Document:

<PAGE>   1

                                                                    EXHIBIT 10.1

                                  CONFIDENTIAL

Portions of the Exhibit marked by "&&" have been omitted pursuant to a request
for Confidential Treatment under Rule 406 of the Securities Act of 1933, as
amended. The complete Exhibit, including the portions for which Confidential
Treatment has been requested, has been filed separately with the Securities and
Exchange Commission.

                               ALLIANCE AGREEMENT

This Alliance Agreement ("Agreement") dated August 25, 1997 (the "Effective
Date") by and between Solar Turbines Incorporated, a Delaware corporation whose
principal address is 2200 Pacific Highway, San Diego, California 92186-5376
("Solar") and Capstone Turbine Corporation, a California corporation whose
principal address is 6025 Yolanda Avenue, Tarzana, California 91356
("Capstone").

WHEREAS, Capstone designs, manufactures and distributes turbogenerators
containing Microturbines and has been obtaining primary surface recuperators
(PSRs) from Solar; and

WHEREAS, Solar Designs, manufactures and distributes PSRs for use in turbines
generating various output power levels; and

WHEREAS Capstone desires to develop in cooperation with Solar an assurance of
supply of PSRs at commercially reasonable prices; and

WHEREAS Solar desires to cooperate with Capstone in providing such an assurance
of supply of PSRs; and

WHEREAS Capstone is projecting an increased demand in its needs for PSRs and is
willing to purchase, lease or otherwise provide manufacturing equipment to
Solar for the purpose of assisting Solar in increasing its production levels
and production cost efficiencies with regard to PSRs supplied by Solar to
Capstone; and

WHEREAS Solar is interested in Capstone purchasing, leasing or otherwise
providing manufacturing equipment to assist Solar in increasing its production
levels and achieving greater production cost efficiencies with regard to PSRs
supplied by Solar to Capstone;

NOW THEREFORE, in consideration of the foregoing premises, the terms and
conditions specified herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:

DEFINITIONS

"Capstone Special Order PSR" shall mean (i) any PSR manufactured according to
Capstone's requirements and specifications as listed in the attached Exhibit A
to this Agreement including such PSR as may be modified from time to time by
Type 1 DCRs pursuant to Paragraph 8.1, (ii) any development PSR offered by
either party under Type 2 DCRs pursuant to Paragraph 8.1 and accepted by the
other party (which such development PSR shall be added to Exhibit A), including
such development PSR as may be modified from time to time by Type 1 DCRs, and
(iii) any similar PSR capable of direct replacement for the PSRs identified in
Exhibit A to this Agreement,

                                       1

<PAGE>   2
as such Exhibit may be amended from time to time by the parties to include
development PSR models.

"Microturbine" shall mean an individual turbogenerator unit generating && or
less output power.

"Solar's Houston Facility" shall mean that part of Solar's manufacturing
facility located in Houston, Texas which utilizes Phase II Equipment, as defined
herein, for manufacturing PSRs suitable for use in Microturbines.

"Solar Technology" shall mean all information disclosed by Solar to Capstone
during the term of this Alliance Agreement and relating to the manufacture and
use of PSRs, including for example, but not by way of limitation, trade secrets,
proprietary information, manufacturing drawings, blueprints, specifications,
parts and materials lists, tolerances, preferred vendor lists, test and
performance parameters, and other technical expertise necessary for the
manufacture of PSRs.

"CAPSTONE PATENTS" shall mean patents (i) now or in the future owned or
controlled by Capstone or its subsidiaries, or (ii) under which and to the
extent to which and subject to the conditions under which Capstone or its
subsidiaries may have during the term of this Agreement the right to grant
licenses of the scope granted herein, such patents claiming inventions
substantially based on Solar Technology and being based on patent applications
having an effective filing date during the period starting on the Effective Date
and ending on the termination or expiration of this Agreement.

1.0 SCOPE

1.1 Term of Agreement. This Agreement dated August 25, 1997, (the "Effective
Date"), subject to the conditions set forth below in this Section 1.1, shall
remain in force for a period of then (10) years until August 24, 2007, on which
date it will expire unless extended, canceled or terminated as provided herein.
Notwithstanding any provision to the contrary contained herein, this Agreement
shall only become effective when the parties have agreed upon all Exhibits to
this Agreement (and same have been initialed by both parties). The parties shall
meet and confer upon the terms of a new Alliance Agreement, if any, no later
than December 1, 2006. The provisions of Section 13.1 and 14 shall survive
expiration of this Agreement.

1.2 Requirements. During the period ending on the sooner of (i) the eighth
anniversary of the Effective Date, or (ii) such time as Capstone has committed
to purchase at least && Capstone Special Order PSRs under the provisions of
Paragraph 9.2, Capstone agrees to forecast requirements for Capstone Special
Order PSRs to Solar as provided for in Paragraphs 9.1 and 9.2 of this Agreement
and to tender purchase orders, specifying prices specified for in attached
Exhibit B as such Exhibit may be updated and specifying those volumes as
forecast in the rolling six month commitment provided for in Paragraphs 9.1 and
9.2, for at least && of Capstone's anticipated annual requirements for Capstone
Special Order PSRs from Solar, according to the terms and conditions of this
Agreement. Authorization from Capstone to Solar to manufacture Capstone Special
Order PSRs will be made in the form of purchase order(s), revision(s), or
release(s).

                                       2
<PAGE>   3
1.3  Termination by Solar. Solar may terminate this Agreement, upon ninety (90)
days written notice to Capstone that Solar is ceasing the manufacture of PSRs
other than for Solar or Caterpillar, Inc.; provided that Solar shall make the
full production capacity of the Solar Houston Facility available to Capstone
for the lesser period of (i) twenty-four (24) months from the date of notice
under this Paragraph 1.3 or (ii) until the Technology Transfer to Capstone as
provided for in Paragraph 5.1 of the License Agreement between the parties of
even date herewith is completed, if Capstone elects to exercise the license
rights granted under the License Agreement.

1.4  Termination by Capstone. Capstone may terminate this Agreement upon ninety
(90) days written notice to Solar and payment within 60 days of such notice of
an amount equal to: (i) the price paid for Capstone Special Order PSRs (being
determined by the average price paid for each model of Capstone Special Order
PSR purchased by Capstone in the immediately preceding month period and using
the price as calculated during that immediately preceding && month period);
multiplied by (ii) the shortfall between && and the number of Capstone Special
Order PSRs purchased by Capstone on or before the date of notice under this
Paragraph 1.4; multiplied by (iii) &&

1.5  Capstone shall grant to Solar a non-exclusive, non-transferable,
non-sublicensable, world-wide && license to Capstone Patents for the duration of
this Alliance Agreement. In the event of a conflict between the terms of a
patent license granted under this Agreement and a patent license granted under
the License Agreement between the parties of even date herewith, the terms of
the License Agreement shall take precedence.

2.0  ANNUAL BUSINESS REVIEWS

Annual business reviews with executive management, representing both Capstone
and Solar, shall be conducted for the purpose of mutual goal-setting and review
of prior year performance to goals and measurements determined under this
Agreement, and will include such other business-related topics as:

- Market overview/forecast
- Technological advancement trends
- Restructures/organizational changes
- Planning to meet contingencies forecast by either party
- Future product prices and price targets
- General business review

For optimum planning, the annual business reviews will take place during the
fourth quarter of each calendar year. Capstone and Solar will set a date for
the meeting allowing at least four (4) weeks for preparation and travel
arrangement purposes, the specific location and date to be mutually agreed to by
both parties.

                                       3
<PAGE>   4

3.0 PROGRAM MANAGERS AND TERMS

3.1 Teams will be formed, with representation form both companies, to encourage
consistency of approach and to achieve the greatest gains in improving quality,
reducing lead times, lowering costs, and meeting delivery schedules. The Teams
will consist of representatives from each company, including the Program Manager
from each company, and representatives from engineering, sales, purchasing,
supplier quality, manufacturing, and ad hoc members.

3.2 Each party hereby designates the individual identified below as its Program
Manager with responsibility for scheduling coordinating, and overseeing the
implementation of the parties' duties and obligations under the provisions of
this Agreement.

Capstone's Program Manager TBD
                           ---

Solar's Program Manager Mike Ward
                        ---------

4.0 PRODUCTIVITY IMPROVEMENTS

4.1 The parties agree to increase the production capacity at Solar's Houston
Facility in two phases as set forth below.

4.2 Phase I. Solar agrees to make reasonable efforts to increase the production
capacity from a current level of approximately && Capstone Special Order PSRs
per month to approximately && such units per month by the end of the third
quarter, 1998. In addition, Solar agrees to make reasonable additional
investments in research of manufacturing technology with the goal of increasing
production capacity of Capstone Special Order PSRs to be between && and && units
per month.

4.3 Phase II. In order to assist Solar to increase production of Capstone
Special Order PSRs from approximately & & units per month to between & & and & &
units per month and to reduce per unit price and to meet the hours per core
targets by the end of the first quarter, 1999, Capstone agrees to purchase,
lease or otherwise provide for installation at Solar's Houston facility high
speed, dedicated, automatic machinery and tooling (the "Phase II Equipment").
The parties will cooperate and work jointly to identify and evaluate suppliers
and equipment for Capstone to purchase, lease or otherwise provide to Solar.

4.4 A projected installation schedule for Phase II Equipment, including
decisions related to the total cost of Phase II Equipment, the timing of
manufacturing capacity increases, projected manufacturing hours per unit, and
total capacity will be made by mutual agreement between Capstone and Solar
within six months from the Effective Date. Phase II Equipment will be installed
and integrated by Solar with Phase I equipment at Solar's Houston Facility so
that one production line, with a projected capacity between & & and & &
recuperators per month, is formed. All property made available by Capstone will
be identified as and remain the property of Capstone and Capstone will be
responsible for paying all applicable property and other taxes associated with
such property. Capstone will also be responsible for reimbursing Solar for all

                                       4
<PAGE>   5

reasonable maintenance expenses incurred by Solar above normal operating
maintenance requirements and all necessary repair performed on such property.
Each party shall bear the risk of liability arising from injury to that party's
employees or representatives. Solar shall be responsible for damage to Solar's
Houston Facility resulting from the installation or use of the Phase II
Equipment.

4.5 The projected cost of the Phase II Equipment is $8.4 million dollars. The
parties recognize however, that this is an estimate only. Capstone shall provide
cumulatively up to ten million dollars ($10 million), for Phase II Equipment, as
needed after consultation and review with Solar. The parties agree, however, to
use reasonable efforts to keep the cost of the Phase II Equipment to a minimum,
consistent with reasonable business practices and with the goal of achieving
increased production capacity and manufacturing efficiency at Solar's Houston
Facility. Notwithstanding any provision contained in this Agreement to the
contrary, Solar does not guarantee any results whatsoever, whether with regard
to an increase in production capacity or PSRs or with regard to a decrease in
per unit prices of PSRs. Each party to this agreement represents that it is an
independent, experienced and sophisticated business entity. Each party conducts
it own investigations and obtains it own information about business
transactions. Each party relies wholly on its own counsel in making business
decisions and assumes all risks with regard to whether individual investments
achieve certain results. Solar may provide to Capstone, however, certain
information regarding Phase II Equipment performance, reliability, efficacy,
suppliers and purchases. Solar assumes no responsibility regarding the accuracy,
sufficiency, or completeness of such information, except in the case that
Solar's conduct in providing inaccurate, insufficient or incomplete information
is intentional or grossly negligent.

4.6 The parties recognize that the availability and performance of Phase II
Equipment sufficient to achieve forecasted volumes (between && units per month),
to reduce per unit price, and to meet the target manufacturing hours per core
for Capstone Special Order PSRs is uncertain, but that certain milestones will
be reached at which point the parties will be better situated and informed to
judge the likelihood of success. These milestones, when reached, will allow the
parties to make go/no-go decisions with regard to the Phase II effort. Such
milestones include:

      (A) On or about September 1997, the parties will have additional
      information regarding the likely cost and performance of certain Phase II
      Equipment. At that point, if Capstone reasonably believes the Phase II
      Equipment will not perform as required to achieve, or will cost
      cumulatively more than $10 million to achieve forecasted volumes (between
      && to && units per month), to reduce per unit price, and to meet the
      target manufacturing hours per core for Capstone Special Order PSRs,
      Capstone shall have the option to (i) provide additional funding for Phase
      II Equipment; or (ii) provide Solar thirty days advance written notice of
      its intention to withdraw from the Phase II effort, in which case (a)
      Capstone shall be under no obligation to provide any funding for Phase II
      Equipment, (b) Capstone shall be relieved of its obligation under
      Paragraph 1.2 to purchase && of its annual requirements for Capstone
      Special Order PSRs from Solar, but (c) Capstone shall remain obligated to
      purchase from Solar at least && Capstone Special Order PSRs during the
      first eight (8) years after the Effective Date.
<PAGE>   6
     (B) On or about December 1998, the Phase II Equipment will be installed at
     Solar's Houston Facility. At that point, if the Phase II Equipment does not
     perform as required to achieve, or if funding beyond Capstone's cumulative
     commitment of $10 million is required in order to achieve forecasted
     volumes (between && to && units per month), to reduce per unit price, and
     to meet the target manufacturing hours per core for Capstone Special Order
     PSRs, Capstone shall have the option to (i) provide additional funding for
     Phase II Equipment; or (ii) provide to Solar thirty days advance written
     notice of its intention to withdraw from the Phase II effort in which case,
     (a) Solar shall promptly deliver to a destination provided by Capstone, and
     at Capstone's expense the Phase II Equipment, (b) Capstone shall be
     relieved of its obligation under Paragraph 1.2 to purchase && of its annual
     requirements for Capstone Special Order PSRs from Solar, but (c) Capstone
     shall remain obligated to purchase from Solar at least && Capstone Special
     Order PSRs during the first eight (8) years after the Effective Date.

4.7  Unless otherwise provided for in this Agreement, the Phase II Equipment
shall remain at Solar's Houston Facility during the term of this Agreement.
Upon termination of this Agreement as set forth above, Capstone will offer the
Phase II Equipment to Solar at the fair market value, but if no market exists
for the Phase II Equipment, at a price equivalent to ten percent (10%) over the
salvage value. If Solar elects not to purchase the Phase II Equipment at the
agreed price, Solar shall deliver the Phase II Equipment, at Capstone's
expense, to a destination provided by Capstone.

5.0  SPECIFICATIONS

5.1  The Capstone Special Order PSRs covered by this Agreement shall be
manufactured in accordance with Capstone's interface engineering drawings, and
specifications. In the event Solar is unable to manufacture Capstone Special
Order PSRs as defined, Solar agrees to notify Capstone's Program Manager in
writing. Any and all agreements for deviations or changes shall be made in
writing, signed by Capstone. Capstone and Solar will resolve exceptions or
deviations to their mutual satisfaction prior to the start of manufacture of
any Capstone Special Order PSRs. Capstone's engineering drawings and
specifications define the minimum standard and Solar agrees to meet this
standard. Capstone and Solar agree to main sufficient technical liaison in order
to prevent or eliminate manufacturing and / or quality problems.

5.2  Solar is not offering specific performance guarantees. Solar has used
performance goals, along with the conditions within the turbine provided by
Capstone, together with Solar's design codes and experience to size the
recuperator. Solar will provide recuperators to a specific design that Capstone
has integrated and operated with their turbine and which Capstone has accepted
as the design suited for the proposed application.

5.3  As-new leakage will && of the recuperator air mass flow at design air side
pressures.

5.4  Solar assumes that the loads and moments at the gas interfaces && under
any condition, including upset or malfunction.

                                       6

<PAGE>   7
6.0  QUALITY

A quality plan will be established by Solar and will be subject to written
approval by Capstone. This program will be consistent with Solar's then
existing ISO 9000 practices.

7.0  ARMS' LENGTH TRANSACTION

The parties to this Agreement specifically intend that neither this Agreement
nor any course of dealings between them shall create fiduciary obligations.
Nothing contained in this Agreement, and no course of dealings between the
parties shall be construed as establishing a partnership, joint venture or
agency between the parties. The rights, duties and obligations of the parties
are to be controlled exclusively by contract. Any obligation or covenant of
good faith and fair dealing, whether express, implied-in-fact or
implied-in-law, is intended to be contractual only. Any disclosure obligations
contained in or arising from this Agreement or course of dealings between the
parties are strictly contractual, and do not create fiduciary obligations. The
parties intend that any disclosures of information, confidential or otherwise,
during the course of business negotiations or dealings shall not be construed
as creating additional disclosure obligations.

8.0  DEVELOPMENT PRODUCTS

8.1  The parties recognize that various design change requests ("DCRs"), such as
modifications, design changes, redesigns, and manufacturing process improvements
may be made to Capstone Special Order PSRs during the term of this Agreement.

     A) DCRs not affecting the form, fit, function, or safety of Capstone
     Special Order PSRs and which DCRs do not involve or require increased
     technical risk, tooling changes, field retrofit, or more than 5% part cost
     increase ("Type 1 DCRs") may be requested by either party for, approval by
     the other party, which approval shall not be unreasonably withheld. If the
     non-requesting party approves such Type 1 DCR, the Capstone Special Order
     PSRs shall be modified as required to incorporate and implement such Type 1
     DCR.

     B) DCRs relating to new, re-designed, or substantially modified PSRs or
     DCRs which involve or require increased technical risk, tooling changes,
     field retrofit, or more than 5% part cost increase, shall be referred to as
     "Type 2 DCRs". Type 2 DCRs initiated by Solar may be disclosed to Capstone
     at Solar's sole option and discretion for possible inclusion of Capstone
     Special Order PSRs incorporating and implementing such Type 2 DCRs under
     the terms of this Agreement. Type 2 DCRs initiated by Capstone must be
     promptly disclosed to Solar to allow Solar a right of first refusal to
     manufacture the resulting new Capstone Special Order PSRs incorporating and
     implementing such Type 2 DCRs under the provisions of this Agreement. If
     new Capstone Special Order PSRs are agreed upon under the terms of this
     sub-paragraph 8.1 (B), the parties shall add such new Capstone Special
     Order PSRs to this Agreement and update Exhibits A and B as provided for in
     Paragraph 8.2.

                                       7

<PAGE>   8
     C) Either party may initiate improvements to the manufacturing process used
     in the production of Capstone Special Order PSRs that do not affect the
     form, fit, function, or safety of Capstone Special Order PSRs ("Type 3
     DCRs"). Neither party is under obligation to disclose Type 3 DCRs to the
     other party. Solar shall, however, disclose to Capstone the fact that it is
     initiating a Type 3 DCR and will provide Capstone sufficient information
     regarding the timing of the implementation of such Type 3 DCRs (including,
     if appropriate, shipment lots or other indicia of Capstone Special Order
     PSRs impacted by such Type 3 DCRs to allow Capstone to track and assess
     the impact, if any, of such Type 3 DCRs on the quality, reliability, or
     performance of Capstone Special Order PSRs provided by Solar.

8.2  Changes to Exhibits "A" and "B". When mutually beneficial and acceptable,
and as provided under Paragraph 8.1, Capstone Special Order PSRs may be added to
or deleted from Exhibit "A" by written addendum thereto signed by both parties
and such added Capstone Special Order PSRs will then become subject to this
Agreement. Price for the next production period for the new Capstone Special
Order PSRs shall be based upon procedures outlined in Exhibit B. The prices
applicable to each such additional Capstone Special Order PSR shall be subject
to adjustment as provided for in Exhibit B. The pricing terms contained in this
Agreement shall apply to Capstone Special Order PSRs when such Capstone Special
Order PSRs have been released to production or when Solar has begun accepting
Purchase Orders for production-run quantities of such Capstone Special Order
PSRs. The pricing terms contained in this Agreement do not apply to prototypes
for new Capstone Special Order PSRs.

9.0  REQUIREMENTS, FORECAST VOLUME AND TIME FENCE

9.1  On the Effective Date, Capstone shall provide to Solar a forecast
equivalent to && of Capstone's requirements for Capstone Special Order PSRs for
the twenty-four month period commencing January 1, 1998 (the "Forecast")
(attached hereto as Exhibit E). Each month subsequent to January 1998 and until
such time as Capstone has forecast requirements for at least && Capstone
Special Order PSRs, Capstone shall update the Forecast to keep the Forecast
current for a twenty-four month projected period Solar shall have thirty (30)
days from receipt to accept the Forecast and updates, or to notify Capstone in
writing that it does not accept the Forecast or updated portion thereof. Solar
agrees to accept the Forecast, and as updated, provided Solar has or reasonably
anticipates having sufficient manufacturing capacity at Solar's Houston Facility
to satisfy Capstone's forecasted requirements. The Forecast is not an
authorization to commit funds or proceed in any way, except to the extent of the
six (6) month && rolling time fence portion of the Forecast as specified in
Paragraph 9.2.

9.2  The Forecast, and as updated, shall be the basis for a firm requirements
and delivery commitment between the parties. The initial six (6) month
commitment period shall begin January 1, 1998 and each month shall roll forward
one additional month to stay current for rolling six month periods. By the end
of October of each year, or as otherwise agreed by the parties, Capstone shall
tender to Solar one-year purchase orders specifying the price for the initial
three month period and the subsequent three month period as provided for in
Exhibit B and referencing volumes per

                                       8

<PAGE>   9
the six months firm requirements periods falling within the subsequent calendar
year per the terms of this Paragraph 9.2. Subject to and under the terms and
provisions provided for in this Agreement and the attachments hereto: (i)
Capstone shall accept all Capstone Special Order PSRs meeting Capstone's
incoming requirements, timely shipped pursuant to the six month commitments, and
(ii) Solar shall provide sufficient Capstone Special Order PSRs to satisfy the
six month commitment. Notwithstanding the foregoing, in no event shall Capstone
be obligated to purchase more than && Capstone Special Order PSRs in any given
calendar year, and the six month commitment may be adjusted accordingly to
reflect Capstone's maximum annual purchase obligation. Capstone may request a
schedule change (for Solar's consideration only) in order to reschedule delivery
of Capstone Special Order PSRs within the six month commitment at no cost to
Capstone. Any resulting changes must be mutually agreeable to both parties (but
consent by either party shall not be unreasonably withheld).

9.3 If Capstone has not tendered purchase orders for at least && Capstone
Special Order PSRs on or before December 31, 2002, Capstone's obligations under
Paragraph 1.2 shall continue until such time as Capstone has tendered purchase
orders for at least && Capstone Special Order PSRs but the date by which
Capstone shall have purchased at least && Capstone Special Order PSRs shall not
be executed beyond the eighth year anniversary of the Effective Date.

10.0 INDEPENDENCE OF BUSINESS ACTIVITIES

10.1 While Capstone presently has no intention of manufacturing individual
turbogenerator units generating more than && Solar acknowledges that nothing
contained in this Agreement restricts Capstone in any way from manufacturing any
size of turbine engine or turbogenerator units at its sole discretion at any
time if Capstone does not infringe upon Solar's patents or other intellectual
property rights.

10.2 While Solar presently has no intention of manufacturing gas turbine
engines with an output && Capstone acknowledges that nothing contained in this
Agreement restricts Solar in any way from entering the && gas turbine market at
its sole discretion at any time if Solar does not infringe upon Capstone's
patents or other intellectual property rights.

11.0 PRICING AND PAYMENT TERMS AND CAPACITY UTILIZATION

11.1 In order to ensure Capstone a firm price for Capstone Special Order PSRs,
while removing the risk to Solar of changes in material and labor costs beyond
Solar's control, prices for Capstone Special Order PSRs will be set, with
allowances for variations in Solar's costs as provided for in Exhibit "B,"
which is incorporated herein by reference. Independent certified public
accountants selected by Capstone and reasonably acceptable to Solar may review
Solar's written documentation concerning manufacturing cost in accordance with
Exhibit B with regard to Capstone Special Order PSRs, provided Capstone
provides three (3) business days notice of such audit and audits at reasonable
business hours. The pricing formula and adjustment provisions of Exhibit B are
premised on the assumption that Capstone's expenditure for Phase II Equipment
as provided for in Section 6 of this Agreement will result in sufficient
manufacturing capacity and

                                       9
<PAGE>   10
efficiency at Solar's Houston Facility to meet the target set for Labor Hours
per Recuperator defined in Exhibit B.

11.2  For each additional Capstone Special Order PSR model to be purchased by
Capstone under this Agreement, the parties shall update Exhibits "A" and "B" as
required. The price for the additional Capstone Special Order PSRs shall be
based upon procedures outlined in Exhibit B.

11.3  If during the term of this Agreement Solar sells to a third party
substantially identical PSRs (in number of pieces and parts, geometric
configuration, size and weight, including core to engine attachment hardware
Solar is supplying to Capstone, and material) in quantities comparable to those
being purchased by Capstone, and at a price (taking into account any credits,
rebates, other monetary or non-monetary consideration provided when determining
the price to the third party) less than the then-current price being charged
capstone as provided for in Exhibit B, the price charged to Capstone for those
Capstone Special Order PSRs shall be lowered to the price being charged the
third party.

11.4  Recognizing that costs of raw materials can be a significant component of
the price to Capstone of Capstone Special Order PSRs, Solar agrees to use
reasonable efforts to secure the lowest cost supply of raw materials, provided
such supply satisfies Solar's normal incoming raw materials quality controls.
Solar shall evaluate suppliers of raw materials identified in writing by
Capstone and shall purchase raw materials from those suppliers provided such raw
materials satisfy Solar's normal incoming raw materials quality controls.
Solar's savings in raw material costs shall be reflected in the price of
Capstone Special Order PSRs, as provided for in the pricing provisions of
Exhibit B.

11.5  All purchase orders tendered by Capstone under the terms of this Agreement
shall be subject to and governed by the Terms and Conditions contained in
Exhibit D attached hereto. In the event of a conflict between the terms of this
Agreement and any subsequent transaction between the parties, including purchase
orders and order acknowledgments, the terms of this Agreement shall prevail and
take precedence over such subsequent purchase orders and other form documents.

