price. If upon any exercise of the Rights, a holder is to

                                     - 16 -
<PAGE>   19

       receive a combination of Common Stock and common stock equivalents, a
       portion of the consideration paid upon such exercise, equal to at least
       the then par value of a share of Common Stock of the Company, shall be
       allocated as the payment for each share of Common Stock of the Company so
       received.

              (l) In any case in which this Section 11 shall require that an
       adjustment in the Purchase Price be made effective as of a record date
       for a specified event, the Company may elect to defer until the
       occurrence of such event the issuing to the holder of any Right exercised
       after such record date the shares of Preferred Stock and other capital
       stock or securities of the Company, if any, issuable upon such exercise
       over and above the shares 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 upon the occurrence of the event requiring such
       adjustment.

              (m) Anything to the contrary in this Section 11 notwithstanding,
       the Company shall be entitled to make such reductions in the Purchase
       Price, in addition to those adjustments expressly required by this
       Section 11, as and to the extent that it in its sole discretion shall
       determine to be advisable in order that any (i) consolidation or
       subdivision of the 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 hereinabove in this Section 11, hereafter made by
       the Company to holders of its Preferred Stock shall not be taxable to
       such stockholders.

              (n) Anything in this Agreement to the contrary notwithstanding, in
       the event that the Company shall at any time after the date of this
       Agreement 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 Common Stock, (iii) combine the
       outstanding Common Stock into a smaller number of shares or (iv) issue
       any shares of its capital stock in a reclassification of the outstanding
       Common Stock, the number of Rights associated with each share of Common
       Stock then outstanding, or issued or delivered thereafter but prior to
       the Distribution Date, shall be proportionately adjusted so that the
       number of Rights thereafter associated with each share of Common Stock
       following any such event shall equal the result obtained by multiplying
       the number of Rights associated with each share of Common Stock
       immediately prior to such event by a fraction the numerator of which
       shall be the 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.

                                     - 17 -
<PAGE>   20

              (o) The exercise of Rights under Section 11(a)(ii) shall only
       result in the loss of rights under Section 11(a)(ii) to the extent so
       exercised and shall not otherwise affect the rights represented by the
       Rights under this Rights Agreement, including the rights represented by
       Section 13.

       12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever
an adjustment is made as provided in Sections 11 and 13 hereof, the Company
shall (a) promptly prepare a certificate setting forth such adjustment and a
brief statement of the facts accounting for such adjustment, (b) promptly file
with the Rights Agent and with each transfer agent for the Preferred Stock and
the Common Stock a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Rights Certificate in accordance with Section 26 hereof. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment therein contained and shall not be deemed to have knowledge of
any adjustment unless and until it shall have received such certificate.

       13. Consolidation, Merger or Sale or Transfer of Assets 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, (y) any Person shall consolidate with the Company, or merge with
and into the Company and the Company shall be the continuing or surviving
corporation of such merger (other than, in the case of either (x) or (y), a
merger or consolidation which would result in all of the voting power
represented by the securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into securities of the surviving entity) all of the voting power
represented by the securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation and the holders of
such securities not having changed as a result of such merger or consolidation),
or (z) the Company shall sell, mortgage or otherwise transfer (or one or more of
its subsidiaries shall sell, mortgage or otherwise transfer), in one or more
transactions, assets or earning power aggregating more than 50% of the assets or
earning power of the Company and its subsidiaries (taken as a whole) to any
other Person, then, and in each such case, proper provision shall be made so
that (i) following the Distribution Date, each holder of a Right (other than as
provided in Section 7(e) hereof) shall 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 shares of freely tradable Common Stock of the
Principal Party (as hereinafter defined), free and clear of liens, rights of
call or first refusal, encumbrances or other adverse claims, as shall be equal
to the result obtained by (x) multiplying the then current Purchase Price by the
number of one one-thousandth of a share of Preferred Stock for which a Right is
then exercisable (without taking into account any adjustment previously made
pursuant to Section 11(a)(ii) hereof) and (y) dividing that product by 50% of
the current market price per share of the Common Stock of such Principal Party
(determined pursuant to Section 11(d) hereof) on the date of consummation of
such consolidation, merger, sale or transfer; (ii) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such consolidation,
merger, sale or transfer, all the obligations and duties of the Company pursuant
to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer
to such Principal Party, it being specifically intended that the provisions of
Section 11 hereof shall apply to such Principal Party; and (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 accordance with

                                     - 18 -
<PAGE>   21

Section 9 hereof) in connection with such consummation as may be necessary to
ensure 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.

       (b) "Principal Party" shall mean:

              (i) in the case of any transaction described in (x) or (y) of the
       first sentence of this Section 13, 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 the merger or consolidation (including,
       if applicable, the Company, if it is the surviving corporation); and

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

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

       (c) The Company shall not consummate any such consolidation, merger, sale
or transfer unless the Principal Party shall have a sufficient number of
authorized shares of its Common Stock that 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 each Principal Party and
each other Person who may become a Principal Party as a result of such
consolidation, merger, sale or transfer 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, sale or transfer of
assets mentioned in paragraph (a) of this Section 13, the Principal Party at its
own expense shall:

                                     - 19 -
<PAGE>   22

              (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, will use its best efforts to cause such
       registration statement to become effective as soon as practicable after
       such filing and will use its best efforts to cause such registration
       statement to remain effective (with a prospectus at all times meeting the
       requirements of the Act) until the Expiration Date;

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

              (iii) deliver to holders of the Rights historical financial
       statements for the Principal Party and each of its Affiliates which
       comply in all material 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. The rights under this Section 13
shall be in addition to the rights to exercise Rights and adjustments under
Section 11(a)(ii) and shall survive any exercise thereunder.

       (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 Permitted Offer (or a
wholly owned subsidiary of any such Person or Persons) and such transaction and
the Permitted Offer are related transactions, (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 Common Stock whose shares were purchased pursuant
to such Permitted Offer and (iii) the form of consideration being offered to the
remaining holders of Common Stock pursuant to such transaction is the same as
the form of consideration paid pursuant to such Permitted Offer. Upon
consummation of any such transaction contemplated by this subsection (d), all
Rights hereunder shall expire.

       14. Additional Covenants.

       (a) The Company covenants and agrees that after the Stock Acquisition
Date it shall not (i) consolidate with, (ii) merge with or into, or (iii) sell
or transfer to any other Person, in one or more transactions, assets or earning
power aggregating more than 50% of the assets or earning power of the Company
and its subsidiaries taken as a whole, if at the time of or after such
consolidation, merger or sale there are any charter or bylaw provisions or any
rights, warrants or other instruments outstanding or any other action taken
which would diminish or otherwise eliminate the benefits intended to be afforded
by the Rights. The Company shall not consummate any such consolidation, merger
or sale unless prior thereto the Company and such other Person shall have
executed and delivered to the Rights Agent a supplemental agreement evidencing
compliance with this subsection.

                                     - 20 -
<PAGE>   23

       (b) The Company covenants and agrees that, after the Stock Acquisition
Date, it will not, except as permitted by Section 24 hereof, take any action the
purpose or effect of which is to diminish or otherwise eliminate the benefits
intended to be afforded by the Rights.

       15. Fractional Rights and Fractional Shares.

       (a) The Company shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section 11(n), or to
distribute Rights Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders of the Rights
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 15(a), the current
market value of a whole Right shall be, except as otherwise provided in the last
sentence of this paragraph (a), 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, 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 reasonably and with good faith to the holders of Rights
by the Board of Directors of the Company shall be used and shall be binding on
the Rights Agent.