11.6  Solar shall give first priority of the Solar Houston Facility production
capacity to the manufacture of Capstone Special Order PSRs. "Excess Capacity"
shall be defined as the difference between Capstone's six month commitment for
Capstone Special Order PSRs pursuant to Paragraph 9.2 and the actual production
capacity of Solar's Houston Facility for that six month period. For each six
month commitment period: (i) Capstone shall have the right of first refusal to
have PSRs manufactured using Excess Capacity; (ii) if Capstone does not exercise
its right of first refusal, Solar may use the Excess Capacity at its sole
discretion; provided however that (iii) Capstone will be given first priority to
the Excess Capacity upon sixty days written notice to Solar. Notwithstanding the
foregoing, in no event will Solar manufacture the identical Capstone Special
Order PSRs with the identical part number for sale to third parties, except
third parties designated in writing by Capstone's Program Manager, as provided
for in Paragraph 3.2, but the parties recognize Solar may sell substantially
similar PSRs. Solar agrees not to knowingly sell or repair Capstone Special
Order PSRs to any entity requiring such PSRs to perform service on Capstone's
Microturbines and Solar will not knowingly service Capstone's aftermarket.

                                       10

<PAGE>   11

12.0 SUPPLIER COST INFORMATION

12.1 Solar agrees to provide sufficient cost data to enable Capstone to
understand and verify cost variations associated with development products set
forth in Section 8.0. Capstone may also offer its cost reducing suggestions to
Solar for Solar's consideration.

13.0 CONFIDENTIAL INFORMATION AND NOTICES

13.1 Confidential Information. The parties hereby ratify and incorporate that
certain Nondisclosure Agreement, executed by the parties in June 1996 and
attached hereto as Exhibit "C" (the "Nondisclosure Agreement") as modified in
the License Agreement between the parties of even date herewith.

13.2 Notices. All notices, requests, demands and elections under this Agreement
shall be in writing and shall be deemed to have been duly given (i) when
delivered by hand, (ii) one (1) day after being given to an express courier
with a reliable system for tracking delivery, (iii) when sent by confirmed
facsimile with a copy sent by another means specified herein, or (iv) three (3)
days after the date of mailing by certified or registered mail, return receipt
requested, postage prepaid, and addressed as follows:

        If to Capstone:
                Capstone Turbine Corporation
                6025 Yolanda Avenue
                Tarzana, California 91356

                Attention:      Paul Craig
                                President and Chief Executive Officer

        With a copy to:
                Richard Harroch
                Orrick, Harrington & Sutcliffe
                400 Salsome Street
                San Francisco, CA 94111

        If to Solar:
                Solar Turbines Incorporated
                2200 Pacific Highway
                San Diego, California 92101

                Attention:      Director, Recuperator Business

        With a copy to:
                General Counsel
                Solar Turbines Incorporated
                2200 Pacific Highway
                San Diego, California 92101

                                       11

<PAGE>   12
Solar or Capstone may, from time to time, change its address or its designee for
notification purposes by giving the other party prior written notice of the new
address or the new designee and the date upon which the change shall be
effective.

13.3 The terms and conditions of this Agreement are confidential and are
subject to the provisions of the Nondisclosure Agreement, Exhibit C.

14.0 GENERAL TERMS AND CONDITIONS

14.1 Warranty. Solar warrants, that if Capstone shall notify Solar in writing
within the "Warranty Period," as defined herein, that the Products purchased
hereunder are "defective" (defined herein as not of the kind or quality of
materials designated or described in the specifications given to Solar by
capstone in writing or changes approved jointly by Capstone and Solar in
accordance with Section 5.0 of this Agreement, or failing to met the performance
criteria specified in Exhibit D hereto, as such Exhibit may be modified from
time to time by joint agreement of the parties), Solar shall, upon mutual
determination by the parties that such Products were defective, repair or
replace such Products not actually meeting said specifications if such Products
(or representative samples of a common defect and failure documentation
concerning all such Products, as mutually agreed between the parties) are
returned to Solar's facility at Capstone's expense. Solar agrees to work with
Capstone to determine the cause of field problems and defects. "Warranty
Period" shall mean the first period to elapse of (i)  &&  from the expiration of
the "inactive" warranty as provided for in Exhibit A, or (ii)  &&  from the
expiration of the "active" warranty period as provided for in Exhibit A, or
(iii)  &&  from the discovery by Capstone of the defect. Notwithstanding the
foregoing, the Warranty Period may be adjusted to allow Capstone a warranty
period comparable to the warranty period Capstone provides to its customers,
provided that (i) Capstone demonstrates that the defect occurred during the
Warranty Period; and (ii) the adjustment does not result in Solar being held to
a greater warranty standard than Capstone is held to with its own customers.
This warranty shall be valid during the "inactive" or "active" warranty period,
whichever period elapses first and no liability shall arise for defects that
arise after the expiration of the Warranty Period. This warranty is only
applicable if the Product has not been subjected to foreign object damage,
misuse, or detrimental exposure, has not been involved in an accident and has
been transported, stored, installed, used, handled, maintained, repaired or
modified in accordance with the current recommendations of Solar or any
manufacturer of certain components of the Product as stated in its manuals,
bulletins, or other written instructions which have been submitted to Capstone:
provided however, that if Capstone demonstrates that the defect was not caused
by such foreign object damage, misuse, detrimental exposure, or accident, or
failure to transport, store, install, use, handle, maintain, repair, modify in
accordance with recommendations, then the warranty will remain applicable. If
any warranty incidents or claims occur beyond the Warranty Period, both parties
agree to meet and resolve such incidents and claims in a mutually satisfactory
manner. THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESSED OR
IMPLIED (INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE), AND SOLAR SHALL NOT BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL
DAMAGES. The liability of Solar resulting from the foregoing warranty shall not
in any case exceed the cost of correcting such defects as provided above. The
foregoing shall constitute the sole remedy of Capstone and the

                                       12
<PAGE>   13
sole liability of Solar for breach of warranty, whether the claim is in
contract, warranty, tort (other than gross negligence or intentional acts),
strict liability, or otherwise. This warranty may be modified during the term
hereof with the mutual written agreement of both parties. Any modifications to
this warranty must be agreed to and signed by the parties.

14.2 Material Breach. If either party materially breaches this Agreement, upon
written notice to the defaulting party specifying such breach, the defaulting
party shall have thirty (30) days after such notice to remedy such breach or to
implement a program, reasonably satisfactory to the party not in default, to
correct such breach. If such material breach remains uncured after thirty (30)
days, either party may initiate the dispute resolution proceedings provided for
in Paragraph 14.3. Notwithstanding the foregoing, Solar may terminate this
Agreement and the License Agreement of even date herewith upon thirty (30) days
written notice to Capstone if Capstone fails to tender purchase orders for at
least && Capstone Special Order PSRs, as provided for in Paragraphs 1.2 of this
Agreement within eight years from the Effective Date, provided however, that
Capstone shall have the option to cure such grounds and Solar shall not
terminate this Agreement or the License Agreement on such grounds provided
Capstone either (i) tenders to Solar purchase orders for amounts of Capstone
Special Order PSRs equivalent to the production capacity of Solar's Houston
Facility to manufacture Capstone Special Order PSRs until Capstone has tendered
purchase orders for at least && Capstone Special Order PSRs, or (ii) tenders to
Solar an amount equivalent to && of the price for Capstone Special Order PSRs
determined for the prior three month period multiplied by the shortfall between
&& units and the number of Capstone Special Order PSRs purchased by Capstone on
or before the date Capstone receives written notice pursuant to this Paragraph
14.2.

14.3 Dispute Resolution. If a dispute arises under the terms or performance of
this Agreement, unless by mutual consent the parties agree otherwise, the
parties shall resolve such dispute as follows:

     A) the parties' respective Program Managers shall have ten days to attempt
     resolution; if the Program Managers are unable to resolve the dispute
     themselves;

     B) each Program Manager shall present a written statement of the dispute
     and a proposed resolution for consideration at a meeting of a senior
     executive officer from each company the meeting to be held within fifteen
     days from the expiration of the ten day period contemplated in the
     preceding sub-paragraph;

     C) if the senior executive officers cannot resolve the dispute within ten
     days from the meeting date specified in the preceding sub-paragraph, the
     parties agree to submit such dispute to arbitration before a neutral three
     member board of arbitrators under the provisions of Paragraph 14.4.

14.4 Arbitration. Subject to the provisions of Paragraph 14.3 of this Agreement,
any claim or dispute arising hereunder that has not been resolved by the
parties shall be determined by arbitration in accordance with the Commercial
Arbitration Rules then in effect of the American Arbitration Association in San
Diego, California; provided that no demand for arbitration shall be instituted
after the date after which legal proceedings on the same claim would have been
barred by

                                       13
<PAGE>   14
the applicable statute of limitations. The party requesting arbitration shall
appoint one independent neutral arbitrator in writing and the responding party
shall appoint one independent neutral arbitrator in writing within fifteen (15)
days thereafter. The two arbitrators so selected shall then appoint a third
arbitrator within fifteen (15) days thereafter. The award rendered in such
arbitration may provide for equitable remedies, an accounting and/or
reimbursement for attorneys', accountants' or consultants' fees, as the
arbitrators shall see fit. Such award shall be final, and judgment on it may be
entered in or enforced by any court, state, federal or foreign, having
jurisdiction thereover. This provision shall not preclude the impleading or
joining of one of the parties hereto by the other in an action brought by a
third party and all matters with respect thereto shall be decided by the court
or body deciding that action. Any party may apply to an appropriate court of
law for a preliminary injunction, attachment or other similar remedy available
to it in aid of the arbitration proceeding provided for herein. In the
arbitration each party shall be entitled to demand production of documents and
other items from any other party hereto, in accordance with the terms of Rule
34 of the Federal Rules of Civil Procedure. Any disputes concerning such demand
shall be determined by the arbitrator(s), and any such determination shall be
binding on the parties.

14.5 California Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California as if made in California
for performance entirely within the State of California.

14.6 Entire Agreement. This Agreement includes Exhibits "A" through "E"
attached hereto and constitutes the entire agreement between the parties with
respect to the subject matter hereof, supersedes all prior oral or written
agreements regarding the subject matter hereof, and cannot be changed except by
a writing signed by both parties.

14.7 Severability. If any provision of this Agreement is held illegal, invalid
or unenforceable under present or future state or federal laws, or rules and
regulations promulgated thereunder, effective during the term hereof, such
provision shall be fully severable, and this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part thereof; and the remaining provisions hereof shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid, or unenforceable provision, there shall be automatically
as part of this Agreement a provision similar in terms to such illegal, invalid
or unenforceable provision as may be possible and be legal, valid, and
enforceable.

14.8 Assignment. This Agreement is not assignable or transferable without the
prior written consent of each party, which consent may be withheld for any
reason except that either party may assign or transfer this Agreement to an
affiliated entity without the consent of the other party.

14.9 Independent Research. Nothing in this Agreement shall (a) impose any
restriction on either party from carrying out independent research and
development activities in any field, (b) in relation to the results of any such
independent research and development activities of one party, give rise to any
ownership right or claim by the other party; nor (c) restrict either party in
the exploitation in any manner of the results of tis independent research and
development activities.

                                       14
<PAGE>   15
14.10   No Sharing of Liabilities. Nothing herein shall be construed as
providing for the sharing of profits or losses arising out of the efforts of
the parties. No party shall be liable to the other for any of the costs,
expenses, risks, or liabilities arising out of the other party's efforts in
connection with this Agreement.

14.11   Manufacture of PSRs. Subject to the provisions of Paragraph 11.6
regarding the use of Phase II Equipment, Solar is under no restriction or
obligation to Capstone regarding the manufacture, use or sale of PSRs other
than Capstone Special Order PSRs.

14.12   Use of Solar PSRs. Subject to the provisions of Paragraph 1.2 regarding
minimum purchase commitments, Capstone is under no
obligation to incorporate only Capstone Special Order PSRs in Microturbines
manufactured and delivered by Capstone.

14.13   Employee Solicitation. For a period of three years from the date of this
Agreement, Solar and Capstone agree not to solicit for employment purposes, any
employee of the other party who has had access to that other party's
Proprietary Information utilized in implementing this Agreement.

14.14   Jurisdiction. For any matter or claim to be considered by a court under
this Agreement the parties consent to the exclusive jurisdiction of the courts
of the United States of America and the State of California and any subdivision
thereof. Any injunctions, order or judgments entered, issued, or granted from
any courts having jurisdiction hereunder shall be enforceable within the State
of California and in any state or country wherein lie the offices and/or assets
of the party against whom the said injunction, order or judgment is entered.

14.15   Conflict Provision. In the event of conflict of any provision of this
Agreement and any transaction, including purchase orders from Capstone and
accepted by Solar, the provisions of this Agreement shall prevail.

14.16   Headings. The section headings used in this Agreement are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.

14.17   Interpretation. Each party to this Agreement has had the opportunity to
review the Agreement with legal counsel. This Agreement shall not be construed
or interpreted against either party on the basis that such party drafted or
authored a particular provision, parts of, or the entirety of this Agreement.

14.18   Force Majeure. Neither party to this Agreement shall be liable for any
default or delay in the performance of its obligations under this Agreement
(except for the duty to pay for services rendered or Product received) if and
to the extent such default or delay is caused, directly or indirectly, by fire,
flood, earthquake, elements of nature or acts of God, riots, civil disorders,
rebellions or revolutions, or any other cause beyond the reasonable control of
such party (including the inability to receive raw materials from a supplier),
provided the non-performing party is without fault in causing such default or
delay, and such default or delay could not have been prevented by reasonable
precautions nor reasonably be circumvented by the nonperforming party through
the use

                                       15
<PAGE>   16
of alternate sources, work-around plans or other means. In such event, the
non-performing party shall be excused from any further performance or observance
of the obligation(s) so affected for as long as such circumstances prevail and
such party continues to use reasonable efforts to recommence performance or
observance of the obligations so affected for as long as such circumstances
prevail. Notwithstanding the foregoing, a party shall not be entitled to the
benefits of this Section 14.18 unless any party so delayed in its performance
promptly notifies the party to whom performance is due by telephone, radio,
messenger or other available means (to be confirmed in writing within two (2)
working days of the inception of such delay) and describe at reasonable level of
detail the circumstances causing such delay.

14.19  No Change in Purchase Order. Notwithstanding any provision contained in
this Agreement to the contrary, no term or provision of this Agreement changes
or in any way modifies the terms of Purchase Order 962295, dated November 7,
1996.

14.20  Public Acknowledgement. Both Solar and Capstone may publicly acknowledge
and announce that they have entered into an Alliance Agreement for the purchase
and development of PSRs for incorporation into Capstone's Microturbines.
Notwithstanding the foregoing, Capstone agrees that it will not advertise, or
otherwise indicate that any Capstone Special Order PSRs are sponsored, endorsed,
or otherwise guaranteed by Solar or that the Alliance Agreement between Capstone
and Solar is an exclusive agreement.

14.21  Rights. Each and every right, power, and remedy herein specifically
given to either party or otherwise in this Agreement shall be cumulative and
shall be in addition to every other right, power, and remedy herein specifically
given or now or hereafter existing at law, in equity or by statute, and the
exercise or the beginning of the exercise of any power or remedy shall not be
construed to be a waiver of the right to exercise at the same time or
thereafter any such right, power, or remedy.

15.0  COVENANTS

Capstone and Solar represent and warrant that the execution, delivery and
performance of this Agreement has been duly authorized by all necessary
corporate action on the part of Capstone and Solar, respectively, and that this
Agreement constitutes a legal, valid and binding obligation, enforceable in
accordance with its terms.

IN WITNESS WHEREOF, Capstone and Solar have executed this Agreement on the date
set forth below to be effective as of the time set forth in Section 1.1 of this
Agreement.

SOLAR TURBINES INCORPORATED               CAPSTONE TURBINE CORPORATION

By: /s/ DAVID W. ESBECK                   By: /s/ PAUL CRAIG
   ---------------------------               ----------------------------------
    David W. Esbeck                         Paul Craig
    Vice President, Engineering             President & Chief Executive Officer

Dated: 22 Aug 97                          Dated:  August 25, 1997
      ------------------------                  -------------------------------

                                       16

<PAGE>   17

EXHIBIT A -- PRODUCTS COVERED BY AGREEMENT

<TABLE>
<CAPTION>
                                                                        ACTIVE
                                                INACTIVE                WARRANTY
SELLER'S P/N    SPECIFICATION   DESCRIPTION     WARRANTY PERIOD         PERIOD
--------------------------------------------------------------------------------------
<S>             <C>             <C>             <C>                     <C>
203210-100      TBD             Recuperator     &&                      &&
                                Assembly        from date of ship-      from first use
                                &&              ment of the Product     by Capstone's
                                                by Solar                Customers
</TABLE>

/s/ PAUL CRAIG                          August 25, 1997
------------------------------          -----------------------
CAPSTONE TURBINE CORPORATION            DATE

/s/ DAVID W. ESBECK                     8/22/97
------------------------------          -----------------------
SOLAR TURBINES INCORPORATED             DATE

                                       17
<PAGE>   18
EXHIBIT B - PRICING BASIS

1. Selling Price is direct labor rate (as defined below), overhead (as defined
below), actual material cost including scrap, and mark-up (as defined below).

2. Direct labor rate to be used for each && month production period is the
weighted average for the previous && months prior to the quarterly business
meeting or a mutually agreed rate.

3. Overhead burden rate, expressed in percent of labor rate, to be used for
each && month production period is the weighted average for the previous &&
months prior to the quarterly business meeting or a mutually agreed rate
(currently estimated at &&.

4. The selling price will be adjusted each succeeding period for savings or
increases in previous period price.

5. At each quarterly business meeting to be held January, April, July, and
October each year, actual costs (material, labor, and overhead) and hours per
core required to manufacture Capstone Special Order PSRs during the preceding
period will be reviewed. A weighted average of these factors for the prior &&
months preceding the meeting will be used in the pricing formula to set the
next period price, minus or plus preceding period savings or increases. Every
effort will be made in setting the next period price to minimize pricing
formula corrections.

6. Solar's mark-up is && and includes:
     profit
     warranty & policy
     product maintenance technical support
     SG&A
     interest

&&
&&

/s/ PAUL CRAIG                                August 25, 1997
-------------------------------               ------------------------
CAPSTONE TURBINE CORPORATION

/s/ DAVID W. ESBECK                           22 Aug. 97
-------------------------------               ------------------------
SOLAR TURBINES INCORPORATED

                                       18
<PAGE>   19
                                                                       EXHIBIT B

MANUFACTURING HOURS PER CORE - TARGET
--------------------------------------------------------------------------------

Hours per Core                       [&&]

                           Units per Month Production
--------------------------------------------------------------------------------
[SOLAR TURBINES LOGO]         Company Confidential
<PAGE>   20
EXHIBIT C

NON DISCLOSURE AGREEMENT

                                       19
<PAGE>   21
                            NONDISCLOSURE AGREEMENT

This Nondisclosure Agreement ("Agreement") is made effective as of June 1, 1996
by and between Solar Turbines Incorporated, a Delaware corporation having its
principal office in San Diego, California ("Solar") and Capstone Turbine Corp.,
a Delaware corporation having its principal office in Tarzana, California
("Capstone").

     WHEREAS, Solar is engaged in the business of designing, manufacturing and
selling industrial turbomachinery, including gas turbine engines and related
systems ("Solar Products"). Solar has developed certain unique primary surface
recuperator and interconnection (interface) technology ("Solar Recuperator
Technology") which it owns and may apply to the design and application of
recuperators; and

     WHEREAS, Capstone is actively engaged in the development of gas turbines
and recuperated gas turbines in the six to && kilowatt size range; and

     WHEREAS, Capstone is actively engaged in the development of major
components of both gas turbines and recuperated gas turbines in this size
range; and

     WHEREAS, these components include turbines, compressors, air bearings,
combustors, permanent magnet alternators, electronic convertors, and
recuperators ("Capstone Products"); and

     WHEREAS, Solar owns and has the unencumbered right to disclose to Capstone
certain proprietary information relating to the Solar Recuperator Technology
and Solar Products and Capstone owns and has the unencumbered right to disclose
to Solar certain proprietary information relating to Capstone Products
(collectively, such information from each party is referred to herein as
"Proprietary Information"); and

     WHEREAS, each party desires to disclose Proprietary Information to the
other party for the limited purpose of evaluating whether the parties may
desire to work together on projects relating to Solar Recuperator Technology,
Capstone Products, Solar Products and other matters, and should a purchase
order issue or contract to be entered into, then for work or services performed
thereunder; and

     WHEREAS, Solar and Capstone executed a Nondisclosure Agreement, dated July
11, 1994, when Capstone was operating under the name "NoMac Energy Systems,
Inc."; and

                                      -1-
<PAGE>   22
     WHEREAS, the previous Nondisclosure Agreement between the parties, dated
July 11, 1994, is terminated effective May 31, 1996 and this Agreement shall
become effective June 1, 1996; and

     WHEREAS, as used herein, "Party", "receiving party" and "disclosing party"
means each and every party who may receive or disclose Proprietary Information
regardless of the use of the singular rather than the plural form "parties".

     NOW, THEREFORE, in consideration of the foregoing premises, the following
promises, covenants and undertakings, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
intending to be legally bound, the parties agree as follows:

     1.   Each Party will use its best efforts to keep in confidence, and not
use or disclose to any person or persons, proprietary information disclosed to
it under this Agreement.

          Each Party recognizes that any disclosure of proprietary information
would substantially injure the disclosing Party's business, impair its
investments and goodwill and jeopardize its relationships with its buyers and
customers. In order to protect such proprietary information, the Parties agree:

          (a)  to hold all proprietary information in safekeeping and in strict
confidence and not to disclose proprietary information to any third parties or
permit use of all such information to the disadvantage of the disclosing Party;

          (b)  to treat all proprietary information with at least the same
degree of care with which each treats and protects its own proprietary
information which it does not wish to disclose to third parties, which in any
event shall be reasonable under the circumstances;

          (c)  to limit the access of all proprietary information to only those
employees within its organization who require the proprietary information in
performing the limited purpose of this Agreement, and to inform each of its
employees of the provisions of this agreement; and

          (d)  to use proprietary information only to the extent necessary for
performing the limited purposes of this Agreement.

     2.   Exceptions. The restrictions contained in Section 1 shall not apply to
any proprietary information if the same is:

          (a)  in the public domain at the time of disclosure, or is
subsequently made

                                      -2-
<PAGE>   23
available by the disclosing Party to the general public without restriction;

          (b)  known by the receiving Party at the time of disclosure, as
evidenced by appropriate documentation, or independently developed, as evidenced
by appropriate documentation, by the receiving Party;

          (c)  used or disclosed with the prior written approval of the
disclosing Party;

          (d)  becomes known to the receiving Party without similar restrictions
as to its use or disclosure from a source other than the disclosing Party;

          (e)  used or disclosed after a period of ten (10) years from the date
of termination of this Agreement;

          (f)  becomes known pursuant to judicial action or Governmental
regulations or requirements, provided that the recipient of such data shall have
notified the other Party.

     3.   Neither the execution of this Agreement, nor the furnishing of any
materials hereunder, shall be construed as granting, either expressly or by
implication, estoppel or otherwise, any license under any invention or patent
now or hereafter owned by or controlled by the Party furnishing the materials.

     4.   No rights or obligations other than those expressly recited herein are
to be implied by this Agreement with respect to patents, inventions and data. In
providing data pursuant to this Agreement, the Party providing the data makes no
representation, either expressed or implied, as to adequacy, sufficiency, or
freedom from fault of such data and incurs no responsibility nor obligation
whatsoever by reason thereof; and the furnishing of such data shall not convey
any rights or license with respect to such data.

     5.   Nothing in this Agreement shall grant to either Party the right to
make commitments of any kind for or on behalf of the other Party without the
prior written consent of the other Party.

     6.   If a contractual relationship results from discussions between Solar
and Capstone, the contract or purchase order will authorize Solar to disclose
information to other parties which have a need to know after Solar ensures that
a nondisclosure agreement such as this Agreement is in place with such parties.
Similarly, such contract or purchase order will authorize Capstone to disclose
information to other parties which have a need to know after Capstone ensures
that a nondisclosure agreement such as this Agreement is in place with such
parties.

     7.   This Agreement may be terminated (a) by either Party giving thirty
(30) days

                                      -3-

<PAGE>   24
written notice of its intention to terminate to the other Party; or (b) the
Agreement shall automatically terminate three (3) years from the date of
acceptance; provided, however, that when the Agreement terminates, the
obligations not to use and not to disclose proprietary information exchanged
hereunder shall continue for the period specified hereinabove.

     8.   All modifications to this Agreement shall be in writing and signed by
duly authorized representatives of both corporations.

     9.   All notices and information shall be addressed as follows:

          If to Capstone:

          Capstone Turbine Corp.
          6025 Yolanda Avenue
          Tarzana, CA 91356

          Attention: R. James Wensley
                     President and Chief Executive Officer

          With a copy to:

          Richard Harroch
          Orrick, Harrington & Sutcliffe
          400 Salsome Street
          San Francisco, CA 94111

          If to Solar:

          Solar Turbines Incorporated
          2200 Pacific Highway
          San Diego, CA 92101

          Attention: Manager, Recuperator Programs

          With a copy to:

          General Counsel
          Legal Department
          Solar Turbines Incorporated
          2200 Pacific Highway
          San Diego, CA 92101

                                      -4-
<PAGE>   25
     10.  Return of Proprietary Information. All proprietary information
disclosed to the receiving Party shall remain the property of the disclosing
Party within thirty (30) days of any termination of this Agreement or upon
request at any time by the disclosing Party, the receiving Party agrees to
immediately return all proprietary information and all copies to the disclosing
Party with a written statement that the foregoing has been accomplished.

     11.  Notification and Injunctive Relief. If either Party, inadvertently or
otherwise, makes an unauthorized disclosure of the other Party's proprietary
information to a third party, the violating Party shall immediately take every
reasonable action to recover the improperly disclosed proprietary information,
execute a retroactive protective agreement with the unauthorized third party
if possible and immediately notify the Party whose data was improperly
disclosed ("Injured Party") and provide complete information about the
unauthorized disclosure and the corrective measures being taken. The Parties
agree that monetary damages are inadequate for any material breach involving an
unauthorized disclosure when the injured Party reasonably believes said breach
will cause it to suffer significant business harm. If the Injured Party
believes, based on the facts, it will suffer material harm from the
unauthorized disclosure and the corrective measures being taken by the
violating Party are inadequate to mitigate the harm, the Parties agree the
Injured Party shall be entitled to prompt injunctive relief. Both Parties'
other legal and equitable remedies and defenses remain unchanged by this
provision.

     12.  Each Party reserves the right to change its designation of authorized
representative, should circumstances so require, and to notify the other Party,
in writing of any such changes.

     13.  (a)  All technical information and ideas relating to any proprietary
information disclosed hereunder shall be in writing and will be identified, in
writing, as being proprietary information.

          (b)  Oral communications which are considered proprietary by the
originating Party and so identified shall be reduced to writing within thirty
(30) days and shall contain a notice thereon to the effect that any disclosure
and use shall be subject to the terms and conditions of this present Agreement.
Such orally disclosed information shall be given the protection afforded
proprietary information hereunder during such thirty (30) day period.

          (c)  All copies of proprietary information shall contain a similar
identification.

     14.  This Agreement shall be governed by and construed in accordance with
the laws of the State of California as if made in California for performance
entirely within the State of California.

                                      -5-
<PAGE>   26
     15.  This Agreement constitutes the entire agreement between the Parties
with respect to the subject matter hereof, supersedes all prior oral or written
agreements regarding the subject matter hereof, and cannot be changed or
terminated except by a writing signed by both Parties.

     16.  If any provision of this Agreement is held illegal, invalid or
unenforceable under present or future state or federal laws, or rules and
regulations promulgated thereunder, effective during the term hereof, such
provision shall be fully severable, and this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof; and the remaining provisions hereof shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid, or unenforceable provision, there shall be automatically
as part of this Agreement a provision similar in terms to such illegal,
invalid, or unenforceable provision as may be possible and be legal, valid, and
enforceable.

     17.  This Agreement is not assignable or transferable without the prior
written consent of each Party, which consent may be withheld for any reason.

     18.  Nothing herein shall be construed as a grant of a license or
conveyance of any rights under any discoveries, inventions, patents, trade
secrets, copyrights, industrial property rights or know-how belonging to any
Party hereto.

     19.  This Agreement shall not constitute, create, give effect to or
otherwise imply a teaming, joint venture, leader-follower or other formal
business relationship. Further, nothing herein shall be construed as providing
for the sharing of profits or losses arising out of the efforts of the Parties.
No Party shall be liable to the other for any of the costs, expenses, risks, or
liabilities arising out of the other Party's efforts in connection with this
Agreement.

     20.  Each Party to this Agreement has had the opportunity to review the
Agreement with legal counsel. This Agreement shall not be construed or
interpreted against either Party on the basis that such Party drafted or
authorized a particular provision, parts of, or the entirety of this Agreement.

                                      -6-

<PAGE>   27
     IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their duly authorized representatives.

CAPSTONE TURBINE CORP.                  SOLAR TURBINES INCORPORATED

By: /s/ R. James Wensley                By: /s/ David Esbeck
   --------------------------              --------------------------

Printed                                 Printed
Name:    R. James Wensley               Name:     David Esbeck
   --------------------------              --------------------------

Title:  President                       Title: V.P. Engineering
   --------------------------              --------------------------

Date:  June 13, 1996                    Date: June 6, 1996
   --------------------------              --------------------------

                                      -7-

<PAGE>   28
                                   EXHIBIT D
                  TERMS OF SALE - PRIMARY SURFACE RECUPERATOR
--------------------------------------------------------------------------------
The terms of sale include, but are not limited to the following:

1.   The recuperator will be factory tested for pressure and leakage at ambient
temperature prior to shipment.

2.   Solar will retain ownership of all tooling paid by Solar.

3.   Solar will ship PSRs via a mutually agreed shipment plan. Payment terms
are net && days from invoice.

4.   Shipping terms are &&, Solar's Houston Facility. All sales shall be
governed by and construed in accordance with the laws of the State of
California as if made in California for performance entirely within the State
of California.

5.   Inspection. Buyer may inspect the goods ordered hereunder during any stage
of their manufacture, construction, preparation, delivery or completion. Goods
may be rejected for defects or defaults revealed by inspection, analysis or
subsequent manufacturing operations even though such goods may have previously
been accepted.

6.   Shipment. Buyer shall have the right to specify the carrier and/or the
method of transportation to be used in conveying any part of the goods covered
herein. A packing slip shall accompany each shipment.

7.   Alternative Transportation. If Seller's acts or omissions result in
Seller's failure to meet Buyer's delivery requirements as previously agreed to
in paragraph 3, and Buyer requires a more expeditious method of transportation
for the goods than the transportation method originally specified by Buyer,
Seller shall, at Buyer's option, (i) promptly reimburse Buyer the difference in
cost between the more expeditious method and the original method, (ii) allow
Buyer to reduce its payment of Seller's invoices by such a difference, or (iii)
ship the goods as expeditiously as possible at Seller's expense and invoice
Buyer for the amount which Buyer would have paid for normal shipment.

                                       20
<PAGE>   29
 8.  Setoff. In addition to any right of setoff provided by law, all amounts due
Seller shall be considered net of indebtedness of Seller to Buyer and its
subsidiaries and affiliates, Buyer may deduct any amount due or to become due
from Seller to Buyer and its subsidiaries and affiliates from any sums due or to
become due from Buyer or its subsidiaries and affiliates to Seller.

 9.  Patent Indemnification. If any claim or action, based solely on the
Capstone Special Order PSR, is brought against Capstone, based upon an
allegation that sales or use of the Capstone Special Order PSR by Capstone
within Capstone's Microturbine, infringes any patent rights of any third party,
Solar shall defend Capstone against any and all liability, claims and expenses
arising out of any such claim or action, provided that Capstone (i) gives Solar
prompt notice of such claim or action; (ii) cooperates with Solar, at Solar's
expense, in the defense of such claim or action, and (iii) gives Solar the right
to control the defense and settlement of any such claim or action as long as
such settlement does not adversely affect Capstone's rights under this
Agreement.

10. Compliance with Laws. In connection with manufacturing of goods or the
furnishing of services hereunder, Seller shall comply with the Fair Labor
Standards Act of 1938, as amended, all Occupational Health and Safety Act
regulations, and any other federal, state or local law or regulation respecting
manufacture, assembly, labeling, purchasing, or sale of goods in connection with
this order. Seller shall indemnify and hold Buyer harmless against all expenses,
claims, liabilities, or damage resulting from violation by Seller of any such
law or regulation.

/s/ PAUL CRAIG                        August 25, 1997
----------------------------          -----------------------
CAPSTONE TURBINE CORPORATION          DATE

/s/ DAVID W. ESBECK                   22 Aug. '97
----------------------------          -----------------------
SOLAR TURBINES INCORPORATED           DATE

                                       21
<PAGE>   30
                         EXHIBIT E - CAPSTONE FORECAST

                        Recuperator Deliveries by Month

<TABLE>
<CAPTION>
                                                PSRs RECEIVED
                   MONTH       SHIP PLAN           FROM SOLAR
                   -----       ---------           ----------
                   <S>         <C>              <C>

                    &&             &&                  &&
</TABLE>

/s/ PAUL CRAIG                               August 25, 1997
----------------------------                 ---------------
CAPSTONE TURBINE CORPORATION                 DATE

/s/ DAVID ESBECK                             8/27/97
----------------------------                 ---------------
SOLAR TURBINES INCORPORATED                  DATE
<PAGE>   31
                                  CONFIDENTIAL

Portions of the Exhibit marked by "&&" have been omitted pursuant to a request
for Confidential Treatment under Rule 406 of the Securities Act of 1933, as
amended. The complete Exhibit, including the portions for which Confidential
Treatment has been requested, has been filed separately with the Securities and
Exchange Commission.

                               LICENSE AGREEMENT

This License Agreement ("Agreement") is effective as of August 25, 1997 (the
"Effective Date") by and between Solar Turbines Incorporated, a Delaware
corporation whose principal address is 2200 Pacific Highway, San Diego,
California 92186-5376 ("Solar") and Capstone Turbine Corporation, a California
corporation whose principal address is 6025 Yolanda Avenue, Tarzana, California
91356 ("Capstone").

WHEREAS, Solar owns certain intellectual property related to the design, use
and manufacture of primary surface recuperators (PSRs); and

WHEREAS, Capstone currently manufactures and sells Microturbines incorporating
PSRs designed by and purchased from Solar; and

WHEREAS, Capstone desires to have a license to Solar's Intellectual Property (as
defined below) to manufacture and modify PSRs for incorporation into Capstone's
Microturbines; and

WHEREAS, Solar is willing to grant Capstone a license to such Intellectual
Property on the following terms and conditions;

NOW, THEREFORE, in consideration of the foregoing premises, the terms and
conditions specified herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:

1.0  DEFINITIONS

1.1  "Capstone Special Order PSR" shall mean (i) any PSR manufactured according
to Capstone's requirements and specifications as listed in the attached Exhibit
A to this Agreement including such PSR as may be modified from time to time,
(ii) any development PSR (which such development PSR shall be added to Exhibit
A), including such development PSR as may be modified from time to time, and
(iii) any similar PSR capable of direct replacement for the PSRs identified in
Exhibit A to this Agreement, as such Exhibit may be amended from time to time by
the parties to include development PSR models.

1.2  "Licensed Product" shall mean (i) PSRs incorporating Solar Intellectual
Property and manufactured by or on behalf of Capstone for use in Microturbines,
excluding PSRs supplied to Capstone by Solar, and (ii) any modification,
improvement, or derivation of Capstone Special Order PSRs manufactured by or on
behalf of Capstone, excluding PSRs supplied to Capstone by Solar.

1.3  "Microturbine" shall mean an individual turbogenerator unit generating &&
or less output power.

                                       1

<PAGE>   32

1.4 "Solar's Houston Facility" shall mean that part of the Solar manufacturing
facility located in Houston, Texas which utilizes the Phase II Equipment (as
defined in the Alliance Agreement of even date herewith) for manufacturing PSRs
suitable for use in Microturbines.

1.5 "Solar Technology" shall mean all information in Solar's possession on the
Election Date (as defined in Paragraph 2.1), with the right to disclose to
Capstone, and relating to the manufacture and use of PSRs, including for
example, but not by way of limitations, trade secrets, proprietary information,
manufacturing drawings, blueprints, specifications, parts and materials lists,
tolerances, preferred vendor lists, test and performance parameters, and other
technical expertise necessary for the manufacture of PSRs.

1.6 "Solar Patents" shall mean patents (i) now or in the future owned or
controlled by Solar or its subsidiaries, or (ii) under which and to the extent
to which and subject to the conditions under which Solar or its Subsidiaries may
have during the term of this Agreement, the right to grant licenses of the scope
granted herein, such patents relating to the design, manufacture, or use of PSRs
and based on patent applications having an effective filing date on or prior to
one (1) month after the Election Date, as defined in Paragraph 2.1.

1.7  "Solar Intellectual Property" shall mean Solar Technology and Solar
Patents.

1.8 "Capstone Patents" shall mean patents (i) now or in the future owned or
controlled by Capstone or its Subsidiaries, or (ii) under which and to the
extent to which and subject to the conditions under which Capstone or its
subsidiaries may have during the term of this Agreement the right to grant
licenses of the scope granted herein, such patents claiming inventions
substantially based on Solar Technology and being based on patent applications
having an effective filing date during the period starting on the Effective
Date pursuant to Paragraph 2.1 and ending on the termination or expiration of
this Agreement.

1.9 "Subsidiary" shall mean any corporation, company or other entity of which
one hundred percent (100%) of the outstanding shares of stock entitled to vote
for the election of directors is now or hereafter owned or controlled by either
party hereto, directly or indirectly, except that Caterpillar Inc., parent of
Solar, is included within the definition of "Subsidiary."

2.0 EXERCISE OF LICENSE RIGHTS

2.1 The license rights granted under this License Agreement are conditioned
upon, and do not become effective until, Capstone provides written notice to
Solar of Capstone's election to exercise the rights granted hereunder.
Capstone's right to provide such written notice to Solar is unconditional. In
no event, however, shall the date upon which Capstone provides such written
notice to Solar (the "Election Date") occur later than the tenth year
anniversary of the Effective Date.

2.2 Upon election of the license rights granted by Solar hereunder, Capstone
may announce and/or publicize that Licensed Products included in Capstone's
Microturbines and sold by or on behalf of Capstone are manufactured pursuant to
license rights granted to Capstone by Solar.

                                       2

<PAGE>   33
3.0 GRANT

3.1 Subject to and in consideration of the undertakings by Capstone set forth in
Section 4.0 of this License Agreement, and upon exercise of the license rights
pursuant to Paragraph 2.1 of this License Agreement, Solar hereby agrees to
grant to Capstone, a non-exclusive, non-transferable, non-sublicensable, except
as otherwise provided herein, world-wide, royalty bearing license under Solar
Intellectual Property, as defined in Section 1.0 of this License Agreement (i)
to make, use, sell, lease or otherwise dispose of Licensed Product incorporated
into Microturbines made, used, sold, leased or otherwise disposed of by
Capstone, individually or as incorporated into larger turbogenerator systems;
(ii) to make, use, sell, lease or otherwise dispose of Licensed Product as
spares for or for repair and/or maintenance of such Microturbines and (iii) to
use and modify Solar Intellectual Property for the design and manufacture of
Licensed Product for use in Microturbines.

3.2 The rights to make granted to Capstone under Paragraph 3.1 include the
right for Capstone to have Licensed Product made by a third party, only if (i)
Capstone first offers to Solar a right of first refusal to produce the
quantities concerned and Solar declines such right or (ii) Solar informs
Capstone in writing that it has discontinued manufacture of Capstone Special
Order PSRs.

3.3 Capstone hereby grants and agrees to grant to Solar a non-exclusive,
non-tranferable, non-sublicensable except as provided herein, royalty-free
world-wide license under Capstone Patents to make, use, sell, lease or
otherwise dispose of PSRs.

4.0 CONSIDERATION

4.1 Capstone shall pay to Solar a royalty for each Licensed Product
manufactured pursuant to the license grants in Section 3.0 and shipped by
Capstone under this Agreement in accordance with the Royalty Payment Schedule
attached hereto as Exhibit "B". Such Licensed Product is delivered on an
ex-works or FOB basis to any third party, whether an independent third party or
a Capstone affiliate.

4.2 If, on the thirtieth (30th) month anniversary of the Election Date, the
total cumulative amount of royalties paid to Solar under Paragraph 4.1 does not
equal or exceed && Capstone shall deliver to Solar a Lump Sum Royalty
equivalent to the shortfall between the total cumulative amount of royalties
paid to Solar by the 30th month anniversary of the Election Date and &&. The
Lump Sum Royalty shall be paid to Solar within thirty (30) days of the 30th
month anniversary of the Election Date. The Lump Sum Royalty shall then be
credited toward Capstone's on-going royalty obligations until such time as
Capstone's total cumulative royalties paid Solar shall have exceeded &&, after
which time, Capstone shall continue to pay royalties to Solar under the
provisions of Paragraph 4.1.

                                       3

<PAGE>   34
5.0  PRODUCT-KNOW-HOW AND TECHNOLOGY TRANSFER

5.1  To enable Capstone to manufacture Licensed Product under the provisions of
Section 3, Solar undertakes that upon notice of Capstone's election to exercise
the rights granted by this Agreement pursuant to Paragraph 2.1, Solar shall:

        A) Promptly transfer to Capstone, starting within thirty (30) days from
        the Election Date, all Solar Technology that is in tangible form
        related to the manufacture and use of Capstone Special Order PSRs; and

        B) Provide Capstone with technical assistance (including but not limited
        to technical expertise, repair and maintenance of equipment and tooling,
        employee training, consulting services including the temporary
        assignment of Solar engineers selected by Solar for time periods
        reasonably chosen by Solar and having relevant qualifications and
        experience to a facility designated by Capstone) for an eighteen (18)
        month period. Capstone has the obligation to apply appropriate and
        qualified resources to the task of transferring Solar Technology. Solar
        also will cooperate with and actively assist Capstone in procuring
        equipment and tooling for manufacturing Licensed Product from Solar or
        Solar's suppliers, including suppliers identified on Solar's preferred
        vendor lists during the term of this Agreement. Capstone agrees not to
        sell such tooling and equipment containing Solar Technology to a third
        party.

        C) Provide access to a reasonable number of Capstone engineers to
        Solar's Houston Facility during an eighteen (18) month period to afford
        Capstone the opportunity to increase knowledge about PSR manufacturing
        sufficient for a reasonable person to implement the license granted
        under Section 3.0, and afford Capstone not only the opportunity to
        participate in decisions concerning production capacity but also to gain
        sufficient knowledge to estimate for itself the cost of manufacturing
        PSRs. Solar Technology will have been considered completely transferred
        to Capstone if, after a production run by Capstone of && of the PSRs
        pass final pressure check and Capstone's labor hours per PSR are within
        && of the Election Date actuals.

        D) In the event of a dispute regarding the timeliness or sufficiency of
        information or assistance provided by Solar to Capstone under this
        Paragraph 5.1, the parties will attempt to resolve such dispute under
        the dispute resolution provisions of Paragraph 14.4. During the
        pendency of such dispute resolution proceedings, any and all royalties
        becoming due and payable to Solar shall be placed in an escrow account
        until such time as the dispute is resolved. If the dispute requires
        arbitration, the Arbitrators shall include in their judgment a
        determination as to how the escrowed royalties should be disbursed,
        including awarding the full amount of the escrowed royalties to one or
        the other party or, if appropriate, a pro-rata disbursement of the
        royalties to one or the other party or, if appropriate, a pro-rata
        disbursement of the royalties to both Solar and Capstone.

        E) Solar is not required to transfer any detailed knowledge of the
        Solar Patents other than that information which is publicly known or
        that information that is necessary to comply with the requirements of
        this Paragraph 5.1 or to manufacture Capstone Special Order PSRs.

                                       4
<PAGE>   35
5.3  Capstone shall own all rights in any inventions (whether or not
patentable) and in any patents thereon relating to improvements to Solar
Technology made by Capstone employees.

5.4  Each party hereby designates the individual identified below as its
Program Manager with responsibility for scheduling, coordinating and overseeing
the implementation of the party's duties and obligations under the provisions
of this Agreement.

     Capstone's Program Manager: TBD
                                 ---

     Solar's Program Manager: Mike Ward
                              ---------

6.0  RECORDS AND AUDIT

6.1  Capstone agrees to render to Solar within thirty (30) days following March
31, June 30, September 30, and December 31 of each year, a quarterly statement
setting forth the number of Licensed Products upon which royalties are to be
paid under the provisions of Paragraph 4.1, and an electronic fund transfer to
Solar for the royalty due. All such reports are to be mailed to Solar to the
attention of the persons specified in and in the manner specified in Paragraph
14.2.

6.2  Capstone agrees to keep and maintain a set of accounting records in
accordance with GAAP for a period of three (3) years after any period during
which royalties are due, which records shall be in sufficient detail to enable
Solar to audit Capstone's determination of the royalties payable under the
license and to verify compliance with other terms of the license relevant to
royalty payment.

6.3  Capstone agrees to keep regular books of account which shall be open to
all reasonable business hours for inspection by independent certified public
accountants selected by Solar and reasonably acceptable to Capstone. Audit
personnel may review Capstone's accounting firms' work papers and discuss with
the firm the result of any audit including, but not limited to the basis of
judgments reached and the appropriateness of royalty payments made, provided,
however, Solar provides three (3) business days notice of such audit. In
addition, Solar may have such an audit performed at any time within one (1)
year following termination of this Agreement. Any audit expenses incurred shall
be borne by Solar, except if the results of the audit reveal an under reporting
of royalties due Solar of five percent (5%) or more, then Capstone
shall reimburse Solar for all such audit costs.

6.4  If Capstone fails to make any required payment under this Section 6.0 on or
before the required date, interest equal to one percent (1%) of the amount
otherwise due shall be paid by Capstone for each month or portion thereof that
the payment is late. If such interest rate exceeds the maximum legal rate in
such jurisdiction where a claim therefor is being asserted, the interest rate
shall be reduced to such maximum legal rate permitted in such jurisdiction.

                                       5

<PAGE>   36
7.0  TERM AND TERMINATION

7.1  Unless sooner terminated as provided for by this Agreement, this Agreement
shall remain in force and effect for a period of seventeen (17) years from the
Election Date or twenty seven (27) years from the Effective Date, whichever
period ends sooner. The licenses granted in Section 3.0 to each party shall be
paid up for the life of Capstone Patents and Solar Intellectual Property at the
expiration, not the termination of this Agreement.

7.2  Termination or expiration of this Agreement shall not affect Capstone's
obligations to make payments and reports as provided herein with respect to
Licensed Product shipped or otherwise disposed of prior to termination or
expiration of this Agreement, and all provisions of this Agreement pertaining
to such reports and payments shall survive such termination or expiration and
continue in full force and effect.

7.3  If either party materially breaches this Agreement, upon written notice to
the defaulting party specifying such breach, the defaulting party shall have
thirty (30) days after such notice to remedy such breach or to implement a
program, reasonably satisfactory to the party not in default, to correct such
breach. If such material breach remains uncured after thirty (30) days either
party may initiate the dispute resolution proceedings provided for in Paragraph
14.4. However, if Capstone refuses to pay undisputed royalties when due after
written notice from Solar with a thirty (30) day opportunity to cure, Solar may
give Capstone written notice of termination of this Agreement.

7.4  In the event Solar provides Capstone written notice that Solar is ceasing
the manufacture of PSRs other for Solar or Caterpillar, Inc., or other events
have occurred that would inhibit the effective transfer of technology from Solar
to Capstone. Capstone shall have ninety (90) days in which to elect to exercise
the rights granted under this Agreement per the provisions of Section 2.0. If
Capstone does not elect to exercise the rights within ninety days && this
License Agreement may be terminated by Solar. If Capstone elects to exercise the
rights granted under this Agreement within ninety days, Solar shall fully
cooperate and assist in the Product Know-How and Technology Transfer provided
for in Section 5.0 and the other obligations provided for in this Agreement and
the Product Know-How and Technology Transfer obligations under Section 5.0 of
this Agreement shall begin one hundred eighty (180) days after Capstone elects
to exercise the rights.

8.0  WARRANTIES AND DISCLAIMERS

8.1  Each party represents and warrants that it has the right and power to
enter into this Agreement. Solar represents and warrants that it has the
authority and right to grant the licenses and rights granted herein, and
further that it has no knowledge of any patents, or other impediments to
Capstone's quiet enjoyment of the benefits of the licenses granted by Solar.

8.2  Neither party shall be liable to the other for any lost profits, lost
revenues, losses or indirect, incidental, consequential, special or exemplary
damages arising out of entry into or performance or lack of performance under
this Agreement.

                                       6

<PAGE>   37
8.3  Nothing in this Agreement shall be construed as

          A) a requirement that either party shall file or prosecute any patent
          application, secure any patent, maintain any patent in force, or
          notify the other party of any action or failure to act with respect to
          any patent application; or

          B) granting by implication estoppel or otherwise, any license or
          rights under patents of either party beyond those licenses or rights
          expressly granted under this Agreement; or

          C) an obligation to furnish any technical information other than
          specified under this Agreement.

8.4  ALL SOLAR TECHNOLOGY TRANSFERRED UNDER THIS AGREEMENT IS TRANSFERRED "AS
IS" AND THE TRANSFEROR DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY AND ALL EXPRESS
OR IMPLIED WARRANTIES WITH RESPECT TO THE TRANSFERRED TECHNOLOGY, INCLUDING
WITHOUT LIMITATION ANY WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, OR WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE OR
TRADE PRACTICE. NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO CONSTITUTE A
REPRESENTATION OR WARRANTY BY SOLAR OF THE ABILITY OF CAPSTONE TO MANUFACTURE
OR SELL PRODUCTS.

8.5  Nothing in this Agreement shall (a) impose any restriction on either party
from carrying out independent research and development activities in any field,
(b) in relation to the results of any such independent research and development
activities of one party, give rise to any ownership right or claim by the other
party; nor (c) restrict either party in the exploitation in any manner of the
results of its independent research and development activities.

8.6  This Section 8.0 shall survive any expiration or termination of this
Agreement.

8.7  Neither Solar nor Capstone make and each hereby disclaims any and all
expenses or implied, warranties as to the validity or enforceability of any
Solar Patents and/or Capstone Patents, respectively.

9.0  PROPRIETARY INFORMATION

9.1  Confidential Information. The parties hereby ratify and incorporate that
certain Nondisclosure Agreement, executed by the parties in June 1996 (the
"Nondisclosure Agreement") and attached hereto as Exhibit "C" in the Alliance
Agreement as modified by this Agreement, to wit:

          The first sentence of section 1 of the Nondisclosure Agreement is
          amended to read as follows: "Each Party will use its best efforts to
          keep in confidence, and not use or disclose to any person or persons,
          proprietary information disclosed to it under this Agreement, except
          for the manufacture and ale of Capstone Special Order PSRs under the
          Alliance

                                       7
<PAGE>   38
        Agreement between the parties dated August 25, 1997 and for the
        manufacture and sale of Licensed Product under the License Agreement
        between the parties dated August 25, 1997"

        Section 2(e) of the Nondisclosure Agreement is amended to read as
        follows: "use or disclosed after a period of ten (10) years from the
        date of the disclosure;"

        Section 7 of the Nondisclosure Agreement is amended to read as follows:
        "This Agreement may be terminated (a) by either Party giving thirty
        (30) days written notice of its intention to terminate to the other
        Party; or (b) the Agreement shall automatically terminate twelve (12)
        years from August 25, 1997; provided, however, that when the Agreement
        terminates, the obligations not to use and not to disclose proprietary
        information exchanged hereunder shall continue for the period specified
        hereinabove."