       (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). Fractions of shares of Preferred Stock in integral
multiples of one one-thousandth of a share of Preferred Stock may, at the
election of the Company, be evidenced by depositary receipts, pursuant to an
appropriate agreement between the Company and a depositary selected by it,
provided that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they are
entitled as beneficial owners of the shares of Preferred Stock represented by
such depositary receipts. 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 Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one one-thousandth of a share of
Preferred Stock. For purposes of this Section 15(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 one of the transactions or events
specified in Section 11 or Section 13 giving rise to the right to receive common
stock equivalents (other than Preferred Stock) or other securities upon the
exercise of a Right, the Company shall not be required to issue fractions of
shares or units of such common stock equivalents or other securities

                                     - 21 -
<PAGE>   24

upon exercise of the Rights or to distribute certificates which evidence
fractional shares of such common stock equivalents or other securities. In lieu
of fractional shares or units of such common stock equivalents or other
securities, the Company may pay to the registered holders of Right Certificates
at the time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of a share or unit of such
common stock equivalent or other securities. For purposes of this Section 15(c),
the current market value shall be the closing price thereof determined in the
same manner set forth in Section 11(d)(i) hereof with respect to Common Stock
for the Trading Day immediately prior to the date of such exercise, provided
that, if such common stock equivalent or other security is not traded, the
current market value thereof shall instead equal the current market value of one
one-thousandth of a share of Preferred Stock for such Trading Day as determined
pursuant to Section 15(b) hereof.

       (d) Except as otherwise expressly provided herein, the holder of a Right
by the acceptance of the Right expressly waives such holder's right to receive
(other than as provided in Section 11(n)) any fractional Rights or any
fractional shares (other than, in the case of Preferred Stock, fractions which
are integral multiples of one one-thousandth of a share of Preferred Stock) upon
exercise of a Right.

       16. Rights of Action. All rights of action in respect of this Agreement,
except those rights of action vested in the Rights Agent pursuant to Section 21,
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 such holder's own behalf and for such holder's own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, such holder's
right to exercise the Rights 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.
Holders of Rights shall be entitled to recover the reasonable costs and
expenses, including attorneys' fees, incurred by them in any action to enforce
the provisions of this Agreement.

       17. 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 and only if
       surrendered at the

                                     - 22 -
<PAGE>   25

       principal office of the Rights Agent, duly endorsed or accompanied by a
       proper instrument of transfer; and

              (c) the Company and the Rights Agent may deem and treat the Person
       in whose name 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 shall be affected by any notice to the contrary.

       18. 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 shares of Preferred Stock, Common
Stock or any other securities of the Company which may at any time be issuable
upon exercise of the Rights represented thereby, nor shall anything contained
herein or in any Rights Certificate be construed to confer upon the holder of
any Rights Certificate, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold consent
to any corporate action, or to receive notice of meetings or other actions
affecting stockholders (except as provided in 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 thereof.

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

       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.

       20. Merger or Consolidation or Change of Name of Rights Agent. Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to

                                     - 23 -
<PAGE>   26

the corporate trust or 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, provided that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 22 hereof. In case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement, any of the Rights Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Rights Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates in
this Agreement.

       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.

       21. 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 selected by it
       (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, any Vice Chairman of the Board, the President, any Vice President,
       the Treasurer, any Assistant Treasurer, the Secretary or any Assistant
       Secretary of the Company and delivered to the Rights Agent; and such
       certificate shall be full authorization to the Rights Agent for any
       action taken or suffered in good faith by it under the provisions of this
       Agreement in reliance upon such certificate.

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

                                     - 24 -
<PAGE>   27

              (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 (except as to the fact that it has countersigned
       the Rights Certificates) or be required to verify the same, but all such
       statements and recitals are and shall be deemed to have been made by the
       Company only.

              (e) The Rights Agent shall not be under any responsibility in
       respect of the validity of this Agreement or the execution and delivery
       hereof (except the due execution hereof by the Rights Agent) or in
       respect of the validity or execution of any Rights Certificate (except
       its countersignature thereof); nor shall it be responsible for any breach
       by the Company of any covenant or condition contained in this Agreement
       or in any Rights Certificate; nor shall it be responsible for any
       adjustment required under the provisions of Section 11 or 13 hereof or
       responsible for the manner, method or amount of any such adjustment or
       the ascertaining of the existence of facts that would require any such
       adjustment (except with respect to the exercise of Rights evidenced by
       Rights Certificates after receipt of a certificate pursuant to Section 12
       describing any such adjustment); nor shall it be responsible for any
       determination by the Board of Directors of the Company of the current
       market value of the Rights or Preferred Stock or Common Stock pursuant to
       the provisions of Section 15 hereof; 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 Preferred Stock or other securities to be
       issued pursuant to this Agreement or any Rights Certificate or as to
       whether any shares of Preferred Stock or other securities 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 other acts, instruments and assurances as may
       reasonably be required by the Rights Agent for the carrying out or
       performance 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 and
       certificates delivered pursuant to any provision hereof from the Chairman
       of the Board, any Vice Chairman of the Board, the President, any Vice
       President, the Secretary, any Assistant Secretary, the Treasurer or any
       Assistant Treasurer of the Company, and is authorized 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 written instructions of any such officer.
       Any application by the Rights Agent for written instructions from the
       Company may, at the option of the Rights Agent, set forth in writing any
       action proposed to be taken or omitted by the Rights Agent with respect
       to its duties or obligations under this Rights Agreement and the date on
       and/or after which such action shall be taken or omitted and the Rights
       Agent shall not be liable for any action taken or omitted in accordance
       with a proposal included in any such application on or after the date
       specified therein (which date shall not be

                                     - 25 -
<PAGE>   28

       less than three Business Days after the date any such officer actually
       receives such application, unless any such officer shall have consented
       in writing to an earlier date) unless, prior to taking or omitting any
       such action, the Rights Agent has received written instructions in
       response to such application specifying the action to be taken or
       omitted.

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

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

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

              (k) 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 l 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.

       22. Change of Rights Agent. The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Agreement upon 30
days' notice in writing mailed to the Company and to each transfer agent of the
Common Stock and Preferred Stock by registered or certified mail, and to holders
of the Rights Certificates by first-class mail. The Company may remove the
Rights Agent or any successor Rights Agent upon 30 days' notice in writing,
mailed to the Rights Agent or successor Rights Agent, as the case may be, and to
each transfer agent of the Common Stock and Preferred Stock by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of 30 days
after giving notice of such removal or after it has been notified in writing of
such

                                     - 26 -
<PAGE>   29

resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Rights Certificate (who shall, with such notice, submit such
holder's Rights Certificate for inspection by the Company), then the registered
holder of any Rights Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be (a) a
corporation organized and doing business under the laws of the United States or
of the State of New York, the State of Massachusetts, or the State of California
(or of any other state of the United States so long as such corporation is
authorized to do business as a banking institution in the State of New York, the
State of Massachusetts, or the State of California), in good standing, having a
principal office in the State of New York, the State of Massachusetts, or the
State of California, which is authorized under such laws to exercise corporate
trust or stockholder services powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000 or (b) an affiliate of a corporation described in clause (a) of this
sentence. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Stock
and Preferred Stock, and mail a notice thereof in writing to the registered
holders of the Rights Certificates. Failure to give any notice provided for in
this Section 22, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.

       23. 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 its Board of Directors to reflect any adjustment or change in
the Purchase Price per share and the number or kind or class of shares or other
securities or property purchasable under the 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 otherwise under any employee plan or arrangement,
which plan or arrangement is existing as of the Distribution Date, or upon the
exercise, conversion or exchange of any other securities issued by the Company
on or prior to the Distribution Date, and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Right
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) no such Rights Certificates
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 Certificates
would be issued, and (ii) no such Rights Certificates shall be issued if and to
the extent that appropriate adjustment shall otherwise have been made in lieu of
the issuance thereof.

                                     - 27 -
<PAGE>   30

       24. Redemption, Termination and Exchange.

       (a) (i) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (x) the Stock Acquisition Date or (y) 5 P.M.,
Pacific time, on the Final Expiration Date, redeem all but not less than all of
the then outstanding Rights at a redemption price of $0.001 per Right,
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").

       (ii) In addition, and notwithstanding the provisions of Section 24(a)(i),
the Board of Directors of the Company may redeem all but not less than all of
the then outstanding Rights at the Redemption Price on or after the Stock
Acquisition Date but prior to any event described in Section 13(a) either (x) in
connection with any event specified in Section 13(a) in which all holders of
Common Stock are treated alike and not involving (other than as a holder of
Common Stock being treated like all other such holders) an Acquiring Person or
an Affiliate or Associate thereof or any other Person in which such Acquiring
Person or Affiliate or Associate thereof has any interest, or any other Person
acting directly or indirectly on behalf of or in association with any such
Acquiring Person or Affiliate or Associate thereof, or (y) following the
occurrence of an event set forth in, and the expiration of any period during
which the holder of Rights may exercise the rights under, Section 11(a)(ii) if
and for as long as any Acquiring Person having triggered such event is not
thereafter the Beneficial Owner of securities representing 15% or more of the
outstanding shares, and at the time of redemption there are no other Persons who
are Acquiring Persons.