9.2 Nothing in this Agreement shall be construed as obligating either party to
disclose proprietary information to the other party or as granting to or
conferring upon the other party, expressly or impliedly, any rights or licenses
to the party's proprietary information other than those rights specifically
granted in this Agreement.

10.0 TRADEMARKS

10.1 Capstone agrees that it will not advertise, or otherwise indicate, that
any Capstone Special Order PSRs or Licensed Product are sponsored, endorsed, or
otherwise guaranteed by Solar, and shall not designate, identify or otherwise
label any Capstone Special Order PSRs or Licensed Product with any trademark,
registered or unregistered, presently owned or hereafter acquired by Solar in
any country, nor with any translations thereof, nor words or marks confusingly
similar thereto.

11.0 EXPORT OF TECHNICAL DATA

11.1 Both parties shall adhere to the U.S. Export Administration Laws and
Regulations and shall not export or re-export any technical data or the direct
product of such technical data to any proscribed country listed in the U.S.
Export Administration Regulations or other Government Regulations unless
properly authorized by the U.S. Government.

12.0 THIRD PARTY INFRINGEMENT

12.1 Upon demonstration by Capstone of evidence of infringement of any Solar
Patent by a third party, the parties shall promptly discuss what action, if
any, shall be taken, including (i) institution of an action by Solar to enjoin
or preclude such infringement; (ii) licensing of such third party for value; or
(iii) an equitable adjustment of the royalty payments due under this Agreement.

                                       8
<PAGE>   39
13.0 INDEMNIFICATION

13.1 If any claim or action is brought against Capstone based upon an allegation
that use of the Solar Technology by Capstone within the scope of the license
grant of Section 3.0 infringes any patent rights of any third party, Solar shall
defend Capstone against any and all liability, claims and expenses arising out
of any such claim or action, up to a limit of fifty percent (50%) of the
royalties paid by Capstone at the time the claim or action is brought, provided
that Capstone (i) gives Solar prompt notice of such claim or action; (ii)
cooperates with Solar, at Solar's expense, in the defense of such claim or
action, and (iii) gives Solar the right to control the defense and settlement of
any such claim or action as long as such settlement does not adversely affect
Capstone's rights under this Agreement.

13.2 Solar shall have no liability for any claim based on infringement or
violation of any third party patent rights arising from the design,
manufacture, use or sale by Capstone or such design, manufacture, use or sale
authorized by Capstone of any Licensed Product if such infringement or
violation would have occurred without the use of, Solar Technology provided to
Capstone under this Agreement.

13.3 The terms and conditions of this Agreement are confidential and subject to
the terms of the Nondisclosure Agreement, Exhibit C.

13.4 Capstone agrees to defend, indemnify and hold Solar, its directors,
officers, and employees harmless against all liabilities, demands, damages,
expenses, or losses arising out of the manufacture, design, use, or sale of any
Licensed Product by Capstone or its affiliates, subsidiaries or transferees or
use by Capstone or its affiliates, subsidiaries or transferees of any Solar
Intellectual Property, or out of any manufacture, design, use, sale, or other
disposition by Capstone, its affiliates, subsidiaries or transferees of product
incorporating such Licensed Product or Solar Intellectual Property, except for
claims that are attributable to Solar's gross negligence or intentional
misconduct, provided that Solar (i) gives Capstone prompt notice of such claim
or action; (ii) cooperates with Capstone, at Capstone's expense, in the defense
of such claim or action, and (iii) gives Capstone the right to control the
defense and settlement of any such claim or action as long as such settlement
does not adversely affect Solar. After the Election Date, Capstone at Solar's
written request, must demonstrate that Capstone has adequate means of financial
assurance, up to $10 million with regard to its indemnity of Solar under this
paragraph 13.4. The maximum cumulative liability of Capstone under this
paragraph is thirty five million dollars ($35,000,000).

14.0 GENERAL TERMS AND CONDITIONS

14.1 This Agreement shall inure to the benefit of and be binding upon all
successors and assigns of Capstone and Solar although neither party shall
assign this Agreement or any part thereof without the prior written consent of
the other party except (i) that it may be assigned by either party to a
Subsidiary of the assigning party without the other party's consent; and (ii)
that it may be assigned to a purchaser of substantially all the assets of
Capstone, provided such purchaser is not actively engaged in the business of
manufacturing or selling PSRs, or manufacturing or selling individual gas
turbines of 500kW or greater output power. Notwithstanding any provision

                                       9
<PAGE>   40

contained in this Agreement to the contrary, Capstone may only sublicense a
party other than a Subsidiary with Solar's prior written consent, and in all
events, each sublicense, if granted, shall provide Solar with all rights and
benefits it has under this Agreement against such sublicensee. Notwithstanding
any provision contained in this Agreement to the contrary, in the event Solar
assigns or sublicenses this Agreement to a third party, Solar shall remain
responsible for full performance of the obligations of such assignee or
sublicensee arising under this Agreement.

14.2 Notices. All notices, requests, demands and elections under this
Agreement, other than routine operational communications, shall be in writing
and shall be deemed to have been duly given (i) when delivered by hand, (ii)
one (1) day after being given to an express courier with a reliable system for
tracking delivery, (iii) when sent by confirmed facsimile with a copy sent by
another means specified herein, or (iv) three (3) days after the date of
mailing by certified or registered mail, return receipt requested, postage
prepaid, and addressed as follows:

     To Capstone:
          Capstone Turbine Corporation
          6025 Yolanda Avenue
          Tarzana, CA 91356

          Attn:  Paul Craig
                 President and Chief Executive Officer

     With a copy to:
          Richard Harroch
          Orrick, Herrington & Sutcliffe
          400 Sansome Street
          San Francisco, CA 94111

     To Solar:
          Solar Turbines Incorporated
          2200 Pacific Highway
          San Diego, California 92138-5376

          Attn: Director, Recuperator Business

     With a copy to:
          General Counsel
          Solar Turbines Incorporated
          2200 Pacific Highway
          San Diego, California 92186

Solar or Capstone may, from time to time, change its address or its designee
for notification purposes by giving the other party prior written notice of the
new address or the new designee and the date upon which the change shall be
effective.

                                       10

<PAGE>   41
14.3  Nothing herein contained shall be deemed to create an agency, joint
venture or partnership relationship between the parties hereto.

14.4  If a dispute arises under the terms or performance of this Agreement,
unless by mutual consent the parties agree otherwise, the parties shall resolve
such dispute as follows:

A)    the parties' respective Program Managers, as provided for in Paragraph
      5.4, shall have ten days to attempt resolution; if the Program Managers
      are unable to resolve the dispute themselves;

B)    each Program Manager shall present a written statement of the dispute and
      a proposed resolution for consideration at a meeting of a senior executive
      officer from each company the meeting to be held within fifteen days from
      the expiration of the ten day period contemplated in the preceding
      sub-paragraph; and

C)    if the senior executive officers cannot resolve the dispute within ten
      days from the meeting date specified in the preceding sub-paragraph, the
      parties agree to submit such dispute to arbitration before a neutral three
      member board of arbitrators under the provisions of Paragraph 14.5.

14.5  Subject to the provisions of Paragraph 14.4 of this Agreement, any claim
or dispute arising hereunder that has not been resolved by the parties shall be
determined by arbitration in accordance with the Commercial Arbitration Rules
then in effect of the American Arbitration Association in San Diego,
California; provided that no demand for arbitration shall be instituted after
the date after which legal proceedings on the same claim would have been barred
by the applicable statute of limitations. The party requesting arbitration
shall appoint one independent, neutral arbitrator in writing and the responding
party shall appoint one independent, neutral arbitrator in writing within
fifteen (15) days thereafter. The two arbitrators so selected shall then
appoint a third arbitrator within fifteen (15) days thereafter. The award
rendered in such arbitration may provide for equitable remedies, an accounting
and/or reimbursement for attorneys', accountants' or consultants' fees, as the
arbitrators shall see fit. Such award shall be final, and judgment on it may be
entered in or enforced by any court, state, federal or foreign, having
jurisdiction thereover. This provision shall not preclude the impleading or
joining of one of the parties hereto by the other in an action brought by a
third party and all matters with respect thereto shall be decided by the court
or body deciding that action. Any party may apply to an appropriate court of
law for a preliminary injunction, attachment or other similar remedy available
to it in aid of the arbitration proceeding provided for herein. In the
arbitration each party shall be entitled to demand production of documents and
other items from any other party hereto, in accordance with the terms of Rule
34 of the Federal Rules of Civil Procedure. Any disputes concerning such demand
shall be determined by the arbitrator(s), and any such determination shall be
binding on the parties.

14.6  For a period of three years from the Election Date, Solar and Capstone
agree not to solicit for employment purposes, any employee of the other party
who has had access to that other party's proprietary information utilized in
implementing this Agreement.

                                       11
<PAGE>   42

14.7 This Agreement shall be governed by and construed in accordance with the
laws of the State of California as if made in California for performance
entirely within the State of California.

14.8 This Agreement including Exhibits A through C constitute the entire
agreement between the parties with respect to the subject matter hereof,
supersedes all prior oral or written agreements regarding the subject matter
hereof, and cannot be changed or terminated except by a writing signed by both
parties.

14.9 For any matter or claim to be considered by a court under this Agreement
the parties consent to the exclusive jurisdiction of the courts of the United
States of America and the State of California and any subdivision thereof. Any
injunctions, orders, or judgments entered, issued, or granted from any courts
having jurisdiction hereunder shall be enforceable in the State of California
and in any state or country wherein lie the offices and/or assets of the party
against whom the said injunction, order or judgment is entered.

14.10 If any provision of this Agreement is held illegal, invalid or
unenforceable under present or future state or federal laws, or rules and
regulations promulgated thereunder, effective during the term hereof, such
provision shall be fully severable, and this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof; and the remaining provisions hereof shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid, or unenforceable provision, there shall be automatically
as part of this Agreement a provision similar in terms to such illegal,
invalid, or unenforceable provision as may be possible and be legal, valid, and
enforceable.

14.11 Nothing herein shall be construed as providing for the sharing of profits
or losses arising out of the efforts of the parties. No party shall be liable
to the other for any of the costs, expenses, risks, or liabilities arising out
of the other party's efforts in connection with this Agreement.

14.12 Each party to this Agreement has had the opportunity to review the
Agreement with legal counsel. This Agreement shall not be construed or
interpreted against either party on the basis that such party drafted or
authored a particular provision, parts of, or the entirety of this Agreement.

14.13 The section headings used in this Agreement are inserted for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.

14.14 Each and every right, power, and remedy herein specifically given to
either party or otherwise in this Agreement shall be cumulative and shall be in
addition to every other right, power, and remedy herein specifically given or
now or hereafter existing at law, in equity or by statute, and the exercise or
the beginning of the exercise of any power or remedy shall not be construed to
be a waiver of the right to exercise at the same time or thereafter any such
right, power, or remedy.

14.15 Neither party to this Agreement shall be liable for any default or delay
in the performance of its obligations under this Agreement (except for the duty
to pay for royalties hereunder) if and to the extent such default or delay is
caused, directly or indirectly, by fire, flood, earthquake, elements

                                       12
<PAGE>   43
of nature or acts of God, riots, civil disorders, rebellions or revolutions, or
any other cause beyond the reasonable control of such party (including the
inability to receive raw materials from a supplier), provided the
non-performing party is without fault in causing such default or delay, and
such default or delay could not have been prevented by reasonable precautions
nor reasonably be circumvented by the non-performing party through the use of
alternate sources, work-around plans or other means. In such event, the
non-performing party shall be excused from any further performance or
observance of the obligation(s) so affected for as long as such circumstances
prevail and such party continues to use reasonable efforts to recommence
performance or observance of the obligations so affected for as long as such
circumstances prevail. Notwithstanding the foregoing, a party shall not be
entitled to the benefits of this Section 14.15 unless any party so delayed in
its performance promptly notifies the party to whom performance is due by
telephone, radio, messenger or other available means (to be confirmed in
writing within two (2) working days of the inception of such delay) and
describe at a reasonable level of detail the circumstances causing such delay.

IN WITNESS WHEREOF, the parties caused this Agreement to be duly executed on
the day and year indicated below to be effective as of the date indicated above.

CAPSTONE TURBINE CORPORATION                 SOLAR TURBINES INCORPORATED

By: /s/ PAUL CRAIG                      By: /s/ DAVID ESBECK

Title: CEO/President                    Title: Vice President, Engineering

Date: August 25, 1997                   Date: 22 Aug '97

                                       13
<PAGE>   44
EXHIBIT A - PRODUCTS COVERED BY AGREEMENT

<TABLE>
<CAPTION>
SELLER'S P/N        SPECIFICATION       DESCRIPTION
------------------------------------------------------------
<S>                 <C>                 <C>
203210-100          TBD                 Recuperator
                                        Assembly
                                        &&
</TABLE>

/s/ PAUL CRAIG                          August 25, 1997
----------------------------            ---------------
CAPSTONE TURBINE CORPORATION            DATE

/s/ DWE                                 22 Aug '97
----------------------------            ----------
SOLAR TURBINES INCORPORATED             DATE

                                       14
<PAGE>   45
EXHIBIT B - ROYALTY RATES

<TABLE>
<CAPTION>
                                             CUMULATIVE PRODUCTION (UNITS) FOR
ROYALTY/LICENSED PRODUCT (PER UNIT)          CAPSTONE SPECIAL ORDER PSRS
--------------------------------------------------------------------------------
<S>                                          <C>
[&&]                                         [&&]
</TABLE>

/s/ PAUL CRAIG                          August 25, 1997
----------------------------            ---------------
CAPSTONE TURBINE CORPORATION            DATE

/s/ DWE                                 22 Aug '97
----------------------------            ----------
SOLAR TURBINES INCORPORATED             DATE

                                       15
<PAGE>   46
EXHIBIT C

NON DISCLOSURE AGREEMENT
<PAGE>   47
                            NONDISCLOSURE AGREEMENT

This Nondisclosure Agreement ("Agreement") is made effective as of June 1, 1996
by and between Solar Turbines Incorporated, a Delaware corporation having its
principal office in San Diego, California ("Solar") and Capstone Turbine Corp.,
a Delaware corporation having its principal office in Tarzana, California
("Capstone").

     WHEREAS, Solar is engaged in the business of designing, manufacturing and
selling industrial turbomachinery, including gas turbine engines and related
systems ("Solar Products"). Solar has developed certain unique primary surface
recuperator and interconnection (interface) technology ("Solar Recuperator
Technology") which it owns and may apply to the design and application of
recuperators; and

     WHEREAS, Capstone is actively engaged in the development of gas turbines
and recuperated gas turbines in the six to && kilowatt size range; and

     WHEREAS, Capstone is actively engaged in the development of major
components of both gas turbines and recuperated gas turbines in this size
range; and

     WHEREAS, these components include turbines, compressors, air bearings,
combustors, permanent magnet alternators, electronic convertors, and
recuperators ("Capstone Products"); and

     WHEREAS, Solar owns and has the unencumbered right to disclose to Capstone
certain proprietary information relating to the Solar Recuperator Technology
and Solar Products and Capstone owns and has the unencumbered right to disclose
to Solar certain proprietary information relating to Capstone Products
(collectively, such information from each party is referred to herein as
"Proprietary Information"); and

     WHEREAS, each party desires to disclose Proprietary Information to the
other party for the limited purpose of evaluating whether the parties may
desire to work together on projects relating to Solar Recuperator Technology,
Capstone Products, Solar Products and other matters, and should a purchase
order issue or contract be entered into, then for work or services performed
thereunder; and

     WHEREAS, Solar and Capstone executed a Nondisclosure Agreement, dated July
11, 1994, when Capstone was operating under the name "NoMac Energy Systems,
Inc."; and

                                      -1-
<PAGE>   48
     WHEREAS, the previous Nondisclosure Agreement between the parties, dated
July 11, 1994, is terminated effective May 31, 1996 and this Agreement shall
become effective June 1, 1996; and

     WHEREAS, as used herein, "Party", "receiving party" and "disclosing party"
means each and every party who may receive or disclose Proprietary Information
regardless of the use of the singular rather than the plural form "parties".

     NOW, THEREFORE, in consideration of the foregoing premises, the following
promises, covenants and undertakings, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
intending to be legally bound, the parties agree as follows:

     1.   Each Party will use its best efforts to keep in confidence, and not
use or disclose to any person or persons, proprietary information disclosed to
it under this Agreement.

          Each Party recognizes that any disclosure of proprietary information
would substantially injure the disclosing Party's business, impair its
investments and goodwill and jeopardize its relationships with its buyers and
customers. In order to protect such proprietary information, the Parties agree:

          (a)  to hold all proprietary information in safekeeping and in strict
confidence and not to disclose proprietary information to any third parties or
permit use of all such information to the disadvantage of the disclosing Party;

          (b)  to treat all proprietary information with at least the same
degree of care with which each treats and protects its own proprietary
information which it does not wish to disclose to third parties, which in any
event shall be reasonable under the circumstances;

          (c)  to limit the access of all proprietary information to only those
employees within its organization who require the proprietary information in
performing the limited purpose of this Agreement, and to inform each of its
employees of the provisions of this agreement; and

          (d)  to use proprietary information only to the extent necessary for
performing the limited purposes of this Agreement.

     2.   Exceptions. The restrictions contained in Section 1 shall not apply
to any proprietary information if the same is:

          (a)  in the public domain at the time of disclosure, or is
subsequently made

                                      -2-
<PAGE>   49
available by the disclosing Party to the general public with restriction;

          (b)    known by the receiving Party at the time of disclosure, as
evidenced by appropriate documentation, or independently developed, as
evidenced by appropriate documentation, by the receiving Party;

          (c)    used or disclosed with the prior written approval of the
disclosing Party;

          (d)    becomes known to the receiving Party without similar
restrictions as to its use or disclosure from a source other than the
disclosing Party;

          (e)    used or disclosed after a period of ten (10) years from the
date of termination of this Agreement;

          (f)    becomes known pursuant to judicial action or Governmental
regulations or requirements, provided that the recipient of such data shall
have notified the other Party.

     3.   Neither the execution of this Agreement, nor the furnishing of any
materials hereunder, shall be construed as granting, either expressly or by
implication, estoppel or otherwise, any license under any invention or patent
now or hereafter owned by or controlled by the Party furnishing the materials.

     4.   No rights or obligations other than those expressly recited herein
are to be implied by this Agreement with respect to patents, inventions and
data. In providing data pursuant to this Agreement, the Party providing the
data makes no representation, either expressed or implied, as to adequacy,
sufficiency, or freedom from fault of such data and incurs no responsibility
nor obligation whatsoever by reason thereof; and the furnishing of such data
shall not convey any rights or license with respect to such data.

     5.   Nothing in this Agreement shall grant to either Party the right to
make commitments of any kind for or on behalf of the other Party without the
prior written consent of the other Party.

     6.   Nothing in this Agreement shall grant to either Party the right to
make commitments of any kind for or on behalf of the other Party without the
prior written consent of the other Party.

     6.   If a contractual relationship results from discussions between Solar
and Capstone, the contract or purchase order will authorize Solar to disclose
information to other parties which have a need to know after Solar ensures that
a nondisclosure agreement such as this Agreement is in place with such parties.
Similarly, such contract or purchase order will authorize Capstone to disclose
information to other parties which have a need to know after Capstone ensures
that a nondisclosure agreement such as this Agreement is in place with such
parties.

     7.   This Agreement may be terminated (a) by either Party giving thirty
(30) days

                                      -3-

<PAGE>   50
written notice of its intention to terminate to the other Party; or (b) the
Agreement shall automatically terminate three (3) years from the date of
acceptance; provided, however, that when the Agreement terminates, the
obligations not to use and not to disclose proprietary information exchanged
hereunder shall continue for the period specified hereinabove.

     8.   All modifications to this Agreement shall be in writing and signed by
duly authorized representatives of both corporations.

     9.   All notices and information shall be addressed as follows:

          If to Capstone:

          Capstone Turbine Corp.
          6025 Yolanda Avenue
          Tarzana, CA 91358

          Attention:     R. James Wensley
                         President and Chief Executive Officer

          With a copy to:

          Richard Harroch
          Orrick, Harrington & Sutcliffe
          400 Salsome Street
          San Francisco, CA 94111

          If to Solar:

          Solar Turbines Incorporated
          2200 Pacific Highway
          San Diego, CA 92101

          Attention:     Manager, Recuperator Programs

          With a copy to:

          General Counsel
          Legal Department
          Solar Turbines Incorporated
          2200 Pacific Highway
          San Diego, CA 92101

                                      -4-

<PAGE>   51

     10. Return of Proprietary Information. All proprietary information
disclosed to the receiving Party shall remain the property of the disclosing
Party within thirty (30) days of any termination of this Agreement or upon
request at any time by the disclosing Party, the receiving Party agrees to
immediately return all proprietary information and all copies to the disclosing
Party with a written statement that the foregoing has been accomplished.

     11. Notification and Injunctive Relief. If either Party, inadvertently or
otherwise, makes an unauthorized disclosure of the other Party's proprietary
information to a third party, the violating Party shall immediately take every
reasonable action to recover the improperly disclosed proprietary information,
execute a retroactive protective agreement with the unauthorized third party if
possible and immediately notify the Party whose data was improperly disclosed
("Injured Party") and provide complete information about the unauthorized
disclosure and the corrective measures being taken. The Parties agree that
monetary damages are inadequate for any material breach involving an
unauthorized disclosure when the Injured Party reasonably believes said breach
will cause it to suffer significant business harm. If the Injured Party
believes, based on the facts, it will suffer material harm from the
unauthorized disclosure and the corrective measures being taken by the
violating Party are inadequate to mitigate this harm, the Parties agree the
Injured Party shall be entitled to prompt injunctive relief. Both Parties'
other legal and equitable remedies and defenses remain unchanged by this
provision.

     12.  Each Party reserves the right to change its designation of authorized
representative, should circumstances so require, and to notify the other Party,
in writing, of any such changes.

     13.  (a)  All technical information and ideas relating to any proprietary
information disclosed hereunder shall be in writing and will be identified, in
writing, as being proprietary information.

          (b)  Oral communications which are considered proprietary by the
originating Party and so identified shall be reduced to writing within thirty
(30) days and shall contain a notice thereon to the effect that any disclosure
and use shall be subject to the terms and conditions of this present Agreement.
Such orally disclosed information shall be given the protection afforded
proprietary information hereunder during such thirty (30) day period.

          (c)  All copies of proprietary information shall contain a similar
identification.

     14.  This Agreement shall be governed by and construed in accordance with
the laws of the State of California as if made in California for performance
entirely within the State of California.

                                      -5-
<PAGE>   52
     15.  This Agreement constitutes the entire agreement between the Parties
with respect to the subject matter hereof, supersedes all prior oral or written
agreements regarding the subject matter hereof, and cannot be changed or
terminated except by a writing signed by both Parties.

     16.  If any provision of this Agreement is held illegal, invalid or
unenforceable under present or future state or federal laws, or rules and
regulations promulgated thereunder, effective during the term hereof, such
provision shall be fully severable, and this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof; and the remaining provisions hereof shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid, or unenforceable provision, there shall be automatically
as part of this Agreement a provision similar in terms to such illegal,
invalid, or unenforceable provision as may be possible and be legal, valid, and
enforceable.

     17.  This Agreement is not assignable or transferable without the prior
written consent of each Party, which consent may be withheld for any reason.

     18.  Nothing herein shall be construed as a grant of a license or
conveyance of any rights under any discoveries, inventions, patents, trade
secrets, copyrights, industrial property rights or know-how belonging to any
Party hereto.

     19.  This Agreement shall not constitute, create, give effect to or
otherwise imply a teaming, joint venture, leader-follower or other formal
business relationship. Further, nothing herein shall be construed as providing
for the sharing of profits or losses arising out of the efforts of the Parties.
No Party shall be liable to the other for any of the costs, expenses, risks, or
liabilities arising out of the other Party's efforts in connection with this
Agreement.

     20.  Each Party to this Agreement has had the opportunity to review the
Agreement with legal counsel. This Agreement shall not be construed or
interpreted against either Party on the basis that such Party drafted or
authorized a particular provision, parts of, or the entirety of this Agreement.

                                      -6-
<PAGE>   53
     IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their duly authorized representatives.

CAPSTONE TURBINE CORP.                          SOLAR TURBINES INCORPORATED

By:   /s/ R. JAMES WENSLEY                  By:   /s/ DAVID ESBECK
    ------------------------------              -------------------------------

Printed                                     Printed
Name:    R. James Wensley                   Name:    David Esbeck
      ----------------------------                -----------------------------

Title:   President                          Title:   V.P. Engineering
       ---------------------------                 ----------------------------

Date:    June 13, 1996                      Date:   June 6, 1996
      ----------------------------                -----------------------------

                                      -7-<PAGE>   1
                                                                     EXHIBIT 4.1

================================================================================

                                RIGHTS AGREEMENT

                            Dated as of June 9, 2000

                                 By and Between

                               PENTON MEDIA, INC.

                                       and

                         HARRIS TRUST AND SAVINGS BANK,
                                 as Rights Agent

================================================================================

<PAGE>   2

                                TABLE OF CONTENTS
                                -----------------

<TABLE>
<CAPTION>

                                                                            Page
                                                                            ----

<S>                                                                                                             <C>
1.       Certain Definitions.......................................................................................1
         -------------------

2.       Appointment of Rights Agent...............................................................................4

3.       Issue of Right Certificates...............................................................................5

4.       Form of Right Certificates................................................................................6

5.       Countersignature and Registration.........................................................................6

6.       Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated,
         Destroyed, Lost or Stolen Right Certificates..............................................................7

7.       Exercise of Rights; Purchase Price; Expiration Date of Rights.............................................8

8.       Cancellation and Destruction of Right Certificates........................................................9

9.       Company Covenants Concerning Securities and Rights........................................................9

10.      Record Date..............................................................................................10

11.      Adjustment of Purchase Price, Number and Kind of Securities or Number of Rights..........................11

12.      Certificate of Adjusted Purchase Price or Number of Securities...........................................19

13.      Consolidation, Merger or Sale or Transfer of Assets or Earning Power.....................................19

14.      Fractional Rights and Fractional Securities..............................................................21

15.      Rights of Action.........................................................................................23

16.      Agreement of Rights Holders..............................................................................23

17.      Right Certificate Holder Not Deemed a Stockholder........................................................24

18.      Concerning the Rights Agent..............................................................................24

19.      Merger or Consolidation or Change of Name of Rights Agent................................................24

20.      Duties of Rights Agent...................................................................................25

21.      Change of Rights Agent...................................................................................27
</TABLE>

                                        i

<PAGE>   3
<TABLE>
<CAPTION>
                                                                                                                 Page
                                                                                                                 ----

<S>                                                                                                               <C>
22.      Issuance of New Right Certificates.......................................................................28

23.      Redemption...............................................................................................28

24.      Exchange.................................................................................................29

25.      Notice of Certain Events.................................................................................30

26.      Notices..................................................................................................31

27.      Supplements and Amendments...............................................................................31

28.      Successors; Certain Covenants............................................................................32

29.      Benefits of This Agreement...............................................................................32

30.      Governing Law............................................................................................32

31.      Severability.............................................................................................32

32.      Descriptive Headings, Etc................................................................................32

33.      Determinations and Actions by the Board..................................................................33

34.      Counterparts.............................................................................................33

Exhibit A........................................................................................................A-1

Exhibit B........................................................................................................B-1

Exhibit C........................................................................................................C-1
</TABLE>

                                       ii

<PAGE>   4

                                RIGHTS AGREEMENT
                                ----------------

         This RIGHTS AGREEMENT, dated as of June 9, 2000 (this "AGREEMENT"), is
made and entered into by and between Penton Media, Inc., a Delaware corporation
(the "COMPANY"), and Harris Trust and Savings Bank, an Illinois banking
corporation (the "RIGHTS AGENT").

                                    RECITALS
                                    --------

         WHEREAS, on June 9, 2000, the Board of the Company authorized and
declared a dividend distribution of one right (a "RIGHT") for each share of
Common Stock, par value $0.01 per share, of the Company (a "COMMON SHARE")
outstanding as of the Close of Business (as hereinafter defined) on June 27,
2000 (the "RECORD DATE"), each Right initially representing the right to
purchase one one-hundredth of a Preferred Share (as hereinafter defined), on the
terms and subject to the conditions herein set forth, and further authorized and
directed the issuance of one Right (subject to adjustment as provided herein)
with respect to each Common Share issued or delivered by the Company (whether
originally issued or delivered from the Company's treasury) after the Record
Date but prior to the earlier of the Distribution Date (as hereinafter defined)
and the Expiration Date (as hereinafter defined) or as provided in SECTION 22.

         NOW, THEREFORE, in consideration of 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" means any Person (other than the Company or any
Related Person) who or which, together with all Affiliates and Associates of
such Person, is the Beneficial Owner of 20% or more of the then-outstanding
Common Shares; PROVIDED, HOWEVER, that a Person will not be deemed to have
become an Acquiring Person solely as a result of a reduction in the number of
Common Shares outstanding unless and until such time as (i) such Person or any
Affiliate or Associate of such Person thereafter becomes the Beneficial Owner of
additional Common Shares representing 1% or more of the then-outstanding Common
Shares, other than as a result of a stock dividend, stock split or similar
transaction effected by the Company in which all holders of Common Shares are
treated equally, or (ii) any other Person who is the Beneficial Owner of Common
Shares representing 1% or more of the then- outstanding Common Shares thereafter
becomes an Affiliate or Associate of such Person. Notwithstanding the foregoing,
if the Board of the Company determines in good faith that a Person who would
otherwise be an "ACQUIRING PERSON" as defined pursuant to the foregoing
provisions of this paragraph (a), has become such inadvertently, and such Person
divests as promptly as practicable a sufficient number of Common Shares so that
such Person would no longer be an "ACQUIRING PERSON" as defined pursuant to the
foregoing provisions of this paragraph (a), then such Person shall not be deemed
to be an "ACQUIRING PERSON" for any purposes of this Agreement.

         (b) "AFFILIATE" and "ASSOCIATE" will have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act, as in effect on the date of this Agreement, PROVIDED HOWEVER,
that a Person will not be deemed to be the

<PAGE>   5

Affiliate or Associate of another Person solely because either or both Persons
are or were Directors of the Company.

         (c) A Person will be deemed the "BENEFICIAL OWNER" of, and to
"BENEFICIALLY OWN," any securities:

                     (i) the beneficial ownership of which such Person or any of
         such Person's Affiliates or Associates, directly or indirectly, has the
         right to acquire (whether such right is exercisable immediately or only
         after the passage of time) pursuant to any agreement, arrangement or
         understanding (whether or not in writing), or upon the exercise of
         conversion rights, exchange rights, warrants, options or other rights
         (in each case, other than upon exercise or exchange of the Rights);
         PROVIDED, HOWEVER, that a Person will not be deemed the Beneficial
         Owner of, or to Beneficially Own, securities tendered pursuant to a
         tender or exchange offer made by or on behalf of such Person or any of
         such Person's Affiliates or Associates until such tendered securities
         are accepted for purchase or exchange; or

                    (ii) which such Person or any of such Person's Affiliates or
         Associates, directly or indirectly, has or shares the right to vote or
         dispose of, including pursuant to any agreement, arrangement or
         understanding (whether or not in writing); or

                   (iii) of which any other Person is the Beneficial Owner, if
         such Person or any of such Person's Affiliates or Associates has any
         agreement, arrangement or understanding (whether or not in writing)
         with such other Person (or any of such other Person's Affiliates or
         Associates) with respect to acquiring, holding, voting or disposing of
         any securities of the Company;

PROVIDED, HOWEVER, that a Person will not be deemed the Beneficial Owner of, or
to Beneficially Own, any security (A) if such Person has the right to vote such
security pursuant to an agreement, arrangement or understanding (whether or not
in writing) which (1) arises solely from a revocable proxy given to such Person
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 on Schedule 13D under the Exchange Act (or any
comparable or successor report), or (B) if such beneficial ownership arises
solely as a result of such Person's status as a "clearing agency," as defined in
Section 3(a)(23) of the Exchange Act; PROVIDED FURTHER, HOWEVER, that nothing in
this paragraph (c) will cause a Person engaged in business as an underwriter of
securities to be the Beneficial Owner of, or to Beneficially Own, any securities
acquired through such Person's participation in good faith in an underwriting
syndicate until the expiration of 40 calendar days after the date of such
acquisition, or such later date as the Directors of the Company may determine in
any specific case.

         (d) "BUSINESS DAY" means any day other than a Saturday, Sunday or a day
on which banking institutions in the State of Illinois (or such other state in
which the principal office of the Rights Agent is located) are authorized or
obligated by law or executive order to close.

         (e) "CLOSE OF BUSINESS" on any given date means 5:00 P.M., Eastern
time, on such date; PROVIDED, HOWEVER, that if such date is not a Business Day
it means 5:00 P.M., Eastern time, on the next succeeding Business Day.

                                        2

<PAGE>   6

         (f) "COMMON SHARES" when used with reference to the Company means the
shares of Common Stock, par value $0.01 per share, of the Company; PROVIDED,
HOWEVER, that, if the Company is the continuing or surviving corporation in a
transaction described in SECTION 13(a)(ii), "COMMON SHARES" when used with
reference to the Company means shares of the capital stock or units of the
equity interests with the greatest aggregate voting power of the Company.
"COMMON SHARES" when used with reference to any corporation or other legal
entity other than the Company, including an Issuer, means shares of the capital
stock or units of the equity interests with the greatest aggregate voting power
of such corporation or other legal entity.

         (g) "COMPANY" means Penton Media, Inc., a Delaware corporation.

         (h) "DISTRIBUTION DATE" means the earlier of: (i) the Close of Business
on the tenth calendar day following the Share Acquisition Date, or (ii) the
Close of Business on the tenth Business Day (or, unless the Distribution Date
shall have previously occurred, such later date as may be specified by the Board
of Directors of the Company) after the commencement of a tender or exchange
offer by any Person (other than the Company or any Related Person), if upon the
consummation thereof such Person would be the Beneficial Owner of 20% or more of
the then-outstanding Common Shares.

         (i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

         (j) "EXPIRATION DATE" means the earliest of (i) the Close of Business
on the Final Expiration Date, (ii) the time at which the Rights are redeemed as
provided in SECTION 23, and (iii) the time at which all exercisable Rights are
exchanged as provided in SECTION 24.

         (k) "FINAL EXPIRATION DATE" means the tenth anniversary of the Record
Date.

         (l) "FLIP-IN EVENT" means any event described in clauses (A), (B) or
(C) of SECTION 11(a)(ii).

         (m) "FLIP-OVER EVENT" means any event described in clauses (i), (ii) or
(iii) of SECTION 13(a).

         (n) "ISSUER" has the meaning set forth in SECTION 13(b).

         (o) "NASDAQ" means The NASDAQ Stock Market.

         (p) "PERSON" means any individual, firm, corporation or other legal
entity, and includes any successor (by merger or otherwise) of such entity.

         (q) "PREFERRED SHARES" means shares of Series A Junior Participating
Preferred Stock, par value $0.01 per share, of the Company having the rights and
preferences set forth in the form of Certificate of Designation of Series A
Junior Participating Preferred Stock attached as EXHIBIT A.

         (r) "PURCHASE PRICE" means initially $125.00 per one one-hundredth of a
Preferred Share, subject to adjustment from time to time as provided in this
Agreement.

                                        3

<PAGE>   7

         (s) "RECORD DATE" has the meaning set forth in the Recitals to this
Agreement.

         (t) "REDEMPTION PRICE" means $0.01 per Right, subject to adjustment by
resolution of the Board of Directors of the Company to reflect any stock split,
stock dividend or similar transaction occurring after the Record Date.

         (u) "RELATED PERSON" means (i) any Subsidiary of the Company or (ii)
any employee benefit or stock ownership plan of the Company or of any Subsidiary
of the Company or any entity holding Common Shares for or pursuant to the terms
of any such plan.

         (v) "RIGHT" has the meaning set forth in the Recitals to this
Agreement.

         (w) "RIGHT CERTIFICATES" means certificates evidencing the Rights, in
substantially the form attached as EXHIBIT B.

         (x) "RIGHTS AGENT" means Harris Trust and Savings Bank, unless and
until a successor Rights Agent has become such pursuant to the terms of this
Agreement, and thereafter, "RIGHTS AGENT" means such successor Rights Agent.

         (y) "SECURITIES ACT" means the Securities Act of 1933, as amended.

         (z) "SHARE ACQUISITION DATE" means the first date of public
announcement by the Company (by press release, filing made with the Securities
and Exchange Commission or otherwise) that an Acquiring Person has become such.

         (aa) "SUBSIDIARY" when used with reference to any Person means any
corporation or other legal entity of which a majority of the voting power of the
voting equity securities or equity interests is owned, directly or indirectly,
by such Person; PROVIDED, HOWEVER, that for purposes of SECTION 13(b),
"SUBSIDIARY" when used with reference to any Person means any corporation or
other legal entity of which at least 20% of the voting power of the voting
equity securities or equity interests is owned, directly or indirectly, by such
Person.

         (bb) "TRADING DAY" means any day on which the principal national
securities exchange on which the Common Shares are listed or admitted to trading
is open for the transaction of business or, if the Common Shares are not listed
or admitted to trading on any national securities exchange, a Business Day.

         (cc) "TRIGGERING EVENT" means any Flip-in Event or Flip-over Event.

         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, will also be, prior to the Distribution Date, the
holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment and hereby
certifies that it complies with the requirements of the New York Stock Exchange
governing transfer agents and registrars. The Company may from time to time act
as Co-Rights Agent or appoint such Co-Rights Agents as it may deem necessary or
desirable. Any actions which may be taken by the Rights Agent pursuant to the
terms of this Agreement may be taken by any such Co-Rights Agent. To the extent
that any Co-Rights Agent takes any action

                                        4

<PAGE>   8

pursuant to this Agreement, such Co-Rights Agent will be entitled to all of the
rights and protections of, and subject to all of the applicable duties and
obligations imposed upon, the Rights Agent pursuant to the terms of this
Agreement.

         3. ISSUE OF RIGHT CERTIFICATES. (a) Until the Distribution Date, (i)
the Rights will be evidenced by the certificates representing Common Shares
registered in the names of the record holders thereof (which certificates
representing Common Shares will also be deemed to be Right Certificates), (ii)
the Rights will be transferable only in connection with the transfer of the
underlying Common Shares, and (iii) the surrender for transfer of any
certificates evidencing Common Shares in respect of which Rights have been
issued will also constitute the transfer of the Rights associated with the
Common Shares evidenced by such certificates. On or as promptly as practicable
after the Record Date, the Company will send by first class, postage prepaid
mail, to each record holder of Common Shares as of the Close of Business on the
Record Date, at the address of such holder shown on the records of the Company
as of such date, a copy of a Summary of Rights to Purchase Preferred Stock in
substantially the form attached as EXHIBIT C.

         (b) Rights will be issued by the Company in respect of all Common
Shares (other than Common Shares issued upon the exercise or exchange of any
Right) issued or delivered by the Company (whether originally issued or
delivered from the Company's treasury) after the Record Date but prior to the
earlier of the Distribution Date and the Expiration Date. Certificates
evidencing such Common Shares will have stamped on, impressed on, printed on,
written on, or otherwise affixed to them the following legend or such similar
legend as the Company may deem appropriate and as is not inconsistent with the
provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or transaction reporting system on
which the Common Shares may from time to time be listed or quoted, or to conform
to usage:

         This Certificate also evidences and entitles the holder hereof to
         certain Rights as set forth in a Rights Agreement between Penton Media,
         Inc. and Harris Trust and Savings Bank, dated as of June 9, 2000 (the
         "RIGHTS AGREEMENT"), the terms of which are hereby incorporated herein
         by reference and a copy of which is on file at the principal executive
         offices of Penton Media, Inc. The Rights are not exercisable prior to
         the occurrence of certain events specified in the Rights Agreement.
         Under certain circumstances, as set forth in the Rights Agreement, such
         Rights may be redeemed, may be exchanged, may expire, may be amended,
         or may be evidenced by separate certificates and no longer be evidenced
         by this Certificate. Penton Media, Inc. will mail to the holder of this
         Certificate a copy of the Rights Agreement, as in effect on the date of
         mailing, without charge promptly after receipt of a written request
         therefor. Under certain circumstances as set forth in the Rights
         Agreement, Rights that are or were beneficially owned by an Acquiring
         Person or any Affiliate or Associate of an Acquiring Person (as such
         terms are defined in the Rights Agreement) may become null and void.

         (c) Any Right Certificate issued pursuant to this SECTION 3 that
represents Rights beneficially owned by an Acquiring Person or any Associate or
Affiliate thereof and any Right Certificate issued at any time upon the transfer
of any Rights to an Acquiring Person or any Associate or Affiliate thereof or to
any nominee of such Acquiring Person, Associate or Affiliate

                                        5

<PAGE>   9

and any Right Certificate issued pursuant to SECTION 6 or 11 hereof upon
transfer, exchange, replacement or adjustment of any other Right Certificate
referred to in this sentence, shall be subject to and contain the following
legend or such similar legend as the Company may deem appropriate and as is 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:

         The Rights represented by this Right Certificate are or were
         beneficially owned 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 Right Certificate and the Rights
         represented hereby may become null and void in the circumstances
         specified in SECTION 11(a)(ii) or SECTION 13 of the Rights Agreement.

         (d) As promptly as practicable after the Distribution Date, the Company
will prepare and execute, the Rights Agent will countersign and the Company will
send or cause to be sent (and the Rights Agent will, if requested, send, at the
expense of the Company), by first class, insured, postage prepaid mail, to each
record holder of Common Shares as of the Close of Business on the Distribution
Date, at the address of such holder shown on the records of the Company, a Right
Certificate evidencing one Right for each Common Share so held, subject to
adjustment as provided herein. As of and after the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.

         (e) In the event that the Company purchases or otherwise acquires any
Common Shares after the Record Date but prior to the Distribution Date, any
Rights associated with such Common Shares will be deemed canceled and retired so
that the Company will not be entitled to exercise any Rights associated with the
Common Shares so purchased or acquired.

         4. FORM OF RIGHT CERTIFICATES. The Right Certificates (and the form of
election to purchase and the form of assignment to be printed on the reverse
thereof) will be substantially in the form attached as EXHIBIT B with such
changes and marks of identification or designation, and such legends, summaries
or endorsements printed thereon, as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange or transaction
reporting system on which the Rights may from time to time be listed or quoted,
or to conform to usage. Subject to the provisions of SECTION 22, the Right
Certificates, whenever issued, on their face will entitle the holders thereof to
purchase such number of one one-hundredths of a Preferred Share as are set forth
therein at the Purchase Price set forth therein, but the Purchase Price, the
number and kind of securities issuable upon exercise of each Right and the
number of Rights outstanding will be subject to adjustment as provided herein.

         5. COUNTERSIGNATURE AND REGISTRATION. (a) The Right Certificates will
be executed on behalf of the Company by its Chairman of the Board, its President
or any Vice President, either manually or by facsimile signature, and will have
affixed thereto the Company's seal or a facsimile thereof which will be attested
by the Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates will be manually countersigned by
the Rights Agent and will not be valid for any purpose unless so countersigned.

                                        6

<PAGE>   10

In case any officer of the Company who signed any of the Right Certificates
ceases to be such officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right 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 Right Certificates had not ceased to be such officer of the Company; and
any Right Certificate may be signed on behalf of the Company by any person who,
at the actual date of the execution of such Right Certificate, is a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Rights Agreement any such person was not such officer.

         (b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at the principal office of the Rights Agent designated for
such purpose and at such other offices as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or any transaction reporting system on
which the Rights may from time to time be listed or quoted, books for
registration and transfer of the Right Certificates issued hereunder. Such books
will show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.

         6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES;
MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES. (a) Subject to the
provisions of SECTIONS 7(d) and 14, at any time after the Close of Business on
the Distribution Date and prior to the Expiration Date, any Right Certificate or
Right Certificates representing exercisable Rights may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-hundredths
of a Preferred Share (or other securities, as the case may be) as the Right
Certificate or Right Certificates surrendered then entitled such holder (or
former holder in the case of a transfer) to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any such Right Certificate
or Rights Certificates must make such request in a writing delivered to the
Rights Agent and must surrender the Right Certificate or Right Certificates to
be transferred, split up, combined or exchanged at the principal office of the
Rights Agent designated for such purpose. Thereupon or as promptly as
practicable thereafter, subject to the provisions of SECTIONS 7(d) and 14, the
Company will prepare, execute and deliver to the Rights Agent, and the Rights
Agent will countersign and deliver, a Right Certificate or Right 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 Right
Certificates.

         (b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, if requested by the Company,
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 Right Certificate if mutilated, the Company will prepare, execute and
deliver a new Right Certificate of like tenor to the Rights Agent and the Rights
Agent will countersign and deliver such new Right Certificate to the registered
holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated.

                                        7

<PAGE>   11

         7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS. (a)
The registered holder of any Right Certificate may exercise the Rights evidenced
thereby (except as otherwise provided herein) in whole or in part at any time
after the Distribution Date and prior to the Expiration Date, upon surrender of
the Right Certificate, with the form of election to purchase on the reverse side
thereof duly executed, to the Rights Agent at the office or offices of the
Rights Agent designated for such purpose, together with payment in cash, in
lawful money of the United States of America by certified check or bank draft
payable to the order of the Company, equal to the sum of (i) the exercise price
for the total number of securities as to which such surrendered Rights are
exercised and (ii) an amount equal to any applicable transfer tax required to be
paid by the holder of such Right Certificate in accordance with the provisions
of SECTION 9(d).

         (b) Upon receipt of a Right Certificate representing exercisable Rights
with the form of election to purchase duly executed, accompanied by payment as
described above, the Rights Agent will promptly (i) requisition from any
transfer agent of the Preferred Shares (or make available, if the Rights Agent
is the transfer agent) certificates representing the number of one
one-hundredths of a Preferred Share to be purchased (and the Company hereby
irrevocably authorizes and directs its transfer agent to comply with all such
requests), or, if the Company elects to deposit Preferred Shares issuable upon
exercise of the Rights hereunder with a depositary agent, requisition from the
depositary agent depositary receipts representing such number of one
one-hundredths of a Preferred Share as are to be purchased (and the Company
hereby irrevocably authorizes and directs such depositary agent to comply with
all such requests), (ii) after receipt of such certificates (or depositary
receipts, as the case may be), cause the same to be delivered to or upon the
order of the registered holder of such Right Certificate, registered in such
name or names as may be designated by such holder, (iii) when appropriate,
requisition from the Company or any transfer agent therefor (or make available,
if the Rights Agent is the transfer agent) certificates representing the number
of equivalent common shares to be issued in lieu of the issuance of Common
Shares in accordance with the provisions of SECTION 11(a)(iii), (iv) when
appropriate, after receipt of such certificates, cause the same to be delivered
to or upon the order of the registered holder of such Right Certificate,
registered in such name or names as may be designated by such holder, (v) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of the issuance of fractional shares in accordance with the provisions of
SECTION 14 or in lieu of the issuance of Common Shares in accordance with the
provisions of SECTION 11(a)(iii), (vi) when appropriate, after receipt, deliver
such cash to or upon the order of the registered holder of such Right
Certificate, and (vii) when appropriate, deliver any due bill or other
instrument provided to the Rights Agent by the Company for delivery to the
registered holder of such Right Certificate as provided by SECTION 11(l).

         (c) In case the registered holder of any Right Certificate exercises
less than all the Rights evidenced thereby, the Company will prepare, execute
and deliver a new Right Certificate evidencing Rights equivalent to the Rights
remaining unexercised and the Rights Agent will countersign and deliver such new
Right Certificate to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of SECTION 14.

         (d) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Company will be obligated to undertake any action with
respect to any purported transfer, split up, combination or exchange of any
Right Certificate pursuant to SECTION 6 or exercise of a Right Certificate as
set forth in this SECTION 7 unless the registered holder of such Right
Certificate has (i) completed and signed the certificate following the form of
assignment or

                                        8

<PAGE>   12

the form of election to purchase, as applicable, set forth on the reverse side
of the Right Certificate surrendered for such transfer, split up, combination,
exchange or exercise and (ii) provided such additional evidence of the identity
of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company may reasonably request.

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

         9. COMPANY COVENANTS CONCERNING SECURITIES AND RIGHTS. The Company
covenants and agrees that:

                  (a) It will cause to be reserved and kept available out of its
         authorized and unissued Preferred Shares or any Preferred Shares held
         in its treasury, a number of Preferred Shares that will be sufficient
         to permit the exercise in full of all outstanding Rights in accordance
         with SECTION 7.

                  (b) So long as the Preferred Shares (and, following the
         occurrence of a Triggering Event, Common Shares and/or other
         securities) issuable upon the exercise of the Rights may be listed on a
         national securities exchange, or quoted on Nasdaq, it will endeavor to
         cause, from and after such time as the Rights become exercisable, all
         securities reserved for issuance upon the exercise of Rights to be
         listed on such exchange, or quoted on Nasdaq, upon official notice of
         issuance upon such exercise.

                  (c) It will take all such action as may be necessary to ensure
         that all Preferred Shares (and, following the occurrence of a
         Triggering Event, Common Shares and/or other securities) delivered upon
         exercise of Rights, at the time of delivery of the certificates for
         such securities, will be (subject to payment of the Purchase Price)
         duly authorized, validly issued, fully paid and nonassessable
         securities.

                  (d) It will pay when due and payable any and all federal and
         state transfer taxes and charges that may be payable in respect of the
         issuance or delivery of the Right Certificates and of any certificates
         representing securities issued upon the exercise of Rights; PROVIDED,
         HOWEVER, that the Company will not be required to pay any transfer tax
         or charge which may be payable in respect of any transfer or delivery
         of Right Certificates to a person other than, or the issuance or
         delivery of certificates or depositary receipts representing securities
         issued upon the exercise of Rights in a name other than that of, the
         registered holder of the Right Certificate evidencing Rights
         surrendered for exercise, or to issue or deliver any certificates or
         depositary receipts representing securities issued upon the exercise of
         any Rights until any such tax or charge has been

                                        9

<PAGE>   13

         paid (any such tax or charge being payable by the holder of such Right
         Certificate at the time of surrender) or until it has been established
         to the Company's reasonable satisfaction that no such tax is due.