       (b) In the case of a redemption permitted under Section 24(a)(i),
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. In the case of a redemption
permitted only under Section 24(a)(ii), evidence of which shall have been filed
with the Rights Agent, the right to exercise the Rights will terminate and
represent only the right to receive the Redemption Price only after ten Business
Days following the giving of notice of such redemption to the holders of such
Rights if no event set forth in Section 11(a)(ii) shall have occurred, and, if
such event shall have occurred, upon the later of ten Business Days following
the giving of such notice or the expiration of any period during which the
rights under Section 11(a)(ii) may be exercised. Within ten days after the
action of the Board of Directors ordering any such 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 the Rights Agent and to
all such holders at their last addresses as they appear upon the registry books
of the Rights Agent or, prior to the Distribution Date, on the registry books of
the Transfer Agent for the Common 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.

       In the case of a redemption permitted under Section 24(a)(i) or (ii), the
Company may, at its option, discharge all of its obligations with respect to the
Rights by (i) issuing a press release announcing the manner of redemption of the
Rights and (ii) mailing payment of the Redemption

                                     - 28 -
<PAGE>   31

Price to the registered holders of the Rights at their last addresses as they
appear on the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the Transfer Agent of the Common Stock, and upon
such action, all outstanding Rights Certificates shall be null and void without
any further action by the Company.

       (c) (i) Subject to the limitations of applicable law, 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 (A) shares of Common
Stock at an exchange ratio of one share of Common Stock per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (the "Exchange Shares") or (B) Substitute
Consideration (as that term is defined below). The Board of Directors may
determine, in its sole discretion, whether to deliver Exchange Shares or
Substitute Consideration. Notwithstanding the foregoing, the Board of Directors
shall not be empowered to effect such exchange at any time after any Person
(other than the Company, any subsidiary of the Company, any employee benefit
plan of the Company or any such subsidiary, or any entity holding Common Stock
for or pursuant to the terms of any such plan), together with all Affiliates and
Associates of such Person, becomes the Beneficial Owner of 50% or more of the
Common Stock then outstanding.

       (ii) In the event the Board of Directors shall determine to deliver
Substitute Consideration in exchange for Rights, the Company shall (1) determine
the value of the Exchange Shares (the "Exchange Value"), and (2) with respect to
each Right to be exchanged, make adequate provision to substitute for Exchange
Shares the following (the "Substitute Consideration"): (v) cash, (w) Common
Stock or common stock equivalents (as that term is defined in Section 11(a)(iii)
hereof) or Preferred Stock or equivalent preferred stock (as that term is
defined in Section 11(b) hereof), (x) debt securities of the Company, (y) other
assets or (z) any combination of the foregoing, having an aggregate value equal
to the Exchange Value, where such aggregate value has been determined by the
Board of Directors of the Company based upon the advice of a nationally
recognized investment banking firm selected by the Board of Directors of the
Company. For purposes of this Section 24(c), the value of a share of Common
Stock shall be the current market price (as determined pursuant to Section 11(d)
hereof) per share of Common Stock on the day that is the later of (x) the first
occurrence of an event described in Section 11(a)(ii) hereof and (y) the date on
which the Company's right of redemption pursuant to Section 24(a) expires; and
the value of any common stock equivalent shall be deemed to have the same value
as the Common Stock on such date.

       (iii) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to this Section 24(c), 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 Exchange Shares or Substitute Consideration for each Right
exchanged by such holder. 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 address as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will

                                     - 29 -
<PAGE>   32

state the method by which the exchange of Common Stock for Rights will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become void pursuant to the
provisions of Section 7(e) hereof) held by each holder of Rights.

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

       (v) 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, the Company
shall pay 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 Section 24(c)(v), 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 Section 11(d) hereof) for the
Trading Day immediately prior to the date of exchange pursuant to this Section
24(c).

       25. Notice of Certain Events. In case the Company shall propose (a) to
pay any dividend payable in stock of any class to the holders of 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), (b) 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, (c) to effect
any reclassification of its Preferred Stock (other than a reclassification
involving only the subdivision of outstanding shares of Preferred Stock), (d) to
effect any consolidation or merger into or with, or to effect any sale or other
transfer (or to permit one or more of its subsidiaries to effect any sale or
other transfer), in one or more transactions, of more than 50% of the assets or
earning power of the Company and its subsidiaries (taken as a whole) to, any
other Person or (e) to effect the liquidation, dissolution or winding up of the
Company, then, in each such case, the Company shall give to each holder of a
Rights Certificate, in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, 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 (a) or (b) above at least 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 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.

       In case any of the events set forth in Section 11(a)(ii) or 13(a) of this
Agreement shall occur, then, in any such case, the Company or the Principal
Party, as the case may be, shall as soon as practicable thereafter give to each
holder of a Rights Certificate, in accordance with

                                     - 30 -
<PAGE>   33

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) or 13(a) hereof, as the case may be.

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

                      Applied Molecular Evolution, Inc.
                      3520 Dunhill Street
                      San Diego, CA 92121
                      Attention:  Secretary

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

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

Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate 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.

       27. Supplements and Amendments. The Company and the Rights Agent may from
time to time supplement or amend this Agreement without approval of any holders
of Rights or Right 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) prior to the Distribution
Date, to change or supplement any provision hereunder in any manner which the
Company may deem necessary or desirable or (iv) on or following the Distribution
Date, to change or supplement any provision 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. 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 unless the
Rights Agent shall have determined in good faith that such supplement or
amendment would adversely affect its interests under this Agreement. Prior to
the Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Stock.

       28. Determination and Actions by the Board of Directors, etc. For all
purposes of this Agreement, any calculation of the number of shares of Common
Stock outstanding at any

                                     - 31 -
<PAGE>   34

particular time, including for purposes of determining the particular percentage
of such outstanding shares of Common Stock or any other securities 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 as in effect on the date of this Agreement. Except as otherwise
provided herein, 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 holders of the Rights Certificates and all other parties, and
(y) not subject the Board to any liability to the holders of the Rights
Certificates.

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

       30. Benefits of This Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Rights Agent and the registered holders of the Rights Certificates (and, prior
to the Distribution Date, 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, the Common Stock).

       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.

       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 to be made and to
be performed entirely within such state.

       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.

                                     - 32 -
<PAGE>   35

       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.

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

Attest:                                 APPLIED MOLECULAR EVOLUTION, INC.

/s/ Lawrence E. Bloch, M.D.             By: /s/ William D. Huse, M.D., Ph.D.
---------------------------                 -----------------------------------
    Lawrence E. Bloch, M.D.                 William D. Huse, M.D., Ph.D.
    Secretary                               President & Chief Executive Officer

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

By /s/ Greg Veliotis                    By /s/ Michael Connor
   -----------------                      --------------------------------------

Title Account Manager                   Title Managing Director
      ---------------------------             ----------------------------------

                                     - 33 -
<PAGE>   36

                                   EXHIBIT A

                           CERTIFICATE OF DESIGNATION,

                             RIGHTS AND PREFERENCES

                    OF SERIES A PARTICIPATING PREFERRED STOCK

                                       OF

                        APPLIED MOLECULAR EVOLUTION, INC.

       We, William D. Huse, President, and Lawrence E. Bloch, Secretary, of
Applied Molecular Evolution, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware, DO HEREBY CERTIFY:

       That pursuant to the authority conferred upon the Board of Directors by
the Certificate of Incorporation of this Corporation, the Board of Directors on
April 16, 2001 adopted the following resolution creating a series of Fifty
Thousand (50,000) shares of Preferred Stock designated as Series A Participating
Preferred Stock:

       RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its 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 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:

       1. Designation and Amount. The shares of such series shall be designated
as "Series A Participating Preferred Stock," $0.001 par value per share, and the
number of shares constituting such series shall be Fifty Thousand (50,000). Such
number of shares may be increased or decreased by resolution of the Board of
Directors; provided, that no decrease shall reduce the number of shares of
Series A Participating Preferred Stock to a number less than that of the shares
then outstanding plus the number of shares issuable upon exercise of outstanding
rights, options or warrants or upon conversion of outstanding securities issued
by the Corporation.