                  (e) It will use its best efforts (i) to file on an appropriate
         form, as soon as practicable following the later of the Share
         Acquisition Date and the Distribution Date, a registration statement
         under the Securities Act with respect to the securities issuable upon
         exercise of the Rights, (ii) to cause such registration statement to
         become effective as soon as practicable after such filing, and (iii) to
         cause such registration statement to remain effective (with a
         prospectus at all times meeting the requirements of the Securities Act)
         until the earlier of (A) the date as of which the Rights are no longer
         exercisable for such securities and (B) the Expiration Date. The
         Company will also take such action as may be appropriate under, or to
         ensure compliance with, the securities or "blue sky" laws of the
         various states in connection with the exercisability of the Rights. The
         Company may temporarily suspend, for a period of time after the date
         set forth in clause (i) of the first sentence of this SECTION 9(e), the
         exercisability of the Rights in order to prepare and file such
         registration statement and to permit it to become effective. Upon any
         such suspension, the Company will issue a public announcement stating
         that the exercisability of the Rights has been temporarily suspended,
         as well as a public announcement at such time as the suspension is no
         longer in effect. In addition, if the Company determines that a
         registration statement should be filed under the Securities Act or any
         state securities laws following the Distribution Date, the Company may
         temporarily suspend the exercisability of the Rights in each relevant
         jurisdiction until such time as a registration statement has been
         declared effective and, upon any such suspension, the Company will
         issue a public announcement stating that the exercisability of the
         Rights has been temporarily suspended, as well as a public announcement
         at such time as the suspension is no longer in effect. Notwithstanding
         anything in this Agreement to the contrary, the Rights will not be
         exercisable in any jurisdiction if the requisite registration or
         qualification in such jurisdiction has not been effected or the
         exercise of the Rights is not permitted under applicable law.

                  (f) Notwithstanding anything in this Agreement to the
         contrary, after the later of the Share Acquisition Date and the
         Distribution Date it will not take (or permit any Subsidiary to take)
         any action if at the time such action is taken it is reasonably
         foreseeable that such action will eliminate or otherwise diminish the
         benefits intended to be afforded by the Rights.

                  (g) In the event that the Company is obligated to issue other
         securities of the Company and/or pay cash pursuant to SECTION 11, 13,
         14 or 24 it will make all arrangements necessary so that such other
         securities and/or cash are available for distribution by the Rights
         Agent, if and when appropriate.

         10. RECORD DATE. Each Person in whose name any certificate representing
Preferred Shares (or Common Shares and/or other securities, as the case may be)
is issued upon the exercise of Rights will for all purposes be deemed to have
become the holder of record of the Preferred Shares (or Common Shares and/or
other securities, as the case may be) represented thereby on, and such
certificate will be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered and payment of the Purchase Price (and all

                                       10

<PAGE>   14

applicable transfer taxes) was made; PROVIDED, HOWEVER, that if the date of such
surrender and payment is a date upon which the transfer books of the Company for
the Preferred Shares (or Common Shares and/or other securities, as the case may
be) are closed, such Person will be deemed to have become the record holder of
such securities on, and such certificate will be dated, the next succeeding
Business Day on which the transfer books of the Company for the Preferred Shares
(or Common Shares and/or other securities, as the case may be) are open. Prior
to the exercise of the Rights evidenced thereby, the holder of a Right
Certificate will not be entitled to any rights of a holder of any security for
which the Rights are or may become exercisable, including, without limitation,
the right to vote, to receive dividends or other distributions, or to exercise
any preemptive rights, and will 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 SECURITIES OR
NUMBER OF RIGHTS. The Purchase Price, the number and kind of securities issuable
upon exercise of 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 that the Company at any time after the Record Date
         (A) declares a dividend on the Preferred Shares payable in Preferred
         Shares, (B) subdivides the outstanding Preferred Shares, (C) combines
         the outstanding Preferred Shares into a smaller number of Preferred
         Shares, or (D) issues any shares of its capital stock in a
         reclassification of the Preferred Shares (including any such
         reclassification in connection with a consolidation or merger in which
         the Company is the continuing or surviving corporation), except as
         otherwise provided in this SECTION 11(a), the Purchase Price in effect
         at the time of the record date for such dividend or of the effective
         date of such subdivision, combination or reclassification and/or the
         number and/or kind of shares of capital stock issuable on such date
         upon exercise of a Right, will be proportionately adjusted so that the
         holder of any Right exercised after such time is entitled to receive
         upon payment of the Purchase Price then in effect the aggregate number
         and kind of shares of capital stock which, if such Right had been
         exercised immediately prior to such date and at a time when the
         transfer books of the Company for the Preferred Shares were open, the
         holder of such Right would have owned upon such exercise (and, in the
         case of a reclassification, would have retained after giving effect to
         such reclassification) and would have been entitled to receive by
         virtue of such dividend, subdivision, combination or reclassification;
         PROVIDED, HOWEVER, that in no event shall the consideration to be paid
         upon the exercise of one Right be less than the aggregate par value of
         the shares of capital stock issuable upon exercise of one Right. If an
         event occurs which would require an adjustment under both this SECTION
         11(a)(i) and SECTION 11(a)(ii) or SECTION 13, the adjustment provided
         for in this SECTION 11(a)(i) will be in addition to, and will be made
         prior to, any adjustment required pursuant to SECTION 11(a)(ii) or
         SECTION 13.

             (ii) Subject to the provisions of SECTION 24, if:

                  (A) any Person becomes an Acquiring Person; or

                  (B) any Acquiring Person or any Affiliate or
             Associate of any Acquiring Person, directly or indirectly, (1)
             merges into the Company or otherwise combines with the Company
             and the Company is the continuing or surviving corporation of

                                       11

<PAGE>   15

             such merger or combination (other than in a transaction subject to
             SECTION 13), (2) merges or otherwise combines with any Subsidiary
             of the Company, (3) in one or more transactions (otherwise than in
             connection with the exercise, exchange or conversion of securities
             exercisable or exchangeable for or convertible into shares of any
             class of capital stock of the Company or any of its Subsidiaries)
             transfers cash, securities or any other property to the Company or
             any of its Subsidiaries in exchange (in whole or in part) for
             shares of any class of capital stock of the Company or any of its
             Subsidiaries or for securities exercisable or exchangeable for or
             convertible into shares of any class of capital stock of the
             Company or any of its Subsidiaries, or otherwise obtains from the
             Company or any of its Subsidiaries, with or without consideration,
             any additional shares of any class of capital stock of the Company
             or any of its Subsidiaries or securities exercisable or
             exchangeable for or convertible into shares of any class of capital
             stock of the Company or any of its Subsidiaries (otherwise than as
             part of a pro rata distribution to all holders of shares of any
             class of capital stock of the Company, or any of its Subsidiaries),
             (4) sells, purchases, leases, exchanges, mortgages, pledges,
             transfers or otherwise disposes (in one or more transactions) to,
             from, with or of, as the case may be, the Company or any of its
             Subsidiaries (otherwise than in a transaction subject to SECTION
             13), any property, including securities, on terms and conditions
             less favorable to the Company than the Company would be able to
             obtain in an arm's-length transaction with an unaffiliated third
             party, (5) receives any compensation from the Company or any of its
             Subsidiaries other than compensation as a director or a regular
             full-time employee, in either case at rates consistent with the
             Company's (or its Subsidiaries') past practices, or (6) receives
             the benefit, directly or indirectly (except proportionately as a
             stockholder), of any loans, advances, guarantees, pledges or other
             financial assistance or any tax credits or other tax advantage
             provided by the Company or any of its Subsidiaries; or

                  (C) during such time as there is an Acquiring Person, there is
             any reclassification of securities of the Company (including any
             reverse stock split), or any recapitalization of the Company, or
             any merger or consolidation of the Company with any of its
             Subsidiaries, or any other transaction or series of transactions
             involving the Company or any of its Subsidiaries (whether or not
             with or into or otherwise involving an Acquiring Person), other
             than a transaction subject to SECTION 13, which has the effect,
             directly or indirectly, of increasing by more than 1% the
             proportionate share of the outstanding shares of any class of
             equity securities of the Company or any of its Subsidiaries, or of
             securities exercisable or exchangeable for or convertible into
             equity securities of the Company or any of its Subsidiaries, of
             which an Acquiring Person, or any Affiliate or Associate of any
             Acquiring Person, is the Beneficial Owner;

         then, and in each such case, from and after the latest of the
         Distribution Date, the Share Acquisition Date and the date of the
         occurrence of such Flip-in Event, proper provision will be made so that
         each holder of a Right, except as provided below, will thereafter have
         the right to receive, upon exercise thereof in accordance with the
         terms of this Agreement at an exercise price per Right equal to the
         product of the then-current Purchase Price multiplied by the number of
         one one-hundredths of a Preferred Share for

                                       12

<PAGE>   16

         which a Right was exercisable immediately prior to the date of the
         occurrence of such Flip-in Event (or, if any other Flip-in Event shall
         have previously occurred, the product of the then-current Purchase
         Price multiplied by the number of one one-hundredths of a Preferred
         Share for which a Right was exercisable immediately prior to the date
         of the first occurrence of a Flip-in Event), in lieu of Preferred
         Shares, such number of Common Shares as equals the result obtained by
         (x) multiplying the then-current Purchase Price by the number of one
         one-hundredths of a Preferred Share for which a Right was exercisable
         immediately prior to the date of the occurrence of such Flip-in Event
         (or, if any other Flip-in Event shall have previously occurred,
         multiplying the then-current Purchase Price by the number of one
         one-hundredths of a Preferred Share for which a Right was exercisable
         immediately prior to the date of the first occurrence of a Flip-in
         Event), and dividing that product by (y) 50% of the current per share
         market price of the Common Shares (determined pursuant to SECTION
         11(d)) on the date of the occurrence of such Flip-in Event.
         Notwithstanding anything in this Agreement to the contrary, from and
         after the first occurrence of a Flip-in Event, any Rights that are
         Beneficially Owned by (A) any Acquiring Person (or any Affiliate or
         Associate of any Acquiring Person), (B) a transferee of any Acquiring
         Person (or any such Affiliate or Associate) who becomes a transferee
         after the occurrence of a Flip-in Event, or (C) a transferee of any
         Acquiring Person (or any such Affiliate or Associate) who became a
         transferee prior to or concurrently with the occurrence of a Flip-in
         Event pursuant to either (1) a transfer from an Acquiring Person to
         holders of its equity securities or to any Person with whom it has any
         continuing agreement, arrangement or understanding regarding the
         transferred Rights or (2) a transfer which the Directors of the Company
         have determined is part of a plan, arrangement or understanding which
         has the purpose or effect of avoiding the provisions of this SECTION
         11(a)(ii), and subsequent transferees of any of such Persons, will be
         void without any further action and any holder of such Rights will
         thereafter have no rights whatsoever with respect to such Rights under
         any provision of this Agreement. The Company will use all reasonable
         efforts to ensure that the provisions of this SECTION 11(a)(ii) are
         complied with, but will have no liability to any holder of Right
         Certificates or any other Person as a result of its failure to make any
         determinations with respect to an Acquiring Person or its Affiliates,
         Associates or transferees hereunder. Upon the occurrence of a Flip-in
         Event, no Right Certificate that represents Rights that are or have
         become void pursuant to the provisions of this SECTION 11(a)(ii) will
         thereafter be issued pursuant to SECTION 3 or SECTION 6, and any Right
         Certificate delivered to the Rights Agent that represents Rights that
         are or have become void pursuant to the provisions of this SECTION
         11(a)(ii) will be canceled. Upon the occurrence of a Flip-over Event,
         any Rights that shall not have been previously exercised pursuant to
         this SECTION 11(a)(ii) shall thereafter be exercisable only pursuant to
         SECTION 13 and not pursuant to this SECTION 11(a)(ii).

                   (iii) Upon the occurrence of a Flip-in Event, if there are
         not sufficient Common Shares authorized but unissued or issued but not
         outstanding to permit the issuance of all the Common Shares issuable in
         accordance with SECTION 11(a)(ii) upon the exercise of a Right, the
         Board of Directors of the Company will use its best efforts promptly to
         authorize and, subject to the provisions of SECTION 9(e), make
         available for issuance additional Common Shares or other equity
         securities of the Company having equivalent voting rights and an
         equivalent value (as determined in good faith by the Board of Directors
         of the Company) to the Common Shares (for purposes of this SECTION
         11(a)(iii),

                                       13

<PAGE>   17

         "equivalent common shares"). In the event that equivalent common shares
         are so authorized, upon the exercise of a Right in accordance with the
         provisions of SECTION 7, the registered holder will be entitled to
         receive (A) Common Shares, to the extent any are available, and (B) a
         number of equivalent common shares, which the Board of Directors of the
         Company has determined in good faith to have a value equivalent to the
         excess of (x) the aggregate current per share market value on the date
         of the occurrence of the most recent Flip-in Event of all the Common
         Shares issuable in accordance with SECTION 11(a)(ii) upon the exercise
         of a Right (the "EXERCISE VALUE") over (y) the aggregate current per
         share market value on the date of the occurrence of the most recent
         Flip-in Event of any Common Shares available for issuance upon the
         exercise of such Right; PROVIDED, HOWEVER, that if at any time after 90
         calendar days after the latest of the Share Acquisition Date, the
         Distribution Date and the date of the occurrence of the most recent
         Flip-in Event, there are not sufficient Common Shares and/or equivalent
         common shares available for issuance upon the exercise of a Right, then
         the Company will be obligated to deliver, upon the surrender of such
         Right and without requiring payment of the Purchase Price, Common
         Shares (to the extent available), equivalent common shares (to the
         extent available) and then cash (to the extent permitted by applicable
         law and any agreements or instruments to which the Company is a party
         in effect immediately prior to the Share Acquisition Date), which
         securities and cash have an aggregate value equal to the excess of (1)
         the Exercise Value over (2) the product of the then-current Purchase
         Price multiplied by the number of one one-hundredths of a Preferred
         Share for which a Right was exercisable immediately prior to the date
         of the occurrence of the most recent Flip-in Event (or, if any other
         Flip-in Event shall have previously occurred, the product of the
         then-current Purchase Price multiplied by the number of one
         one-hundredths of a Preferred Share for which a Right would have been
         exercisable immediately prior to the date of the occurrence of such
         Flip-in Event if no other Flip-in Event had previously occurred). To
         the extent that any legal or contractual restrictions prevent the
         Company from paying the full amount of cash payable in accordance with
         the foregoing sentence, the Company will pay to holders of the Rights
         as to which such payments are being made all amounts which are not then
         restricted on a pro rata basis and will continue to make payments on a
         pro rata basis as promptly as funds become available until the full
         amount due to each such Rights holder has been paid.

         (b) In the event that the Company fixes a record date for the issuance
of rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or securities having equivalent
rights, privileges and preferences as the Preferred Shares (for purposes of this
SECTION 11(b), "equivalent preferred shares")) or securities convertible into
Preferred Shares or equivalent preferred shares at a price per Preferred Share
or equivalent preferred share (or having a conversion price per share, if a
security convertible into Preferred Shares or equivalent preferred shares) less
than the current per share market price of the Preferred Shares (determined
pursuant to SECTION 11(d)) on such record date, the Purchase Price to be in
effect after such record date will be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which is the number of Preferred Shares outstanding on such record
date plus the number of Preferred Shares which the aggregate offering price of
the total number of Preferred Shares and/or equivalent preferred shares so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current per share market
price and the denominator of

                                       14

<PAGE>   18

which is the number of Preferred Shares outstanding on such record date plus the
number of additional Preferred Shares and/or equivalent preferred shares to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible); PROVIDED, HOWEVER, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock issuable upon exercise of
one Right. In case such subscription price may be paid in a consideration part
or all of which is in a form other than cash, the value of such consideration
will be as determined in good faith by the Board of Directors of the Company,
whose determination will be described in a statement filed with the Rights
Agent. Preferred Shares owned by or held for the account of the Company will not
be deemed outstanding for the purpose of any such computation. Such adjustment
will 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 will
be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.

         (c) In the event that the Company fixes a record date for the making of
a distribution to all holders of Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness, cash (other than a regular periodic cash dividend), assets, stock
(other than a dividend payable in Preferred Shares) 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 will be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which is the current per share market price of the
Preferred Shares (as determined pursuant to SECTION 11(d)) on such record date
or, if earlier, the date on which Preferred Shares begin to trade on an
ex-dividend or when issued basis for such distribution, less the fair market
value (as determined in good faith by the Board of Directors of the Company,
whose determination will be described in a statement filed with the Rights
Agent) of the portion of the evidences of indebtedness, cash, assets or stock so
to be distributed or of such subscription rights, options or warrants applicable
to one Preferred Share, and the denominator of which is such current per share
market price of the Preferred Shares; PROVIDED, HOWEVER, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock issuable upon exercise of one
Right. Such adjustments will be made successively whenever such a record date is
fixed; and in the event that such distribution is not so made, the Purchase
Price will again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.

         (d) (i) For the purpose of any computation hereunder, the "current per
         share market price" of Common Shares on any date will be deemed to be
         the average of the daily closing prices per share of such Common Shares
         for the 30 consecutive Trading Days immediately prior to such date;
         PROVIDED, HOWEVER, that in the event that the current per share market
         price of the Common Shares is determined during a period following the
         announcement by the issuer of such Common Shares of (A) a dividend or
         distribution on such Common Shares payable in such Common Shares or
         securities convertible into such Common Shares (other than the Rights)
         or (B) any subdivision, combination or reclassification of such Common
         Shares, 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 per share market price will be
         appropriately adjusted to take into account ex-dividend trading or to
         reflect the current per share market price per Common Share equivalent.
         The

                                       15

<PAGE>   19

         closing price for each day will 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 Common Shares 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
         Common Shares are listed or admitted to trading or, if the Common
         Shares 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 Common Shares 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 Shares selected
         by the Board of Directors of the Company. If the Common Shares are not
         publicly held or not so listed or traded, or are not the subject of
         available bid and asked quotes, "current per share market price" will
         mean the fair value per share as determined in good faith by the Board
         of Directors of the Company, whose determination will be described in a
         statement filed with the Rights Agent.

                    (ii) For the purpose of any computation hereunder, the
         "current per share market price" of the Preferred Shares will be
         determined in the same manner as set forth above for Common Shares in
         SECTION 11(d)(i), other than the last sentence thereof. If the current
         per share market price of the Preferred Shares cannot be determined in
         the manner provided above, the "current per share market price" of the
         Preferred Shares will be conclusively deemed to be an amount equal to
         the current per share market price of the Common Shares multiplied by
         one hundred (as such number may be appropriately adjusted to reflect
         events such as stock splits, stock dividends, recapitalizations or
         similar transactions relating to the Common Shares occurring after the
         date of this Agreement). If neither the Common Shares nor the Preferred
         Shares are publicly held or so listed or traded, or the subject of
         available bid and asked quotes, "current per share market price" of the
         Preferred Shares will mean the fair value per share as determined in
         good faith by the Board of Directors of the Company, whose
         determination will be described in a statement filed with the Rights
         Agent. For all purposes of this Agreement, the current per share market
         price of one one-hundredth of a Preferred Share will be equal to the
         current per share market price of one Preferred Share divided by one
         hundred.

         (e) Except as set forth below, no adjustment in the Purchase Price will
be required unless such adjustment would require an increase or decrease of at
least 1% in such price; PROVIDED, HOWEVER, that any adjustments which by reason
of this SECTION 11(e) are not required to be made will be carried forward and
taken into account in any subsequent adjustment. All calculations under this
SECTION 11 will be made to the nearest cent or to the nearest one one- millionth
of a Preferred Share or one ten-thousandth of a Common Share or other security,
as the case may be. Notwithstanding the first sentence of this SECTION 11(e),
any adjustment required by this SECTION 11 will be made no later than the
earlier of (i) three years from the date of the transaction which requires such
adjustment and (ii) the Expiration Date.

         (f) If as a result of an adjustment made pursuant to SECTION 11(a), the
holder of any Right thereafter exercised becomes entitled to receive any
securities of the Company other than

                                       16

<PAGE>   20

Preferred Shares, thereafter the number and/or kind of such other securities so
receivable upon exercise of any Right (and/or the Purchase Price in respect
thereof) will be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares (and the Purchase Price in respect thereof) contained in this
SECTION 11, and the provisions of SECTIONS 7, 9, 10, 13 and 14 with respect to
the Preferred Shares (and the Purchase Price in respect thereof) will apply on
like terms to any such other securities (and the Purchase Price in respect
thereof).

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

         (h) Unless the Company has exercised its election as provided in
SECTION 11(i), upon each adjustment of the Purchase Price pursuant to SECTION
11(b) or SECTION 11(c), each Right outstanding immediately prior to the making
of such adjustment will thereafter evidence the right to purchase, at the
adjusted Purchase Price, that number of one one-hundredths of a Preferred Share
(calculated to the nearest one one-millionth of a Preferred Share) obtained by
(i) multiplying (x) the number of one one-hundredths of a Preferred Share
issuable upon exercise of a Right immediately prior to such adjustment of the
Purchase Price by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.

         (i) The Company may elect, on or after the date of any adjustment of
the Purchase Price, to adjust the number of Rights in substitution for any
adjustment in the number of one one- hundredths of a Preferred Share issuable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights will be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights will become that number of Rights (calculated
to the nearest one ten-thousandth) obtained by dividing the Purchase Price in
effect immediately prior to adjustment of the Purchase Price by the Purchase
Price in effect immediately after adjustment of the Purchase Price. The Company
will 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. Such record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, will be at least 10 calendar days later than the
date of the public announcement. If Right Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this SECTION 11(i), the
Company will, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates evidencing,
subject to the provisions of SECTION 14, the additional Rights to which such
holders are entitled as a result of such adjustment, or, at the option of the
Company, will cause to be distributed to such holders of record in substitution
and replacement for the Right Certificates held by such holders prior to the
date of adjustment, and upon surrender thereof if required by the Company, new
Right Certificates evidencing all the Rights to which such holders are entitled
after such adjustment. Right Certificates so to be distributed will 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 will be registered
in the names of the holders of record of Right Certificates on the record date
specified in the public announcement.

                                       17

<PAGE>   21

         (j) Without respect to any adjustment or change in the Purchase Price
and/or the number and/or kind of securities issuable upon the exercise of the
Rights, the Right Certificates theretofore and thereafter issued may continue to
express the Purchase Price and the number and kind of securities which were
expressed in the initial Right Certificate issued hereunder.

         (k) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares or below the then par value, if any, of any other securities of
the Company issuable upon exercise of the Rights, the Company will 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
Preferred Shares or such other securities, as the case may be, at such adjusted
Purchase Price.

         (l) In any case in which this SECTION 11 otherwise requires that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of Preferred Shares or other securities of the Company, if any,
issuable upon such exercise over and above the number of Preferred Shares or
other 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 delivers to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
Preferred Shares or other securities upon the occurrence of the event requiring
such adjustment.

         (m) Notwithstanding anything in this Agreement to the contrary, the
Company will be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this SECTION 11, as and to
the extent that in its good faith judgment the Board of Directors of the Company
determines to be advisable in order that any (i) consolidation or subdivision of
the Preferred Shares, (ii) issuance wholly for cash of Preferred Shares at less
than the current per share market price therefor, (iii) issuance wholly for cash
of Preferred Shares or securities which by their terms are convertible into or
exchangeable for Preferred Shares, (iv) stock dividends, or (v) issuance of
rights, options or warrants referred to in this SECTION 11, hereafter made by
the Company to holders of its Preferred Shares is not taxable to such
stockholders.

         (n) Notwithstanding anything in this Agreement to the contrary, in the
event that the Company at any time after the Record Date prior to the
Distribution Date (i) pays a dividend on the outstanding Common Shares payable
in Common Shares, (ii) subdivides the outstanding Common Shares, (iii) combines
the outstanding Common Shares into a smaller number of shares, or (iv) issues
any shares of its capital stock in a reclassification of the outstanding Common
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation), the
number of Rights associated with each Common Share then outstanding, or issued
or delivered thereafter but prior to the Distribution Date, will be
proportionately adjusted so that the number of Rights thereafter associated with
each Common Share following any such event equals the result obtained by
multiplying the number of Rights associated with each Common Share immediately
prior to such event by a fraction the numerator of which is the total number of
Common Shares outstanding immediately prior to the occurrence of the event and
the denominator of which is the total number of Common Shares outstanding
immediately following the occurrence of such event.

                                       18

<PAGE>   22

The adjustments provided for in this SECTION 11(n) will be made successively
whenever such a dividend is paid or such a subdivision, combination or
reclassification is effected.

         12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SECURITIES.
Whenever an adjustment is made as provided in SECTION 11 or SECTION 13, the
Company will promptly (a) prepare a certificate setting forth such adjustment
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Preferred Shares and the
Common Shares a copy of such certificate, and (c) if such adjustment is made
after the Distribution Date, mail a brief summary of such adjustment to each
holder of a Right Certificate in accordance with SECTION 26. The Rights Agent
shall be fully protected in relying on any such certificate and on any
adjustment therein contained and shall not be obligated or responsible for
calculating any adjustment nor shall it be deemed to have knowledge of such
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:

                     (i) at any time after a Person has become an Acquiring
         Person, the Company consolidates with, or merges with or into, any
         other Person and the Company is not the continuing or surviving
         corporation of such consolidation or merger; or

                    (ii) at any time after a Person has become an Acquiring
         Person, any Person consolidates with the Company, or merges with or
         into the Company, and the Company is the continuing or surviving
         corporation of such merger or consolidation and, in connection with
         such merger or consolidation, all or part of the Common Shares is
         changed into or exchanged for stock or other securities of any other
         Person or cash or any other property; or

                   (iii) at any time after a Person has become an Acquiring
         Person, the Company, directly or indirectly, sells or otherwise
         transfers (or one or more of its Subsidiaries sells or otherwise
         transfers), in one or more transactions, assets or earning power
         (including without limitation securities creating any obligation on the
         part of the Company and/or any of its Subsidiaries) representing in the
         aggregate more than 50% of the assets or earning power of the Company
         and its Subsidiaries (taken as a whole) to any Person or Persons other
         than the Company or one or more of its wholly owned Subsidiaries;

then, and in each such case, proper provision will be made so that from and
after the latest of the Share Acquisition Date, the Distribution Date and the
date of the occurrence of such Flip-over Event (A) each holder of a Right
thereafter has the right to receive, upon the exercise thereof in accordance
with the terms of this Agreement at an exercise price per Right equal to the
product of the then-current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to the Share Acquisition Date, such number of duly authorized,
validly issued, fully paid, nonassessable and freely tradeable Common Shares of
the Issuer, free and clear of any liens, encumbrances and other adverse claims
and not subject to any rights of call or first refusal, as equals the result
obtained by (x) multiplying the then-current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right is exercisable immediately
prior to the Share Acquisition Date and dividing that product by (y) 50% of the
current per share market price of the Common Shares of

                                       19

<PAGE>   23

the Issuer (determined pursuant to SECTION 11(d)), on the date of the occurrence
of such Flip-over Event; (B) the Issuer will thereafter be liable for, and will
assume, by virtue of the occurrence of such Flip-over Event, all the obligations
and duties of the Company pursuant to this Agreement; (C) the term "COMPANY"
will thereafter be deemed to refer to the Issuer; and (D) the Issuer will take
such steps (including without limitation the reservation of a sufficient number
of its Common Shares to permit the exercise of all outstanding Rights) in
connection with such consummation as may be necessary to assure that the
provisions hereof are thereafter applicable, as nearly as reasonably may be
possible, in relation to its Common Shares thereafter deliverable upon the
exercise of the Rights.

         (b) For purposes of this SECTION 13, "ISSUER" means (i) in the case of
any Flip-over Event described in SECTIONS 13(a)(i) or (ii) above, the Person
that is the continuing, surviving, resulting or acquiring Person (including the
Company as the continuing or surviving corporation of a transaction described in
SECTION 13(a)(ii) above), and (ii) in the case of any Flip-over Event described
in SECTION 13(a)(iii) above, the Person that is the party receiving the greatest
portion of the assets or earning power (including without limitation securities
creating any obligation on the part of the Company and/or any of its
Subsidiaries) transferred pursuant to such transaction or transactions;
PROVIDED, HOWEVER, that, in any such case, (A) if (1) no class of equity
security of such Person is, at the time of such merger, consolidation or
transaction and has been continuously over the preceding 12-month period,
registered pursuant to SECTION 12 of the Exchange Act, and (2) such Person is a
Subsidiary, directly or indirectly, of another Person, a class of equity
security of which is and has been so registered, the term "ISSUER" means such
other Person; and (B) in case such Person is a Subsidiary, directly or
indirectly, of more than one Person, a class of equity security of two or more
of which are and have been so registered, the term "ISSUER" means whichever of
such Persons is the issuer of the equity security having the greatest aggregate
market value. Notwithstanding the foregoing, if the Issuer in any of the
Flip-over Events listed above is not a corporation or other legal entity having
outstanding equity securities, then, and in each such case, (x) if the Issuer is
directly or indirectly wholly owned by a corporation or other legal entity
having outstanding equity securities, then all references to Common Shares of
the Issuer will be deemed to be references to the Common Shares of the
corporation or other legal entity having outstanding equity securities which
ultimately controls the Issuer, and (y) if there is no such corporation or other
legal entity having outstanding equity securities, (I) proper provision will be
made so that the Issuer creates or otherwise makes available for purposes of the
exercise of the Rights in accordance with the terms of this Agreement, a kind or
kinds of security or securities having a fair market value at least equal to the
economic value of the Common Shares which each holder of a Right would have been
entitled to receive if the Issuer had been a corporation or other legal entity
having outstanding equity securities; and (II) all other provisions of this
Agreement will apply to the issuer of such securities as if such securities were
Common Shares.

         (c) The Company will not consummate any Flip-over Event if, (i) at the
time of or immediately after such Flip-over Event, there are or would be any
rights, warrants, instruments or securities outstanding or any agreements or
arrangements in effect which would eliminate or substantially diminish the
benefits intended to be afforded by the Rights, (ii) prior to, simultaneously
with or immediately after such Flip-over Event, the stockholders of the Person
who constitutes, or would constitute, the Issuer for purposes of SECTION 13(a)
shall have received a distribution of Rights previously owned by such Person or
any of its Affiliates or Associates, or (iii) the form or nature of the
organization of the Issuer would preclude or limit the exercisability

                                       20

<PAGE>   24

of the Rights. In addition, the Company will not consummate any Flip-over Event
unless the Issuer has a sufficient number of authorized Common Shares (or other
securities as contemplated in SECTION 13(b) above) which have not been issued or
reserved for issuance to permit the exercise in full of the Rights in accordance
with this SECTION 13 and unless prior to such consummation the Company and the
Issuer have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in subsections (a) and (b) of this SECTION 13
and further providing that as promptly as practicable after the consummation of
any Flip-over Event, the Issuer will:

                     (A) prepare and file a registration statement under the
         Securities Act with respect to the Rights and the securities issuable
         upon exercise of the Rights on an appropriate form, and use its best
         efforts to cause such registration statement to (1) become effective as
         soon as practicable after such filing and (2) remain effective (with a
         prospectus at all times meeting the requirements of the Securities Act)
         until the Expiration Date;

                     (B) take all such action as may be appropriate under, or to
         ensure compliance with, the securities or "blue sky" laws of the
         various states in connection with the exercisability of the Rights; and

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

         (d) The provisions of this SECTION 13 will similarly apply to
successive mergers or consolidations or sales or other transfers. In the event
that a Flip-over Event occurs at any time after the occurrence of a Flip-in
Event, except for Rights that have become void pursuant to SECTION 11(a)(ii),
Rights that shall not have been previously exercised will cease to be
exercisable in the manner provided in SECTION 11(a)(ii) and will thereafter be
exercisable in the manner provided in SECTION 13(a).

         14. FRACTIONAL RIGHTS AND FRACTIONAL SECURITIES. (a) The Company will
not be required to issue fractions of Rights or to distribute Right Certificates
which evidence fractional Rights. In lieu of such fractional Rights, the Company
will pay as promptly as practicable to the registered holders of the Right
Certificates with regard to which such fractional Rights otherwise would be
issuable, an amount in cash equal to the same fraction of the current market
value of one Right. For the purposes of this SECTION 14(a), the current market
value of one Right is the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights otherwise would
have been issuable. The closing price for any day is 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 Rights
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
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by Nasdaq or such other system then in

                                       21

<PAGE>   25

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 the Rights are not publicly held or are not so listed or traded,
or are not the subject of available bid and asked quotes, the current market
value of one Right will mean the fair value thereof as determined in good faith
by the Board of Directors of the Company, whose determination will be described
in a statement filed with the Rights Agent.

         (b) The Company will not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share). Fractions of
Preferred Shares in integral multiples of one one-hundredth of a Preferred Share
may, at the election of the Company, be evidenced by depositary receipts
pursuant to an appropriate agreement between the Company and a depositary
selected by it, provided that such agreement provides that the holders of such
depositary receipts have all the rights, privileges and preferences to which
they are entitled as beneficial owners of the Preferred Shares represented by
such depositary receipts. In lieu of fractional Preferred Shares that are not
integral multiples of one one-hundredth of a Preferred Share, the Company may
pay to any Person to whom or which such fractional Preferred Shares would
otherwise be issuable an amount in cash equal to the same fraction of the
current market value of one Preferred Share. For purposes of this SECTION 14(b),
the current market value of one Preferred Share is the closing price of the
Preferred Shares (as determined in the same manner as set forth for Common
Shares in the second sentence of SECTION 11(d)(i)) for the Trading Day
immediately prior to the date of such exercise; PROVIDED, HOWEVER, that if the
closing price of the Preferred Shares cannot be so determined, the closing price
of the Preferred Shares for such Trading Day will be conclusively deemed to be
an amount equal to the closing price of the Common Shares (determined pursuant
to the second sentence of SECTION 11(d)(i)) for such Trading Day multiplied by
one hundred (as such number may be appropriately adjusted to reflect events such
as stock splits, stock dividends, recapitalizations or similar transactions
relating to the Common Shares occurring after the date of this Agreement);
PROVIDED FURTHER, HOWEVER, that if neither the Common Shares nor the Preferred
Shares are publicly held or listed or admitted to trading on any national
securities exchange, or the subject of available bid and asked quotes, the
current market value of one Preferred Share will mean the fair value thereof as
determined in good faith by the Board of Directors of the Company, whose
determination will be described in a statement filed with the Rights Agent.

         (c) Following the occurrence of a Triggering Event, the Company will
not be required to issue fractions of Common Shares or other securities issuable
upon exercise or exchange of the Rights or to distribute certificates which
evidence any such fractional securities. In lieu of issuing any such fractional
securities, the Company may pay to any Person to whom or which such fractional
securities would otherwise be issuable an amount in cash equal to the same
fraction of the current market value of one such security. For purposes of this
SECTION 14(c), the current market value of one Common Share or other security
issuable upon the exercise or exchange of Rights is the closing price thereof
(as determined in the same manner as set forth for Common Shares in the second
sentence of SECTION 11(d)(i)) for the Trading Day immediately prior to the date
of such exercise or exchange; PROVIDED, HOWEVER, that if neither the Common
Shares nor any such other securities are publicly held or listed or admitted to
trading on any national securities exchange, or the subject of available bid and
asked quotes, the current market

                                       22

<PAGE>   26

value of one Common Share or such other security will mean the fair value
thereof as determined in good faith by the Board of Directors of the Company,
whose determination will mean the fair value thereof as will be described in a
statement filed with the Rights Agent.

         15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
SECTION 18, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the holder of any Common Shares), may in his own behalf
and for his own benefit enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his right to exercise the Rights evidenced by such Right Certificate in the
manner provided in such Right 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 will be entitled to specific
performance of the obligations under this Agreement, and injunctive relief
against actual or threatened violations of the obligations of any Person subject
to this Agreement.

         16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right by accepting
the same consents and agrees with the Company and the Rights Agent and with
every other holder of a Right that:

             (a) Prior to the Distribution Date, the Rights are transferable
         only in connection with the transfer of the Common Shares;

             (b) After the Distribution Date, the Right Certificates are
         transferable only on the registry books of the Rights Agent if
         surrendered at the principal office of the Rights Agent designated for
         such purpose, duly endorsed or accompanied by a proper instrument of
         transfer;

             (c) The Company and the Rights Agent may deem and treat the person
         in whose name the Right Certificate (or, prior to the Distribution
         Date, the associated Common Share certificate) is registered as the
         absolute owner thereof and of the Rights evidenced thereby
         (notwithstanding any notations of ownership or writing on the Right
         Certificate or the associated Common Share certificate made by anyone
         other than the Company or the Rights Agent) for all purposes
         whatsoever, and neither the Company nor the Rights Agent will be
         affected by any notice to the contrary;

             (d) Such holder expressly waives any right to receive any
         fractional Rights and any fractional securities upon exercise or
         exchange of a Right, except as otherwise provided in SECTION 14.

             (e) Notwithstanding anything in this Agreement to the contrary,
         neither the Company nor the Rights Agent will have any liability to any
         holder of a Right or other Person as a result of its inability to
         perform any of its obligations under this Agreement by reason of any
         preliminary or permanent injunction or other order, decree or ruling
         issued by a court of competent jurisdiction or by a governmental,
         regulatory or

                                       23

<PAGE>   27

         administrative agency or commission, or any statute, rule, regulation
         or executive order promulgated or enacted by any governmental
         authority, prohibiting or otherwise restraining performance of such
         obligation; PROVIDED, HOWEVER, that the Company will use its best
         efforts to have any such order, decree or ruling lifted or otherwise
         overturned as soon as possible.

         17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder, as
such, of any Right Certificate will be entitled to vote, receive dividends, or
be deemed for any purpose the holder of Preferred Shares or any other securities
of the Company which may at any time be issuable upon the exercise of the Rights
represented thereby, nor will anything contained herein or in any Right
Certificate be construed to confer upon the holder of any Right Certificate, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of Directors or upon any matter submitted to stockholders at any
meeting thereof, 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), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by such Right Certificate shall
have been exercised in accordance with the provisions of this Agreement or
exchanged pursuant to the provisions of SECTION 24.

         18. CONCERNING THE RIGHTS AGENT. (a) The Company will 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 other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company will also indemnify the Rights Agent for, and hold it
harmless against, any loss, liability, suit, action, proceeding or expense,
incurred without negligence, bad faith, or willful misconduct on the part of the
Rights Agent, for anything done or omitted to be done 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 indemnity provided for herein shall
survive the expiration of the Rights, the termination of this Agreement, and the
resignation or removal of the Rights Agent. The costs and expenses of enforcing
this right of indemnification shall also be paid by the Company.

         (b) The Rights Agent may conclusively rely upon and will be protected
and will incur no liability for or in respect of any action taken, suffered, or
omitted by it in connection with its administration of this Agreement in
reliance upon any Right Certificate or certificate evidencing Preferred Shares
or Common Shares or 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. Notwithstanding anything in this
Agreement to the contrary, in no event shall the Rights Agent be liable for
special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Rights Agent has been
advised of the likelihood of such loss or damage and regardless of the form of
the action.

         19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT. (a) Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to

                                       24

<PAGE>   28

which the Rights Agent or any successor Rights Agent is a party, or any
corporation succeeding to the stock transfer business of the Rights Agent or any
successor Rights Agent, will be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto, provided that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
SECTION 21. If at the time such successor Rights Agent succeeds to the agency
created by this Agreement any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and if at that time any of the Right Certificates
shall not have been countersigned, any successor Rights Agent may countersign
such Right Certificates either in the name of the predecessor Rights Agent or in
the name of the successor Rights Agent; and in all such cases such Right
Certificates will have the full force provided in the Right Certificates and in
this Agreement.

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

         20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions
(and no implied duties or obligations, except the duty of good faith, shall be
read into this Agreement against the Rights Agent), by all of which the Company
and the holders of Right Certificates, by their acceptance thereof, will be
bound:

             (a) Before the Rights Agent acts or refrains from acting, the
         Rights Agent may consult with legal counsel (who may be legal counsel
         for the Company), and the opinion of such counsel will 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 deems it necessary or desirable that any fact or
         matter be proved or established by the Company prior to taking or
         suffering any action hereunder, such fact or matter (unless other
         evidence in respect thereof be herein specifically prescribed) may be
         deemed to be conclusively proved and established by a certificate
         signed by any one of the Chairman of the Board, the President, any Vice
         President, the Secretary or the Treasurer of the Company and delivered
         to the Rights Agent, and such certificate will 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 will be liable hereunder only for its own
         negligence, bad faith or willful misconduct.

                                       25

<PAGE>   29

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

             (e) The Rights Agent will not be under any responsibility in
         respect of the validity of this Agreement or the execution and delivery
         hereof (except the due execution and delivery hereof by the Rights
         Agent) or in respect of the validity or execution of any Right
         Certificate (except its countersignature thereof); nor will it be
         responsible for any breach by the Company of any covenant contained in
         this Agreement or in any Right Certificate; nor will it be responsible
         for any adjustment required under the provisions of SECTIONS 11 or 13
         (including any adjustment which results in Rights becoming void) 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
         Right Certificates after actual notice of any such adjustment); nor
         will it by any act hereunder be deemed to make any representation or
         warranty as to the authorization or reservation of any shares of stock
         or other securities to be issued pursuant to this Agreement or any
         Right Certificate or as to whether any shares of stock or other
         securities will, when issued, be duly authorized, validly issued, fully
         paid and nonassessable.

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

             (g) The Rights Agent is hereby authorized and directed to accept
         instructions with respect to the performance of its duties hereunder
         from any person believed in good faith by the Rights Agent to be one of
         the Chairman of the Board, the President, any Vice President, the
         Secretary or the Treasurer of the Company. Furthermore, the Rights
         Agent may apply to such officers for advice or instructions in
         connection with its duties, which application may, at the option of the
         Rights Agent, set forth in writing any action proposed to be taken or
         omitted by the Rights Agent under this Agreement. The Rights Agent will
         not be liable for any action taken or suffered to be taken by it in
         good faith in accordance with instructions of any such officer or for
         any delay in acting while waiting for such instructions.

             (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
         will preclude the Rights Agent from acting in any other capacity for
         the Company or for any other Person.

             (i) The Rights Agent may execute and exercise any of the rights or
         powers hereby vested in it or perform any duty hereunder either itself
         or by or through its attorneys or agents, and the Rights Agent will not
         be answerable or accountable for any

                                       26

<PAGE>   30

         act, default, neglect or misconduct of any such attorneys or agents or
         for any loss to the Company resulting from any such act, default,
         neglect or misconduct, provided reasonable care was exercised in the
         selection and continued employment thereof. The Rights Agent will not
         be under any duty or responsibility to ensure compliance with any
         applicable federal or state securities laws in connection with the
         issuance, transfer or exchange of Right Certificates.

             (j) If, with respect to any Right Certificate surrendered to the
         Rights Agent for exercise, transfer, split up, combination or exchange,
         either (i) the certificate attached to the form of assignment or form
         of election to purchase, as the case may be, has either not been
         completed or indicates an affirmative response to clause 1 or 2
         thereof, or (ii) any other actual or suspected irregularity exists, the
         Rights Agent will not take any further action with respect to such
         requested exercise, transfer, split up, combination or exchange without
         first consulting with the Company, and will thereafter take further
         action with respect thereto only in accordance with the Company's
         written instructions.

             (k) 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.

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

         21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Agreement upon 30
calendar days' notice in writing mailed to the Company and to each transfer
agent of the Preferred Shares or the Common Shares by registered or certified
mail, and, at the expense of the Company, to the holders of the Right
Certificates by first class mail. The Company may remove the Rights Agent or any
successor Rights Agent upon 30 calendar 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 Preferred Shares and the Common Shares by registered or certified
mail, and, to the holders of the Right Certificates by first class mail. If the
Rights Agent resigns or is removed or otherwise becomes incapable of acting, the
Company will appoint a successor to the Rights Agent. If the Company fails to
make such appointment within a period of 30 calendar days after giving notice of
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (who will, with such notice, submit his Right Certificate for
inspection by the Company), then the registered holder of any Right 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, will be a corporation or other legal entity organized and doing
business under the laws of the United States or of any state of the United
States, which is in good standing and is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision

                                       27

<PAGE>   31

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 $10
million. After appointment, the successor Rights Agent will 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 will 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 will file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Preferred
Shares or the Common Shares, and mail a notice thereof in writing to the
registered holders of the Right Certificates. Failure to give any notice
provided for in this SECTION 21, however, or any defect therein, will 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.

         22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Right 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 of securities issuable upon
exercise of the Rights made in accordance with the provisions of this Agreement.
In addition, in connection with the issuance or sale by the Company of Common
Shares following the Distribution Date and prior to the Expiration Date, the
Company (a) will, with respect to Common Shares so issued or sold pursuant to
the exercise, exchange or conversion of securities (other than Rights) issued
prior to the Distribution Date which are exercisable or exchangeable for, or
convertible into Common Shares, and (b) may, in any other case, if deemed
necessary, appropriate or desirable by the Board of Directors of the Company,
issue Right Certificates representing an equivalent number of Rights as would
have been issued in respect of such Common Shares if they had been issued or
sold prior to the Distribution Date, as appropriately adjusted as provided
herein as if they had been so issued or sold; PROVIDED, HOWEVER, that (i) no
such Right Certificate will be issued if, and to the extent that, in its good
faith judgment the Board of Directors of the Company determines that the
issuance of such Right Certificate could have a material adverse tax consequence
to the Company or to the Person to whom or which such Right Certificate
otherwise would be issued and (ii) no such Right Certificate will be issued if,
and to the extent that, appropriate adjustment otherwise has been made in lieu
of the issuance thereof.

         23. REDEMPTION. (a) Prior to the Expiration Date, the Board of
Directors of the Company may, at its option, redeem all but not less than all of
the then-outstanding Rights at the Redemption Price at any time prior to the
Close of Business on the later of (i) the Distribution Date and (ii) Share
Acquisition Date. Any such redemption will be effective immediately upon the
action of the Board of Directors of the Company ordering the same, unless such
action of the Board of Directors of the Company expressly provides that such
redemption will be effective at a subsequent time or upon the occurrence or
nonoccurrence of one or more specified events (in which case such redemption
will be effective in accordance with the provisions of such action of the Board
of Directors of the Company).

         (b) Immediately upon the effectiveness of the redemption of the Rights
as provided in SECTION 23(a), 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 will be to receive the

                                       28

<PAGE>   32

Redemption Price, without interest thereon. Promptly after the effectiveness of
the redemption of the Rights as provided in SECTION 23(a), the Company will
publicly announce such redemption and, within 10 calendar days thereafter, will
give notice of such redemption to the holders of the then-outstanding Rights by
mailing such notice to all such holders at their last addresses as they appear
upon the registry books of the Company; PROVIDED, HOWEVER, that the failure to
give, or any defect in, any such notice will not affect the validity of the
redemption of the Rights. Any notice that is mailed in the manner herein
provided will be deemed given, whether or not the holder receives the notice.
The notice of redemption mailed to the holders of Rights will state the method
by which the payment of the Redemption Price will be made. The Company may, at
its option, pay the Redemption Price in cash, Common Shares (based upon the
current per share market price of the Common Shares (determined pursuant to
SECTION 11(d)) at the time of redemption), or any other form of consideration
deemed appropriate by the Board of Directors of the Company (based upon the fair
market value of such other consideration, determined by the Board of Directors
of the Company in good faith) or any combination thereof. The Company may, at
its option, combine the payment of the Redemption Price with any other payment
being made concurrently to holders of Common Shares and, to the extent that any
such other payment is discretionary, may reduce the amount thereof on account of
the concurrent payment of the Redemption Price. If legal or contractual
restrictions prevent the Company from paying the Redemption Price (in the form
of consideration deemed appropriate by the Board of Directors) at the time of
redemption, the Company will pay the Redemption Price, without interest,
promptly after such time as the Company ceases to be so prevented from paying
the Redemption Price.

         24. EXCHANGE. (a) The Board of Directors of the Company may, at its
option, at any time after the later of the Share Acquisition Date and the
Distribution Date, exchange all or part of the then-outstanding and exercisable
Rights (which will not include Rights that have become void pursuant to the
provisions of SECTION 11(a)(ii)) for Common Shares at an exchange ratio of one
Common Share per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the Record Date (such exchange
ratio being hereinafter referred to as the "EXCHANGE RATIO"). Any such exchange
will be effective immediately upon the action of the Board of Directors of the
Company ordering the same, unless such action of the Board of Directors of the
Company expressly provides that such exchange will be effective at a subsequent
time or upon the occurrence or nonoccurrence of one or more specified events (in
which case such exchange will be effective in accordance with the provisions of
such action of the Board of Directors of the Company). Notwithstanding the
foregoing, the Board of Directors of the Company will not be empowered to effect
such exchange at any time after any Person (other than the Company or any
Related Person), who or which, together with all Affiliates and Associates of
such Person, becomes the Beneficial Owner of 50% or more of the then-outstanding
Common Shares.

         (b) Immediately upon the effectiveness of the exchange of any Rights as
provided in SECTION 24(a), and without any further action and without any
notice, the right to exercise such Rights will terminate and the only right with
respect to such Rights thereafter of the holder of such Rights will be to
receive that number of Common Shares equal to the number of such Rights held by
such holder multiplied by the Exchange Ratio. Promptly after the effectiveness
of the exchange of any Rights as provided in SECTION 24(a), the Company will
publicly announce such exchange and, within 10 calendar days thereafter, will
give notice of such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent; PROVIDED,
HOWEVER, that the failure to give, or any defect in, such notice will not

                                       29

<PAGE>   33

affect the validity of such exchange. Any notice that is mailed in the manner
herein provided will be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the Common Shares for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange will be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of SECTION 11(A)(II))
held by each holder of Rights.

         (c) In any exchange pursuant to this SECTION 24, the Company, at its
option, may substitute for any Common Share exchangeable for a Right (i)
equivalent common shares (as such term is used in SECTION 11(a)(iii)), (ii)
cash, (iii) debt securities of the Company, (iv) other assets, or (v) any
combination of the foregoing, in any event having an aggregate value, as
determined in good faith by the Board of Directors of the Company (whose
determination will be described in a statement filed with the Rights Agent),
equal to the current market value of one Common Share (determined pursuant to
SECTION 11(d)) on the Trading Day immediately preceding the date of the
effectiveness of the exchange pursuant to this SECTION 24.

         25. NOTICE OF CERTAIN EVENTS. (a) If, after the Distribution Date, the
Company proposes (i) to pay any dividend payable in stock of any class to the
holders of Preferred Shares or to make any other distribution to the holders of
Preferred Shares (other than a regular periodic cash dividend), (ii) to offer to
the holders of Preferred Shares rights, options or warrants to subscribe for or
to purchase any additional Preferred Shares or shares of stock of any class or
any other securities, rights or options, (iii) to effect any reclassification of
its Preferred Shares (other than a reclassification involving only the
subdivision of outstanding Preferred Shares), (iv) 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 assets or earning power (including, without limitation,
securities creating any obligation on the part of the Company and/or any of its
Subsidiaries) representing more than 50% of the assets and earning power of the
Company and its Subsidiaries, taken as a whole, to any other Person or Persons
other than the Company or one or more of its wholly owned Subsidiaries, (v) to
effect the liquidation, dissolution or winding up of the Company, or (vi) to
declare or pay any dividend on the Common Shares payable in Common Shares or to
effect a subdivision, combination or reclassification of the Common Shares then,
in each such case, the Company will give to each holder of a Right Certificate,
to the extent feasible and in accordance with SECTION 26, a notice of such
proposed action, which specifies the record date for the purposes of such stock
dividend, distribution or offering of rights, options 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 Common Shares and/or Preferred
Shares, if any such date is to be fixed, and such notice will be so given, in
the case of any action covered by clause (i) or (ii) above, at least 10 calendar
days prior to the record date for determining holders of the Preferred Shares
for purposes of such action, and, in the case of any such other action, at least
10 calendar days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of the Common Shares and/or
Preferred Shares, whichever is the earlier.