       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 Participating Preferred Stock with respect to dividends, the holders of
shares of Series A Participating Preferred Stock in preference to the holders of
shares of Common Stock, par value $0.001 per share (the "Common Stock"), of the
Corporation and any other junior 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 first day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing

                                       1
<PAGE>   37

on the first Quarterly Dividend Payment Date after the first issuance of a share
or fraction of a share of Series A Participating Preferred Stock in an amount
per share (rounded to the nearest cent) equal to the greater of (a) $100.00, or
(b) subject to the provision for adjustment hereinafter set forth, 1,000 times
the aggregate per share amount of all cash dividends, and 1,000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series A Participating Preferred Stock. In the event the Corporation
shall at any time after the close of business on May 10, 2001 (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, by reclassification or
otherwise, then in each such case the amount to which holders of shares of
Series A Participating 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 Participating 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 $100 per share on the
Series A Participating 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 Participating Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A
Participating 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 Participating 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 Participating Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Participating 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.

                                       2
<PAGE>   38

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

              (A) Subject to the provision for adjustment hereinafter set forth,
       each share of Series A Participating 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 shares of Common Stock, (ii) subdivide the
       outstanding Common Stock into a greater number of shares or (iii) combine
       the outstanding Common Stock into a smaller number of shares, by
       reclassification or otherwise, then in each such case the number of votes
       per share to which holders of shares of Series A Participating 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
       outstanding immediately prior to such event.

              (B) Except as otherwise provided herein or by law, the holders of
       shares of Series A Participating Preferred Stock and the holders of
       shares 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 Participating
       Preferred Stock shall be in arrears in an amount equal to six 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 Participating 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 Participating Preferred Stock) with
       dividends in arrears in an amount equal to six quarterly dividends
       thereon, voting as a class, irrespective of series, shall have the right
       to elect two directors.

              (ii) During any default period, such voting right of the holders
       of Series A Participating 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 neither such voting right nor the
       right of the holders of any other series of Preferred Stock, if any, to
       increase, in certain cases, the authorized number of directors shall 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

                                       3
<PAGE>   39

       directors to fill such vacancies, if any, in the Board of Directors as
       may then exist up to two directors or, if such right is exercised at an
       annual meeting, to elect two directors. 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 directors 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 Participating 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 such holder at such holder's last address as the same
       appears on the books of the Corporation. Such meeting shall be called for
       a time not earlier than ten 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 outstanding. 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 two directors
       voting as a class, after the exercise of which right (x) the directors so
       elected by the holders of Preferred Stock shall continue in office until
       their successors 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 theretofore
       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.

                                       4
<PAGE>   40

              (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, or pursuant to,
       the Certificate of Incorporation or Bylaws 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 Bylaws). Any
       vacancies in the Board of Directors effected by the provisions of clauses
       (y) and (z) in the preceding sentence may be filled by a majority of the
       remaining directors, even though less than a quorum.

              (D) Except as set forth herein, holders of Series A Participating
       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.

       4. Certain Restrictions.

       (A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Participating 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 Participating
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 Participating 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
       Participating Preferred Stock except dividends paid ratably on the Series
       A Participating 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 Participating
       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
       Participating Preferred Stock; or

              (iv) purchase or otherwise acquire for consideration any shares of
       Series A Participating Preferred Stock or any shares of stock ranking on
       a parity

                                       5
<PAGE>   41

       with the Series A Participating 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.

       5. Reacquired Shares. Any shares of Series A Participating 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.

       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 Participating Preferred Stock unless, prior thereto,
the holders of shares of Series A Participating Preferred Stock shall have
received per share, the greater of 1,000 times $1.00 or 1,000 times the payment
made per share of Common 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 Participating
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 recapitalization 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 Participating Preferred Stock and Common Stock, respectively, holders
of Series A Participating 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 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 Participating 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 there are
not sufficient assets

                                       6
<PAGE>   42

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, by reclassification or
otherwise, 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 such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.

       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
Participating 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 Participating 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 are outstanding immediately prior to
such event.

       8. Redemption. The shares of Series A Participating Preferred Stock shall
not be redeemable.

       9. Ranking. The Series A Participating 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.

       10. Amendment. The Certificate of Incorporation and the Bylaws of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least 66-2/3% of the outstanding shares of
Series A Participating Preferred Stock voting separately as a class.

       11. Fractional Shares. Series A Participating 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 Participating Preferred Stock.

                                       7
<PAGE>   43

       IN WITNESS WHEREOF, we have executed and subscribed this Certificate and
do affirm the foregoing as true under the penalties of perjury this 10th day of
May, 2001.

                                        /s/ William D. Huse, M.D., Ph.D.
                                        -------------------------------------
                                        William D. Huse, M.D., Ph.D.
                                        President and Chief Executive Officer

                                        Attest:

                                        /s/ Lawrence E. Bloch, M.D.
                                        -------------------------------------
                                        Lawrence E. Bloch, M.D.
                                        Secretary

                                       8
<PAGE>   44

                                    EXHIBIT B

                           Form of Rights Certificate

Certificate No. R-                                                        Rights
                  ----------------                          --------------

       NOT EXERCISABLE AFTER MAY 10, 2011 OR EARLIER IF NOTICE OF REDEMPTION OR
       EXCHANGE IS GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF
       THE COMPANY, AT $0.001 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH
       IN THE RIGHTS AGREEMENT. [THE RIGHTS REPRESENTED BY THIS RIGHTS
       CERTIFICATE WERE ISSUED TO A PERSON WHO WAS AN ACQUIRING PERSON OR AN
       ASSOCIATE OR AFFILIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED
       IN THE RIGHTS AGREEMENT). THIS RIGHTS CERTIFICATE AND THE RIGHTS
       REPRESENTED HEREBY MAY BECOME VOID UNDER THE CIRCUMSTANCES SPECIFIED IN
       SECTION 7(e) OF THE RIGHTS AGREEMENT.]*

                               RIGHTS CERTIFICATE

                        APPLIED MOLECULAR EVOLUTION, 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 May 10, 2001 (the "Rights Agreement") between Applied
Molecular Evolution, Inc., a Delaware corporation (the "Company"), and EquiServe
Trust Company, N.A., a National Banking Association (the "Rights Agent"), to
purchase from the Company at any time after the Distribution Date (as such term
is defined in the Rights Agreement) and prior to 5 P.M. Eastern time on May 10,
2011 unless earlier redeemed or exchanged by the Company as set forth in the
Rights Agreement, at the office of the Rights Agent designated for such purpose,
one one-thousandth of a fully paid, nonassessable share of Series A
Participating Preferred Stock, par value $0.001 per share (the "Preferred
Stock") of the Company, at a purchase price of $100 per one one-thousandth of a
share (the "Purchase Price"), upon presentation and surrender of this Rights
Certificate with the appropriate Form of Election to purchase and certificate
duly executed. The number of Rights evidenced by this Rights Certificate (and
the number of shares which may be purchased upon exercise thereof) set forth
above, and the Purchase Price set forth above, are the number and Purchase Price
as of the close of business on May 10, 2001, based on the Preferred Stock as
constituted at such date.

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

                                       1
<PAGE>   45

       As provided in the Rights Agreement, the Purchase Price and the number 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.

       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. Copies of
the Rights Agreement are on file at the principal office of the Company and are
also available upon written request to the Company.

       This Rights Certificate, with or without other Rights Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, 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 shares 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 (other than pursuant
to Section 11(a)(ii) of the Rights Agreement) 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. If this Rights
Certificate shall be exercised in whole or in part pursuant to Section 11(a)(ii)
of the Rights Agreement, the holder shall be entitled to receive this Rights
Certificate duly marked to indicate that such exercise has occurred as set forth
in the Rights Agreement.

       Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate (i) may be redeemed by the Company at its option at a
redemption price of $0.001 per Right or (ii) may be exchanged in whole or in
part for shares of the Company's Common Stock par value $0.001 or substitute
consideration. Subject to the provisions of the Rights Agreement, the Company,
at its option, may elect to mail payment of the redemption price to the
registered holder of the Right at the time of redemption, in which event this
certificate may become void without any further action by the Company.

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

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

                                       2
<PAGE>   46

subscription rights, or otherwise, until the Right or Rights evidenced by this
Rights Certificate shall have been exercised as provided in the Rights
Agreement.

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

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

       Dated: ____________, ____.

Attest:                                 APPLIED MOLECULAR EVOLUTION, INC.

                                        By
-----------------------------             -------------------------------

Title                                   Title
     ------------------------                ----------------------------

Countersigned:

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

By
  ---------------------------

                                       3
<PAGE>   47

                  [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

Signature(s) Guaranteed:

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

                                       4
<PAGE>   48

                                   CERTIFICATE

       The undersigned hereby certifies by checking the appropriate boxes that:

       (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are 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 in 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

                                     NOTICE

       The signature to the foregoing Assignment 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.

                                       5
<PAGE>   49

                          FORM OF ELECTION TO PURCHASE

                      (To be executed if holder desires to
                   exercise the Rights Certificate pursuant to
                   Section 11(a)(ii) of the Rights Agreement.)

To    APPLIED MOLECULAR EVOLUTION, INC.:

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

----------------------------------------------------------------
   (Please insert social security or other identifying number)

----------------------------------------------------------------
               (Please print name and address)

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

       The Rights Certificate indicating the balance, if any, of such Rights
which may still be exercised pursuant to Section 11(a)(ii) of the Rights
Agreement shall be returned to the undersigned unless such Person requests that
the Rights Certificate be registered in the name of and delivered to: (Complete
only if Rights Certificate is to be registered in a name other than the
undersigned.)

----------------------------------------------------------------
   Please insert social security or other identifying number

----------------------------------------------------------------
              (Please print name and address)

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

       Dated: ____________, ____.

------------------------------      -----------------------------
   Signature                           Signature

Signature(s) Guaranteed:

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

                                       6
<PAGE>   50

                                   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) 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
in the Rights Agreement);

       (3) 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

                                     NOTICE

       The signature to the foregoing Election to Purchase 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.

                                       7
<PAGE>   51

                          FORM OF ELECTION TO PURCHASE

                  (To be executed if holder desires to exercise
                  the Rights Certificate other than pursuant to
                   Section 11(a)(ii) of the Rights Agreement.)

To     APPLIED MOLECULAR EVOLUTION, INC.:

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

----------------------------------------------------------------
  (Please insert social security or other identifying number)

----------------------------------------------------------------
               (Please print name and address)

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

The Rights Certificate indicating the balance, if any, of such Rights which may
still be exercised pursuant to Section 11(a)(ii) of the Rights Agreement shall
be returned to the undersigned unless such Person requests that the Rights
Certificate be registered in the name of and delivered to: (Complete only if
Rights Certificate is to be registered in a name other than the undersigned.)

----------------------------------------------------------------
   Please insert social security or other identifying number

----------------------------------------------------------------
               (Please print name and address)

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

       Dated: ____________, ____.

----------------------------        -----------------------------
      Signature                           Signature

Signature(s) Guaranteed:

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

                                       8
<PAGE>   52

                                   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) the Rights evidenced by this Rights Certificate [ ] are [ ] are 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 in the Rights Agreement);

       (3) 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

                                     NOTICE

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

                                       9
<PAGE>   53

                                    EXHIBIT C

                                SUMMARY OF RIGHTS

       On April 16, 2001 the Board of Directors of Applied Molecular Evolution,
Inc. (the "Company") declared a dividend distribution of one Right for each
outstanding share of common stock, $0.001 par value (the "Common Stock"), of the
Company to stockholders of record at the close of business on May 10, 2001 (the
"Record Date"). Except as set forth below, each Right, when exercisable,
entitles the registered holder to purchase from the Company one one-thousandth
share of a new series of preferred stock, designated as Series A Participating
Preferred Stock, $0.001 par value (the "Preferred Stock"), at a price of $100
per one one-thousandth of a share (the "Purchase Price"), subject to adjustment.
The description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Company and EquiServe Trust Company, N.A., 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. The Rights will separate from the Common Stock and a
Distribution Date will occur upon the earliest of (i) 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
securities having 15% or more of the voting power of all outstanding voting
securities of the Company or (ii) ten days (unless such date is extended by the
Board of Directors) following the commencement of (or a public announcement of
an intention to make) a tender offer or exchange offer which would result in any
Person or group of related Persons becoming an Acquiring Person.

       Until the Distribution Date the Rights will be evidenced, with respect to
any of the Common Stock certificates outstanding as of the Record Date, by such
Common Stock certificate. The Rights Agreement provides that, until the
Distribution Date, the Rights will be transferred with and only with Common
Stock certificates. From as soon as practicable after the Record Date and until
the Distribution Date (or earlier redemption or expiration of the Rights), new
Common Stock certificates issued after the Record Date upon transfer or new
issuance of the Common Stock will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Stock outstanding as of the Record Date (with or without this Summary of
Rights attached) will also constitute the transfer of the Rights associated with
the Common Stock represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights
("Rights Certificates") will be mailed to holders of record of the Common Stock
as of the close of business on the Distribution Date, and the separate Rights
Certificates alone will evidence the Rights.

       The Rights are not exercisable until the Distribution Date. The Rights
will expire on the earliest of (i) May 10, 2011, (ii) consummation of a merger
transaction with a Person or group who acquired Common Stock pursuant to a
Permitted Offer (as defined below), and the price per share of Common Stock and
form of consideration offered to the remaining holders of Common Stock is in the
transaction is the same price per share and form of consideration paid in the
Permitted Offer or (iii) redemption or exchange by the Company as described
below.

                                       1
<PAGE>   54

       The Purchase Price payable, and the number of shares 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) upon the grant to holders of the Preferred Stock of
certain rights, options or warrants to subscribe for Preferred Stock, certain
convertible securities or securities having the same or more favorable rights,
privileges and preferences as the Preferred Stock 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 out of earnings or retained earnings) or of
subscription rights or warrants (other than those referred to in clause (ii)).

       In the event that, after the first date of public announcement by the
Company or an Acquiring Person that an Acquiring Person has become such, the
Company is involved in a merger or other business combination transaction
(whether or not the Company is the surviving corporation) or 50% or more of the
Company's assets or earning power are sold (in one transaction or a series of
transactions), proper provision shall be made so that each holder of a Right
(other than an Acquiring Person) shall thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of either the Company, in the event that it is
the surviving corporation of a merger or consolidation, or the acquiring company
(or, in the event there is more than one acquiring company, the acquiring
company receiving the greatest portion of the assets or earning power
transferred) which at the time of such transaction would have a market value of
two times the exercise price of the Right (such right being called the "Merger
Right"). In the event that a Person becomes the beneficial owner of securities
having 15% or more of the voting power of all then outstanding voting securities
of the Company (unless pursuant to a tender offer or exchange offer for all
outstanding shares of Common Stock at a price and on terms determined prior to
the date of the first acceptance of payment for any of such shares by at least a
majority of the members of the Board of Directors who are not officers of the
Company and are not Acquiring Persons or Affiliates or Associates thereof to be
both adequate and otherwise in the best interests of the Company and its
stockholders (a "Permitted Offer")), then proper provision shall be made so that
each holder of a Right will for a 60-day period (subject to extension under
certain circumstances) thereafter have the right to receive upon exercise that
number of shares of Common Stock having a market value of two times the exercise
price of the Right, to the extent available, and then (after all authorized and
unreserved shares of Common Stock have been issued) a common stock equivalent
(such as Preferred Stock or another equity security with at least the same
economic value as the Common Stock) having a market value of two times the
exercise price of the Right, with Common Stock to the extent available being
issued first (such right being called the "Subscription Right"). The holder of a
Right will continue to have the Merger Right whether or not such holder
exercises the Subscription Right. Notwithstanding the foregoing, upon the
occurrence of any of the events giving rise to the exercisability of the Merger
Right or the Subscription Right, any Rights that are or were at any time after
the Distribution Date owned by an Acquiring Person shall immediately become null
and void.

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

                                       2
<PAGE>   55

       At any time prior to the earlier to occur of (i) a Person becoming an
Acquiring Person or (ii) the expiration of the Rights, the Company may redeem
the Rights in whole, but not in part, at a price of $0.001 per Right (the
"Redemption Price"), which redemption shall be effective upon the action of the
Board of Directors. Additionally, the Company may thereafter redeem the then
outstanding Rights in whole, but not in part, at the Redemption Price (i) if
such redemption is incidental to a merger or other business combination
transaction or series of transactions involving the Company but not involving an
Acquiring Person or certain related Persons or (ii) following an event giving
rise to, and the expiration of the exercise period for, the Subscription Right
if and for as long as an Acquiring Person beneficially owns securities
representing less than 15% of the voting power of the Company's voting
securities. The redemption of Rights described in the preceding sentence shall
be effective only as of such time when the Subscription Right is not
exercisable, and in any event, only after ten Business Days' prior notice. Upon
the effective date of the redemption of the Rights, the right to exercise the
Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.

       Subject to applicable law, the Board of Directors, at its option, may at
any time after a Person becomes an Acquiring Person (but not after the
acquisition by such Person of 50% or more of the outstanding Common Stock),
exchange all or part of the then outstanding and exercisable rights (except for
Rights which have become void) for shares of Common Stock equivalent to one
share of Common Stock per Right (subject to adjustment) or, alternatively, for
substitute consideration consisting of cash, securities of the Company or other
assets (or any combination thereof).

       The Preferred Stock purchasable upon exercise of the Rights will be
nonredeemable and junior to any other series of preferred stock the Company may
issue (unless otherwise provided in the terms of such stock). Each share of
Preferred Stock will have a preferential quarterly dividend in an amount equal
to 1,000 times the dividend declared on each share of Common Stock, but in no
event less than $100.00. In the event of liquidation, the holders of Preferred
Stock will receive a preferred liquidation payment equal to the greater of 1,000
times $1.00 or 1,000 times the payment made per each share of Common Stock. Each
share of Preferred Stock will have 1,000 votes, voting together with the shares
of Common Stock. In the event of any merger, consolidation or other transaction
in which shares of Common Stock are exchanged, each share of Preferred Stock
will be entitled to receive 1,000 times the amount and type of consideration
received per share of Common Stock. The rights of the Preferred Stock as to
dividends, liquidation and voting, and in the event of mergers and
consolidations, are protected by customary antidilution provisions. Fractional
shares of Preferred Stock may be issued; however, the Company may elect to
distribute depositary receipts in lieu of fractional shares in multiples of one
one-thousandth of a share. In lieu of fractional shares other than fractions
that are multiples of one one-thousandth of a share, a payment 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.

       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.

       A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights

                                       3
<PAGE>   56

Agreement is available free of charge from the Company. THIS SUMMARY DESCRIPTION
OF THE RIGHTS DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE RIGHTS AGREEMENT, WHICH IS INCORPORATED HEREIN BY REFERENCE.

                                       4<PAGE>   1

                                                                    EXHIBIT 10.2

                           RESTRICTED STOCK AGREEMENT

     THIS AGREEMENT is made between Stuart A. Tanz (the "Employee") and Pan
Pacific Retail Properties, Inc. (the "Company") as of _____________, 2001.

                                    RECITALS

          (1) Pursuant to the Company's 2000 Stock Incentive Plan, the Company
has granted to Employee an award of 100,000 shares of common stock of the
Company (the "Shares") effective as of January 1, 2001 (the "Effective Date").

          (2) As a condition to Employee's grant of the Shares, Employee must
execute this Restricted Stock Agreement (this "Agreement"), which sets forth the
rights and obligations of the parties with respect to the Shares.

     1.   Forfeiture; Vesting.

          (a)  If Employee's employment or consulting relationship with the
     Company is terminated for any reason other than (i) by the Company without
     "cause" (as defined in the Amended and Restated Employment Agreement
     between Employee and the Company, dated as of August 14, 2000 (the
     "Employment Agreement")), or (ii) by Employee for "good reason" (as defined
     in the Employment Agreement), including, but not limited to, for cause,
     death, or disability, all unvested Shares as of the date of such
     termination shall immediately be forfeited and shall be transferred to the
     Company; provided that as to Shares that would have vested at the
     subsequent Vesting Date (as hereinafter defined), such Shares shall vest on
     a prorated basis based on the number of days elapsed from the prior Vesting
     Date through the date of termination and rounding down to the nearest
     Share, provided that the Company has met the requisite Performance Goal (as
     hereinafter defined).

          (b)  Subject to Subsections 1(c), (d) and (e), the Shares issued
     hereunder shall become vested over five (5) years in twenty percent
     installments on each anniversary of the Effective Date (each such
     anniversary, a "Vesting Date" and each twelve-month period between the
     Effective Date and the first Vesting Date, or the twelve-month period
     between Vesting Dates, a "Vesting Period"), conditioned upon (i) Employee's
     continued employment as of each such Vesting Date and (ii) the Company
     achieving its Performance Goal (as hereinafter defined).

          (c)  Notwithstanding Subsection 1(b), upon the attainment of the
     Performance Goal for a particular Vesting Date, twenty percent of the
     Shares (assuming Employee's continued employment as of such Vesting Date)
     shall become vested.

          (d)  Any unvested Shares subject to vesting on a prior Vesting Date
     shall become vested on a subsequent Vesting Date if the Company has met the
     Performance Goal, measured on a cumulative average basis, for each of the
     prior Vesting Dates.

               For example, if on the first and second Vesting Dates, the
Performance Goal for each of these Vesting Dates is not met, the Shares subject
to vesting on each of these

<PAGE>   2

Vesting Dates (20% of the Shares per Vesting Date) will remain unvested. If, on
the third Vesting Date, the Performance Goal for this Vesting Date is met, the
Shares subject to vesting on this Vesting Date (20% of the Shares) will vest. In
addition, if on the third Vesting Date (i) the Company's cumulative average
increase in Funds From Operations ("FFO") growth per share for the three prior
Vesting Periods is in the top 1/3 of the cumulative average increase in FFO
growth per share for the three prior Vesting Periods of the companies listed on
Schedule A, or (ii) the Company's cumulative average Total Return (as
hereinafter defined) for the three prior Vesting Periods is in the top 1/3 of
the cumulative average Total Return for the three prior Vesting Periods of the
companies listed on Schedule A, the unvested Shares subject to Vesting on the
first and second Vesting Dates will become vested.

               "Performance Goal" shall mean the achievement by the Company for
a Vesting Period of (a) placement in the top 1/3 of the companies listed on
Schedule A hereto with respect to the percentage increase in FFO growth per
share over the Vesting Period, or (b) placement in the top 1/3 of the companies
listed on Schedule A hereto with respect to Total Return for the Vesting Period.

               "Total Return" for a specified period shall mean (a) the amount
of appreciation of Company common stock and dividends paid on Company common
stock during such period divided by (b) the closing price on the day prior to
the beginning of the current Vesting Period.

          (e)  Notwithstanding Subsections 1(b), (c) and (d), in the case of a
     "Change in Control" (as hereinafter defined), then, immediately prior to
     the occurrence of such Change in Control, the Shares shall become fully
     vested and shall cease to be subject to forfeiture under Subsection 1(a)
     after such event. For purposes of this Agreement, "Change in Control" shall
     mean the occurrence of any of the following events:

               (i)   the individuals constituting the Board as of the date of
          the initial public offering of common stock of the Company (the
          "Incumbent Board") cease for any reason to constitute at least a
          majority of the Board; provided, however, that if the election, or
          nomination for election by the Company's stockholders, of any new
          director was approved by a vote of at least a majority of the
          Incumbent Board, such new director shall be considered a member of the
          Incumbent Board;

               (ii)  an acquisition of any voting securities of the Company (the
          "Voting Securities") by any "person" (as the term "person" is used for
          purposes of Section 13(d) or Section 14(d) of the Securities Exchange
          Act of 1934, as amended (the "1934 Act")), other than Revenue
          Properties (U.S.) Inc., a Delaware corporation and its subsidiaries
          (other than the Company and the Company's subsidiaries) ("RPUS"),
          immediately after which such person has "beneficial ownership" (within
          the meaning of Rule 13d-3 promulgated under the 1934 Act) of 20% or
          more of the combined voting power of the Company's then outstanding
          Voting Securities;

               (iii) RPUS' ownership of Voting Securities exceeding 26% of the
          outstanding Voting Securities, determined on a fully-diluted basis; or

                                       2
<PAGE>   3

               (iv)  approval by the stockholders of the Company of:

                     (A)  a merger, consolidation, share exchange or
               reorganization of the Company, unless the stock holders of the
               Company, immediately before such merger, consolidation, share
               exchange or reorganization, own, directly or indirectly
               immediately following such merger, consolidation, share exchange
               or reorganization, at least 80% of the combined voting power of
               the outstanding voting securities of the corporation that is the
               successor in such merger, consolidation, share exchange or
               reorganization (the "Surviving Company") in substantially the
               same proportion as their ownership of the Voting Securities
               immediately before such merger, consolidation, share exchange or
               reorganization; provided, however, that a merger, consolidation,
               share exchange or reorganization of the Company shall not
               constitute a "Change in Control" if such merger, consolidation,
               share exchange or reorganization of the Company is approved by
               the Board and is recommended by Employee to the Board for its
               approval; or

                     (B)  a complete liquidation or dissolution of the Company;
               or

               (v)   an agreement for the sale or other disposition of all or
          substantially all of the assets of the Company.

2.   Transferability of the Shares; Escrow.

          (a)  With the exception of Shares which have been forfeited and
     required to be transferred to the Company pursuant to this Agreement, no
     unvested Shares nor any interest or right therein or part thereof shall be
     liable for the debts, contracts or engagements of Employee or his
     successors in interest or shall be subject to disposition by transfer,
     alienation, anticipation, pledge, encumbrance, assignment or any other
     means whether such disposition be voluntary or involuntary or by operation
     of law by judgment, levy, attachment, garnishment or any other legal or
     equitable proceedings (including bankruptcy), and any attempted disposition
     thereof shall be null and void and of no effect. Employee hereby authorizes
     and directs the secretary of the Company, or such other person designated
     by the Company, to transfer the unvested Shares that have been forfeited to
     the Company pursuant to this Agreement.

          (b)  To insure the availability for delivery of Employee's unvested
     Shares upon forfeiture to the Company, Employee hereby appoints the
     secretary of the Company, or any other person designated by the Company as
     escrow agent, as his attorney-in-fact to assign and transfer unto the
     Company, such unvested Shares, if any, forfeited to the Company pursuant to
     Section 1 and shall, upon execution of this Agreement, deliver and deposit
     with the secretary of the Company, or such other person designated by the
     Company, the Share certificates representing the unvested Shares, together
     with the stock assignment duly endorsed in blank, attached hereto as
     Exhibit 1. The unvested Shares and stock assignment shall be held by the
     secretary in escrow, pursuant to the Joint Escrow Instructions of the
     Company and Employee attached as Exhibit 2 hereto, until such unvested
     Shares are vested, or until such time as this

                                       3
<PAGE>   4

     Agreement no longer is in effect. As a further condition to the Company's
     obligations under this Agreement, the spouse of the Employee, if any, shall
     execute and deliver to the Company the Consent of Spouse attached hereto as
     Exhibit 3. Upon vesting of the unvested Shares, the escrow agent shall
     promptly deliver to the Employee the certificate or certificates
     representing such Shares in the escrow agent's possession belonging to the
     Employee, and the escrow agent shall be discharged of all further
     obligations hereunder; provided, however, that the escrow agent shall
     nevertheless retain such certificate or certificates as escrow agent if so
     required pursuant to other restrictions imposed pursuant to this Agreement.

          (c)  The Company, or its designee, shall not be liable for any act it
     may do or omit to do with respect to holding the Shares in escrow and while
     acting in good faith and in the exercise of its judgment.

          (d)  Transfer or sale of the Shares is subject to restrictions on
     transfer imposed by any applicable state and federal securities laws. Any
     transferee shall hold such Shares subject to all the provisions hereof and
     shall acknowledge the same by signing a copy of this Agreement.

     3.   Termination. This Agreement shall terminate upon the later of (i) an
event of forfeiture, as described in Subsection 1(a) herein, or (ii) the fifth
anniversary of the Effective Date.

     4.   Gross-Up. Upon each Vesting Date for which Employee recognizes
ordinary income in connection with the vesting of one or more installments of
his Shares, the Company shall pay Employee, by no later than the initial
deadline for the filing of tax returns in which such income is reported by
Employee, a cash amount equal to the amount of ordinary federal and state income
tax (net of the federal benefit) recognized by Employee in connection with such
vesting.

     5.   Ownership, Voting Rights, Duties. This Agreement shall not affect in
any way the ownership, voting rights or other rights or duties of Employee,
except as specifically provided herein. Employee shall have the rights and
privileges of a stockholder of the Company in respect of the Shares (including
any dividends paid on shares of Company common stock), until termination of this
Agreement. The grant to Employee of the Shares shall be subject to the
restrictions on ownership and transfer set forth in the Company's Amended and
Restated Articles of Incorporation.

     6.   Legends. The Share certificate evidencing the Shares issued hereunder
shall be endorsed with the following legend (in addition to any legend required
under applicable federal and state securities laws and the Company's charter):

          THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
          RESTRICTIONS UPON TRANSFER AND FORFEITURE AS SET FORTH IN AN AGREEMENT
          BETWEEN THE COMPANY AND THE HOLDER OF THE SHARES, A COPY OF WHICH IS
          ON FILE WITH THE SECRETARY OF THE COMPANY.

                                       4
<PAGE>   5

     7.   Adjustment for Stock Split. All references to the number of Shares in
this Agreement shall be appropriately adjusted to reflect any stock split, stock
dividend or other change in the Shares which may be made by the Company after
the date of this Agreement.

     8.   Notices. Notices required hereunder shall be given in person or by
registered mail to the address of Employee shown on the records of the Company,
and to the Company at its principal executive office.

     9.   Survival of Terms. This Agreement shall apply to and bind Employee and
the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.

     10.  No Section 83(b) Elections. Because such election could have an impact
on the Company's ability to continue as a real estate investment trust under the
Internal Revenue Code of 1986, as amended (the "Code"), Employee agrees that
Employee will not file an election under Section 83(b) of the Code with respect
to the Shares. If Employee does file a Section 83(b) election then such election
shall cause the immediate forfeiture of all of the Shares, without proration
(notwithstanding anything in Section 1 to the contrary).

     11.  Representations. Employee has reviewed with his own tax advisors the
federal, state, local and foreign tax consequences of the grant to him of the
Shares and the transactions contemplated by this Agreement. Employee is relying
solely on such advisors and not on any statements or representations of the
Company or any of its agents. Employee understands that he (and not the Company)
shall be responsible for his own tax liability that may arise as a result of the
grant of the Shares or the transactions contemplated by this Agreement.

     12.  Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with California law.

     13.  Resolution of Disputes. It is understood and agreed between the
Employee and the Company that, any and all claims, grievances, demands,
controversies, causes of actions or disputes of any nature whatsoever (including
but not limited to interpretation of this Agreement or any provision contained
herein) (hereinafter "Disputes"), arising out of, in connection with, or in
relation to the arbitrability of any Disputes under this Agreement shall be
resolved in accordance with a two-step dispute resolution process administered
by the San Diego, California office of Judicial Administration & Mediation
Services, Inc. ("JAMS") involving, first, mediation before a retired judge from
the JAMS panel, followed, if necessary by final and binding arbitration before
the same, or if requested by either the Employee or the Company, another JAMS
panelist. Such dispute resolution process shall be confidential and shall be
conducted in accordance with California Evidence Code Section 1119. In the event
the Dispute is resolved through mediation, the parties shall bear their
respective costs incurred in connection with the mediation procedures, except
that the parties shall equally share the fees and expenses of the mediator and
the costs of the facility for the hearing. In the event the Dispute is resolved
through arbitration, the costs incurred in connection with the arbitration
procedures, including

                                       5
<PAGE>   6

the costs incurred by the prevailing party (including reasonable attorneys'
fees) will be borne by the non-prevailing party. The arbitrator will determine
which party is the non-prevailing party for purposes of this Section 13.

     Employee represents that he has read this Agreement and is familiar with
its terms and provisions.

     IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.

                                             "COMPANY"

                                             PAN PACIFIC RETAIL PROPERTIES, INC.

                                             By:
                                                 -------------------------------
                                             Title:
                                                   -----------------------------

                                             "EMPLOYEE"

                                             -----------------------------------
                                             STUART A. TANZ

                                             Address:

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

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

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

                                       6
<PAGE>   7

                                   SCHEDULE A

1.         Prime Retail, Inc.

2.         Kimco Realty Corporation

3.         Developers Diversified Realty

4.         Pan Pacific Retail Properties, Inc.

5.         Regency Realty Corporation

6.         Equity One, Inc.

7.         Weingarten Realty Investors

8.         Chelsea GCA Realty, Inc.

9.         Acadis Realty Trust

10.        Mid-Atlantic Realty Trist

11.        Ramco-Gershenson Properties Trust

12.        JDN Realty Corporation

13.        Saul Centers, Inc.

14.        Realty Income Corporation

15.        Kramont Realty Trust

16.        Federal Realty Investment Trust

17.        New Plan Excel Realty Trust

18.        Agree Realty Corporation

19.        Tanger Factory Outlet Centers, Inc.

20.        IRT Property Company

21.        Urstedt Biddle Properties, Inc.

22.        Center Trust, Inc.

23.        United Investors Realty Trust

24.        Aegis Realty Incorporated

25.        Burnham Pacific Properties, Inc.

<PAGE>   8

                                   EXHIBIT 1

                      ASSIGNMENT SEPARATE FROM CERTIFICATE

     FOR VALUE RECEIVED I, Stuart A. Tanz, hereby sell, assign and transfer unto
______________________________________________ (______________) Shares of the
Common Stock of Pan Pacific Retail Properties, Inc. standing in my name on the
books of said corporation represented by Certificate No. _______________
herewith and do hereby irrevocably constitute and appoint ______________________
to transfer the said stock on the books of the within named corporation with
full power of substitution in the premises.

     This Stock Assignment may be used only in accordance with the Restricted
Stock Agreement between Pan Pacific Retail Properties, Inc. and the undersigned
dated ___________, 2001.

Dated:                , 2001                      Signature:
       ---------------                                       -------------------
                                                             STUART A. TANZ

INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to transfer the Shares
upon forfeiture as set forth in the Agreement, without requiring additional
signatures on the part of the Employee.

<PAGE>   9

                                   EXHIBIT 2

                            JOINT ESCROW INSTRUCTIONS

                                 _________, 2001

Corporate Secretary
Pan Pacific Retail Properties, Inc.
1631-B South Melrose Drive
Vista, California  92083

Dear Corporate Secretary:

     As Escrow Agent for both Pan Pacific Retail Properties, Inc. (the
"Company"), and the undersigned employee of the Company (the "Employee"), you
are hereby authorized and directed to hold the documents delivered to you
pursuant to the terms of that certain Restricted Stock Agreement ("Agreement")
between the Company and the undersigned, in accordance with the following
instructions:

     1. In the event the Company and the Employee jointly advise you that a
forfeiture has occurred as set forth in the Agreement (a "Forfeiture"), the
Company shall give to Employee and you a written notice specifying the number of
Shares to be transferred to the Company. In the event the Company and Employee
are in disagreement as to whether a Forfeiture has occurred, you shall retain in
escrow the Shares subject to such disagreement, pending the results of the
mediation or arbitration proceedings provided for in Section 13 of the
Agreement. Upon resolution of such disagreement pursuant to Section 13 of the
Agreement, the Company shall provide you with a copy of any written decision or
order by the mediator or arbitrator. Employee and the Company hereby irrevocably
authorize and direct you to effect the transfer contemplated by such notice,
written decision or order.

     2. Upon receipt of such notice, written decision or order you are directed
(a) to date the stock assignments necessary for the transfer in question, (b) to
fill in the number of Shares being transferred, and (c) to deliver the same,
together with the certificate evidencing the Shares of stock to be transferred
to the Company.

     3. Employee irrevocably authorizes the Company to deposit with you any
certificates evidencing Shares of stock to be held by you hereunder and any
additions and substitutions to said Shares as defined in the Agreement. Employee
does hereby irrevocably constitute and appoint you as Employee's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transfer herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Employee shall
exercise all rights and privileges of a stockholder of the Company while the
stock is held by you.

<PAGE>   10

     4. Upon written request of the Employee, on any vesting date as of which
the Company has attained the performance goals set forth in the Agreement, you
will deliver to Employee a certificate or certificates representing so many
Shares of stock as are not then subject to forfeiture. Within 120 days after
cessation of Employee's continuous employment by or services to the Company, or
any parent or subsidiary of the Company, you will deliver to Employee a
certificate or certificates representing the aggregate number of Shares held or
issued pursuant to the Agreement and not forfeited to the Company.

     5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Employee,
you shall deliver all of the same to Employee and shall be discharged of all
further obligations hereunder.

     6. Your duties hereunder may be altered, amended, modified or revoked only
by a writing signed by all of the parties hereto.

     7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Employee while acting in good faith, and
any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.

     8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
accepting only orders or process of courts of law or of any mediator or
arbitrator provided for in Section 13 of the Agreement, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court or
such mediator or arbitrator. In case you obey or comply with any such order,
judgment or decree, you shall not be liable to any of the parties hereto or to
any other person, firm or corporation by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.

     9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.

     10. You shall not be liable for the lapse or curtailment of any rights
relating to these Joint Escrow Instructions, the Shares of stock held by you
hereunder or any documents deposited with you as a result of any applicable
statute of limitations or similar provision of state or federal law.

     11. You shall be entitled to employ such legal counsel and other experts as
you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.

                                       2
<PAGE>   11

     12. Your responsibilities as Escrow Agent hereunder shall terminate upon
the earlier of (i) an event of forfeiture or (ii) the fifth anniversary of the
Effective Date of the Agreement or such later date as extended by mediation or
arbitration as provided for in Section 13 of the Agreement, or the date upon
which you shall cease to be an officer or agent of the Company or upon which you
shall resign by written notice to each party. In the event of the latter, the
Company shall appoint a successor Escrow Agent.

     13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.

     14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a mediator or
arbitrator as provided for in Section 13 of the Agreement, or a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.

     15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.

     COMPANY:      Pan Pacific Retail Properties, Inc.
                   1631-B South Melrose
                   Vista, California 92083
                   Attn:  President

     EMPLOYEE:     Stuart A. Tanz

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

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

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

     ESCROW AGENT: Corporate Secretary
                   Pan Pacific Retail Properties, Inc.
                   1631-B South Melrose
                   Vista, California 92083

     16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.

     17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.

                                       3
<PAGE>   12

     18. These Joint Escrow Instructions shall be governed by, and construed and
enforced in accordance with, the laws of the State of California.

                                             PAN PACIFIC RETAIL PROPERTIES, INC.

                                             By:
                                                --------------------------------
                                             Title:
                                                   -----------------------------

                                             EMPLOYEE:

                                             -----------------------------------
                                             STUART A. TANZ

                                             ESCROW AGENT:

                                             -----------------------------------
                                             Corporate Secretary

                                       4
<PAGE>   13

                                   EXHIBIT 3

                                CONSENT OF SPOUSE

     I, ____________________, spouse of Stuart A. Tanz, have read and approve
the foregoing Restricted Stock Agreement. In consideration of granting of the
Shares to my spouse, set forth in the Restricted Stock Agreement, I hereby
appoint my spouse as my attorney-in-fact in respect to the exercise of any
rights under the Restricted Stock Agreement and agree to be bound by the
provisions of the Restricted Stock Agreement insofar as I may have any rights in
said Restricted Stock Agreement or any Shares issued pursuant thereto under the
community property laws or similar laws relating to marital property in effect
in the state of our residence as of the date of the signing of the foregoing
Restricted Stock Agreement.

Dated:                , 2001
       ---------------                         ---------------------------------

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