         (b) In case any Triggering Event occurs, then, in any such case, the
Company will as soon as practicable thereafter give to the Rights Agent and each
holder of a Right Certificate, in

                                       30

<PAGE>   34

accordance with SECTION 26, a notice of the occurrence of such event, which
specifies the event and the consequences of the event to holders of Rights.

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

                           Penton Media, Inc.
                           1100 Superior Avenue
                           Cleveland, Ohio 44114
                           Attention: Preston L. Vice

         (b) Subject to the provisions of SECTION 21 hereof, any notice or
demand authorized by this Agreement to be given or made by the Company or by the
holder of any Right Certificate to or on the Rights Agent will be sufficiently
given or made if sent by first-class mail, postage prepaid, and the Rights Agent
recommends that any notice or demand authorized by this Agreement to be given or
made by any holder of a Right Certificate or the Company on the Rights Agent
shall be sent or given by registered or certified mail, and shall be deemed
given or made on receipt. The holders of Rights Certificates and the Company
agree to assume the risk of giving notice or demand on the Rights Agent if given
by any other means. Any such notice or demand shall be addressed (until another
address is filed in writing with the Company) as follows:

                           Harris Trust and Savings Bank
                           600 Superior Avenue
                           Suite 600
                           Cleveland, Ohio  44114
                           Attention: Michael J. Lang

         (c) Notices or demands authorized by this Agreement to be given or made
by the Company or the Rights Agent to the holder of any Right Certificate (or,
if prior the Distribution Date, to the holder of any certificate evidencing
Common Shares) will 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. Prior to the time at which the Rights
cease to be redeemable pursuant to SECTION 23, and subject to the last two
sentences of this SECTION 27, the Company may in its sole and absolute
discretion, and the Rights Agent will if the Company so directs and at the
expense of the Company, supplement or amend any provision of this Agreement in
any respect without the approval of any holders of Rights or Common Shares. From
and after the time at which the Rights cease to be redeemable pursuant to
SECTION 23, and subject to the last sentence of this SECTION 27, the Company
may, and the Rights Agent will if the Company so directs, supplement or amend
this Agreement without the approval of any holders of Rights or Common Shares in
order (i) to cure any ambiguity, (ii) to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provisions herein, (iii) to shorten or lengthen any time period hereunder, or
(iv) to supplement or amend the

                                       31

<PAGE>   35

provisions hereunder in any manner which the Company may deem desirable;
provided that no such supplement or amendment shall adversely affect the
interests of the holders of Rights as such (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person), and no such supplement or
amendment shall cause the Rights again to become redeemable or cause this
Agreement again to become supplementable or amendable otherwise than in
accordance with the provisions of this sentence. Without limiting the generality
or effect of the foregoing, this Agreement may be supplemented or amended to
provide for such voting powers for the Rights and such procedures for the
exercise thereof, if any, as the Board of Directors of the Company may determine
to be appropriate. Upon the delivery of a certificate from an 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 will execute such supplement
or amendment; PROVIDED, HOWEVER, that the failure or refusal of the Rights Agent
to execute such supplement or amendment will not affect the validity of any
supplement or amendment adopted by the Board of Directors of the Company, any of
which will be effective in accordance with the terms thereof. Notwithstanding
anything in this Agreement to the contrary, no supplement or amendment may be
made which decreases the stated Redemption Price to an amount less than $0.01
per Right. Notwithstanding anything in this Agreement to the contrary, no
supplement or amendment that changes the rights and duties of the Rights Agent
under this Agreement will be effective against the Rights Agent without the
execution of such supplement or amendment by the Rights Agent.

         28. SUCCESSORS; CERTAIN COVENANTS. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent will be
binding on and inure to the benefit of their respective successors and assigns
hereunder.

         29. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement will be
construed to give to any Person other than the Company, the Rights Agent, and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares) any legal or equitable right, remedy or claim under
this Agreement. This Agreement will be for the sole and exclusive benefit of the
Company, the Rights Agent, and the registered holders of the Right Certificates
(or prior to the Distribution Date, the Common Shares).

         30. GOVERNING LAW. This Agreement, each Right and each Right
Certificate issued hereunder will be deemed to be a contract made under the
internal substantive laws of the State of Delaware and for all purposes will be
governed by and construed in accordance with the internal substantive laws of
such State applicable to contracts to be made and performed entirely within such
State.

         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 will remain in full force and
effect and will in no way be affected, impaired or invalidated; PROVIDED,
HOWEVER, that nothing contained in this SECTION 31 will affect the ability of
the Company under the provisions of SECTION 27 to supplement or amend this
Agreement to replace such invalid, void or unenforceable term, provision,
covenant or restriction with a legal, valid and enforceable term, provision,
covenant or restriction.

         32. DESCRIPTIVE HEADINGS, ETC. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and will not
control or affect the meaning or

                                       32

<PAGE>   36

construction of any of the provisions hereof. Unless otherwise expressly
provided, references herein to Articles, Sections and Exhibits are to Articles,
Sections and Exhibits of or to this Agreement.

         33. DETERMINATIONS AND ACTIONS BY THE BOARD. For all purposes of this
Agreement, any calculation of the number of Common Shares outstanding at any
particular time, including for purposes of determining the particular percentage
of such outstanding Common Shares of which any Person is the Beneficial Owner,
will be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the
General Rules and Regulations under the Exchange Act. The Board of Directors of
the Company will have the exclusive power and authority to administer this
Agreement and to exercise all rights and powers specifically granted to the
Board of Directors of the Company 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 any determination as to whether particular Rights
shall have become void). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, any omission with
respect to any of the foregoing) which are done or made by the Board of
Directors of the Company in good faith will (x) be final, conclusive and binding
on the Company, the Rights Agent, the holders of the Rights and all other
parties and (y) not subject the Board of Directors of the Company to any
liability to any Person, including without limitation the Rights Agent and the
holders of the Rights.

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

                         [SIGNATURES ON FOLLOWING PAGE]

                                       33

<PAGE>   37

         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.

                                      PENTON MEDIA, INC.

                                      By:  /s/  Thomas L. Kemp
                                           ----------------------------------
                                      Name:    Thomas L. Kemp
                                      Title:   Chief Executive Officer

                                      HARRIS TRUST AND SAVINGS BANK, as
                                      Rights Agent

                                      By:  /s/  Michael J. Lang
                                           ----------------------------------
                                      Name: Michael J. Lang
                                      Title:   Vice President, Group Leader

                                       34

<PAGE>   38

                                                                       EXHIBIT A

                           CERTIFICATE OF DESIGNATION
                                       of
                          SERIES A JUNIOR PARTICIPATING
                                 PREFERRED STOCK
                                       of
                               PENTON MEDIA, INC.

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

         Penton Media, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "COMPANY"), DOES HEREBY
CERTIFY:

         That, pursuant to authority vested in the Board of Directors of the
Company by its Amended and Restated Certificate of Incorporation, and pursuant
to the provisions of Section 151 of the General Corporation Law, the Board of
Directors of the Company has adopted the following resolution providing for the
issuance of a series of Preferred Stock:

         RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Company (the "BOARD OF DIRECTORS" or the
"BOARD") by the Amended and Restated Certificate of Incorporation of the
Company, a series of Preferred Stock, par value $0.01 per share (the "PREFERRED
STOCK"), of the Company be, and it hereby is, created, and that the designation
and amount thereof and the powers, designations, 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:

                            I. Designation and Amount
                               ----------------------

         The shares of such series will be designated as Series A Junior
Participating Preferred Stock (the "SERIES A PREFERRED") and the number of
shares constituting the Series A Preferred is 600,000. Such number of shares may
be increased or decreased by resolution of the Board; PROVIDED, HOWEVER, that no
decrease will reduce the number of shares of Series A Preferred to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Company
convertible into Series A Preferred.

                         II. Dividends and Distributions
                             ---------------------------

         (a) Subject to the rights of the holders of any shares of any series of
Preferred Stock ranking prior to the Series A Preferred with respect to
dividends, the holders of shares of Series A Preferred, in preference to the
holders of Common Stock, par value $0.01 per share (the "COMMON STOCK"), of the
Company, and of any other junior stock, will be entitled to receive, when, as
and if declared by the Board out of funds legally available for the purpose,
dividends payable in cash (except as otherwise provided below) on such dates as
are from time to time

                                       A-1

<PAGE>   39

established for the payment of dividends on the Common Stock (each such date
being referred to herein as a "DIVIDEND PAYMENT DATE"), commencing on the first
Dividend Payment Date after the first issuance of a share or fraction of a share
of Series A Preferred (the "FIRST DIVIDEND PAYMENT DATE"), in an amount per
share (rounded to the nearest cent) equal to the greater of (i) $1.00 or (ii)
subject to the provision for adjustment hereinafter set forth, one hundred times
the aggregate per share amount of all cash dividends, and one hundred times the
aggregate per share amount (payable in kind) of all non-cash dividends, 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 Dividend Payment Date or,
with respect to the First Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred. In the event that the
Company at any time (i) declares a dividend on the outstanding shares of Common
Stock payable in shares of Common Stock, (ii) subdivides the outstanding shares
of Common Stock, (iii) combines the outstanding shares of Common Stock into a
smaller number of shares, or (iv) issues any shares of its capital stock in a
reclassification of the outstanding shares of Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), then, in each such case and
regardless of whether any shares of Series A Preferred are then issued or
outstanding, the amount to which holders of shares of Series A Preferred would
otherwise be entitled immediately prior to such event under clause (ii) of the
preceding sentence will 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 Company will declare a dividend on the Series A Preferred as
provided in the immediately preceding paragraph immediately after it declares a
dividend on the Common Stock (other than a dividend payable in shares of Common
Stock). Each such dividend on the Series A Preferred will be payable immediately
prior to the time at which the related dividend on the Common Stock is payable.

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

                                       A-2

<PAGE>   40

                               III. Voting Rights
                                    -------------

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

                  (a) Subject to the provision for adjustment hereinafter set
         forth, each share of Series A Preferred will entitle the holder thereof
         to one hundred votes on all matters submitted to a vote of the
         stockholders of the Company. In the event the Company at any time (i)
         declares a dividend on the outstanding shares of Common Stock payable
         in shares of Common Stock, (ii) subdivides the outstanding shares of
         Common Stock, (iii) combines the outstanding shares of Common Stock
         into a smaller number of shares, or (iv) issues any shares of its
         capital stock in a reclassification of the outstanding shares of Common
         Stock (including any such reclassification in connection with a
         consolidation or merger in which the Company is the continuing or
         surviving corporation), then, in each such case and regardless of
         whether any shares of Series A Preferred are then issued or
         outstanding, the number of votes per share to which holders of shares
         of Series A Preferred would otherwise be entitled immediately prior to
         such event will be adjusted by multiplying such number by a fraction,
         the numerator of which is the number of shares of Common Stock
         outstanding immediately after such event and the denominator of which
         is the number of shares of Common Stock that were outstanding
         immediately prior to such event.

                  (b) Except as otherwise provided herein, in any other
         Preferred Stock Designation creating a series of Preferred Stock or any
         similar stock, or by law, the holders of shares of Series A Preferred
         and the holders of shares of Common Stock and any other capital stock
         of the Company having general voting rights will vote together as one
         class on all matters submitted to a vote of stockholders of the
         Company.

                  (c) Except as set forth in the Amended and Restated
         Certificate of Incorporation or herein, or as otherwise provided by
         law, holders of shares of Series A Preferred will have no voting
         rights.

                            IV. Certain Restrictions
                                --------------------

         (a) Whenever dividends or other dividends or distributions payable on
the Series A Preferred are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of Series
A Preferred outstanding have been paid in full, the Company will not:

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

                    (ii) Declare or pay dividends, or make any other
         distributions, on any shares of stock ranking on a parity (either as to
         dividends or upon liquidation, dissolution or winding up) with the
         shares of Series A Preferred, except dividends paid ratably on the
         shares of Series A Preferred 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;

                                       A-3

<PAGE>   41

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

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

         (b) The Company will not permit any majority-owned subsidiary of the
Company to purchase or otherwise acquire for consideration any shares of stock
of the Company unless the Company could, under paragraph (a) of this Article IV,
purchase or otherwise acquire such shares at such time and in such manner.

                              V. Reacquired Shares
                                 -----------------

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

                   VI. Liquidation, Dissolution or Winding Up
                       --------------------------------------

         Upon any liquidation, dissolution or winding up of the Company, no
distribution will be made (a) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
shares of Series A Preferred unless, prior thereto, the holders of shares of
Series A Preferred have received $100 per share, plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment; PROVIDED, HOWEVER, that the holders of shares of Series A
Preferred will be entitled to receive an aggregate amount per share, subject to
the provision for adjustment hereinafter set forth, equal to one hundred times
the aggregate amount to be distributed per share to holders of shares of Common
Stock or (b) to the holders of shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the shares of
Series A Preferred, except distributions made ratably on the shares of Series A
Preferred and all such parity stock in proportion to the total amounts to which
the holders of all such shares are entitled upon such liquidation, dissolution
or winding up. In the event the Company at any time (i) declares a dividend on
the outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivides the outstanding shares of Common Stock, (iii) combines the
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues any shares of its capital stock in a

                                       A-4

<PAGE>   42

reclassification of the outstanding shares of Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), then, in each such case and
regardless of whether any shares of Series A Preferred are then issued or
outstanding, the aggregate amount to which each holder of shares of Series A
Preferred would otherwise be entitled immediately prior to such event under the
proviso in clause (a) of the preceding sentence will 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.

                        VII. Consolidation, Merger, Etc.
                             ---------------------------

         In the event that the Company enters 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 each such case, each share of Series A Preferred will at the
same time be similarly exchanged for or changed into an amount per share,
subject to the provision for adjustment hereinafter set forth, equal to one
hundred 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 Company at any
time (a) declares a dividend on the outstanding shares of Common Stock payable
in shares of Common Stock, (b) subdivides the outstanding shares of Common
Stock, (c) combines the outstanding shares of Common Stock in a smaller number
of shares, or (d) issues any shares of its capital stock in a reclassification
of the outstanding shares of Common Stock (including any such reclassification
in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation), then, in each such case and regardless of
whether any shares of Series A Preferred are then issued or outstanding, the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred will 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.

                                VIII. Redemption
                                      ----------

         The shares of Series A Preferred are not redeemable.

                                    IX. Rank
                                        ----

         The Series A Preferred rank, with respect to the payment of dividends
and the distribution of assets, junior to all other series of the Company's
Preferred Stock.

                                  X. Amendment
                                     ---------

         Notwithstanding anything contained in the Amended and Restated
Certificate of Incorporation of the Company to the contrary and in addition to
any other vote required by applicable law, the Amended and Restated Certificate
of Incorporation of the Company may not be amended in any manner that would
materially alter or change the powers, preferences or special rights of the
Series A Preferred so as to affect them adversely without the affirmative vote

                                       A-5

<PAGE>   43

of the holders of at least 80% of the outstanding shares of Series A Preferred,
voting together as a single series.

         IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Company by its [____________] and attested by its [____________]
this 9th day of June, 2000.

                                         PENTON MEDIA, INC.

                                         -------------------------------------
                                         Name:
                                         Title:

Attest:

------------------------------------
Name:
Title:

                                       A-6

<PAGE>   44

                                                                       EXHIBIT B
                                                                       ---------

                            FORM OF RIGHT CERTIFICATE

Certificate No. R-                                             __________ Rights

NOT EXERCISABLE AFTER JUNE 27, 2010 (SUBJECT TO POSSIBLE EXTENSION AT THE OPTION
OF THE COMPANY) OR EARLIER IF REDEEMED, EXCHANGED OR AMENDED. THE RIGHTS ARE
SUBJECT TO REDEMPTION, EXCHANGE AND AMENDMENT AT THE OPTION OF THE COMPANY, ON
THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES
SPECIFIED IN THE RIGHTS AGREEMENT, RIGHTS THAT ARE OR WERE BENEFICIALLY OWNED BY
AN ACQUIRING PERSON OR AN AFFILIATE OR AN ASSOCIATE OF AN ACQUIRING PERSON (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR A TRANSFEREE THEREOF MAY
BECOME NULL AND VOID.

                                Right Certificate

                               PENTON MEDIA, INC.

         This certifies that _______________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions, and conditions of the
Rights Agreement, dated as of June 9, 2000 (the "RIGHTS AGREEMENT"), between
Penton Media, Inc., a Delaware corporation (the "COMPANY"), and Harris Trust and
Savings Bank (the "RIGHTS AGENT"), to purchase from the Company at any time
after the Distribution Date (as such term is defined in the Rights Agreement)
and prior to 5:00 P.M. (Eastern time) on the Expiration Date (as such term is
defined in the Rights Agreement) at the principal office or offices of the
Rights Agent designated for such purpose, one one-hundredth of a fully paid
nonassessable share of Series A Junior Participating Preferred Stock, par value
$0.01 per share (the "PREFERRED SHARES"), of the Company, at a purchase price of
[$____] per one one-hundredth of a Preferred Share (the "PURCHASE PRICE"), upon
presentation and surrender of this Right Certificate with the Form of Election
to Purchase and related Certificate duly executed. If this Right Certificate is
exercised in part, the holder will be entitled to receive upon surrender hereof
another Right Certificate or Right Certificates for the number of whole Rights
not exercised. The number of Rights evidenced by this Right Certificate (and the
number of one one-hundredths of a Preferred Share 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 date of the Rights Agreement, based on
the Preferred Shares as constituted at such date.

         As provided in the Rights Agreement, the Purchase Price and/or the
number and/or kind of securities issuable upon the exercise of the Rights
evidenced by this Right Certificate are subject to adjustment upon the
occurrence of certain events.

                                       B-1

<PAGE>   45

         This Right 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 of the Rights Agent,
the Company and the holders of the Right Certificates, which limitations of
rights include the temporary suspension of the exercisability of the Rights
under the circumstances specified in the Rights Agreement. Copies of the Rights
Agreement are on file at the above- mentioned office of the Rights Agent and can
be obtained from the Company without charge upon written request therefor. Terms
used herein with initial capital letters and not defined herein are used herein
with the meanings ascribed thereto in the Rights Agreement.

         Pursuant to the Rights Agreement, from and after the occurrence of a
Flip-in Event, any Rights that are Beneficially Owned by (i) any Acquiring
Person (or any Affiliate or Associate of any Acquiring Person), (ii) a
transferee of any Acquiring Person (or any such Affiliate or Associate) who
becomes a transferee after the occurrence of a Flip-in Event, or (iii) a
transferee of any Acquiring Person (or any such Affiliate or Associate) who
became a transferee prior to or concurrently with the Flip-in Event pursuant to
either (a) a transfer from an Acquiring Person to holders of its equity
securities or to any Person with whom it has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (b) a transfer
which the Board of Directors of the Company has determined is part of a plan,
arrangement or understanding which has the purpose or effect of avoiding certain
provisions of the Rights Agreement, and subsequent transferees of any of such
Persons, will be void without any further action and any holder of such Rights
will thereafter have no rights whatsoever with respect to such Rights under any
provision of the Rights Agreement. From and after the occurrence of a Flip-in
Event, no Right Certificate will be issued that represents Rights that are or
have become void pursuant to the provisions of the Rights Agreement, and any
Right Certificate delivered to the Rights Agent that represents Rights that are
or have become void pursuant to the provisions of the Rights Agreement will be
canceled.

         This Right Certificate, with or without other Right Certificates, may
be transferred, split up, combined or exchanged for another Right Certificate or
Right Certificates entitling the holder to purchase a like number of one
one-hundredths of a Preferred Share (or other securities, as the case may be) as
the Right Certificate or Right Certificates surrendered entitled such holder (or
former holder in the case of a transfer) to purchase, upon presentation and
surrender hereof at the principal office of the Rights Agent designated for such
purpose, with the Form of Assignment (if appropriate) and the related
Certificate duly executed.

         Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may be redeemed by the Company at its option at a redemption
price of $0.01 per Right or may be exchanged in whole or in part. The Rights
Agreement may be supplemented and amended by the Company, as provided therein.

         The Company is not required to issue fractions of Preferred Shares
(other than fractions which are integral multiples of one one-hundredth of a
Preferred Share, which may, at the option of the Company, be evidenced by
depositary receipts) or other securities issuable upon the exercise of any Right
or Rights evidenced hereby. In lieu of issuing such fractional Preferred Shares
or other securities, the Company may make a cash payment, as provided in the
Rights Agreement.

                                       B-2

<PAGE>   46

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

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

                                       B-3

<PAGE>   47

         WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of ________, ____.

[SEAL]

ATTEST:                                  PENTON MEDIA, INC.

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

Countersigned:
HARRIS TRUST AND SAVINGS BANK

By: ----------------------------
    Authorized Signature

                                       B-4

<PAGE>   48

                    Form of Reverse Side of Right Certificate

                               FORM OF ASSIGNMENT
                               ------------------

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

    FOR VALUE RECEIVED, _______________ hereby sells, assigns and transfers unto

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

Dated:
        ----------, ----
                                               ---------------------------------
                                               Signature

Signature Guaranteed:

                                       B-5

<PAGE>   49

                                   CERTIFICATE
                                   -----------

         The undersigned hereby certifies by checking the appropriate boxes
that:

         (1) the Rights evidenced by this Right Certificate [ ] are [ ] are not
being sold, assigned, transferred, split up, combined or exchanged by or on
behalf of a Person who is or was an Acquiring Person or an Affiliate or
Associate of any such 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 Right Certificate from
any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.

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

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

                                       B-6

<PAGE>   50

                          FORM OF ELECTION TO PURCHASE
                          ----------------------------

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

To Penton Media, Inc.:

         The undersigned hereby irrevocably elects to exercise __________ Rights
represented by this Right Certificate to purchase the one one-hundredths of a
Preferred Share or other securities issuable upon the exercise of such Rights
and requests that certificates for such securities be issued in the name of and
delivered to:

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

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

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

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

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

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

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

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

Signature Guaranteed:

                                       B-7

<PAGE>   51

                                   CERTIFICATE
                                   -----------

         The undersigned hereby certifies by checking the appropriate boxes
that:

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

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

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

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

                                     NOTICE

         SIGNATURES ON THE FOREGOING FORM OF ASSIGNMENT AND FORM OF ELECTION TO
PURCHASE AND IN THE RELATED CERTIFICATES MUST CORRESPOND TO THE NAME AS WRITTEN
UPON THE FACE OF THIS RIGHT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.

         SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED MEDALLION SIGNATURE PROGRAM) PURSUANT TO RULE 17AD-15
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

                                       B-8

<PAGE>   52

                                                                       EXHIBIT C
                                                                       ---------

                  SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK

         The Board of Directors (the "BOARD") of Penton Media, Inc. (the
"COMPANY") has declared a dividend distribution of one right (a "RIGHT") for
each outstanding share of Common Stock, par value $0.01 per share (the "COMMON
SHARES"), of the Company. The distribution is payable on June 27, 2000 (the
"RECORD DATE") to the stockholders of record as of the close of business on the
Record Date. Each Right entitles the registered holder thereof to purchase from
the Company one one-hundredth of a share of Series A Junior Participating
Preferred Stock, par value $0.01 per share (the "PREFERRED SHARES"), of the
Company at a price (the "PURCHASE PRICE") of $125.00 per one one-hundredth of a
Preferred Share, subject to adjustment. The description and terms of the Rights
are set forth in a Rights Agreement, dated as of June 9, 2000 (the "RIGHTS
AGREEMENT"), between the Company and Harris Trust and Savings Bank, as Rights
Agent (the "RIGHTS AGENT").

         Under the Rights Agreement, the Rights will be evidenced by the
certificates evidencing Common Shares until the earlier (the "DISTRIBUTION
DATE") of: (i) the close of business on the tenth calendar day following the
first date (the "SHARE ACQUISITION DATE") of public announcement that a person
or group (other than the Company or a subsidiary or employee benefit or stock
ownership plan of the Company or any of its affiliates or associates), together
with its affiliates and associates, has acquired beneficial ownership of 20% or
more of the outstanding Common Shares, or (ii) the close of business on the
tenth business day (or such later date as may be specified by the Board)
following the commencement of a tender offer or exchange offer by a person
(other than the Company, a subsidiary or employee benefit or stock ownership
plan of the Company or any of its affiliates or associates), the consummation of
which would result in beneficial ownership by such person of 20% or more of the
outstanding Common Shares.

         The Rights Agreement provides that, until the Distribution Date, the
Rights may be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption, exchange or expiration of the Rights),
any certificate evidencing Common Shares of the Company issued upon transfer or
new issuance of the Common Shares will contain a notation incorporating the
Rights Agreement by reference. Until the Distribution Date (or earlier
redemption, exchange or expiration of the Rights), the surrender for transfer of
any certificates evidencing Common Shares will also constitute the transfer of
the Rights associated with such certificates. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("RIGHT
CERTIFICATES") will be mailed to holders of record of Common Shares as of the
close of business on the Distribution Date and such separate Right Certificates
alone will evidence the Rights. No Right is exercisable at any time prior to the
Distribution Date. The Rights will expire on the tenth anniversary of the Record
Date (the "FINAL EXPIRATION DATE") unless earlier redeemed, exchanged or amended
by the Company as described below. Until a Right is exercised, the holder
thereof, as such, will have no rights as a stockholder of the Company, including
the right to vote or to receive dividends.

         The Purchase Price payable, and the number of the Preferred Shares or
other securities issuable, upon exercise of the Rights will be subject to
adjustment from time to time to prevent

                                       C-1

<PAGE>   53

dilution (i) in the event of a stock dividend on, or a subdivision, combination
or reclassification of, the Preferred Shares, (ii) upon the grant to holders of
Preferred Shares of certain rights or warrants to subscribe for or purchase the
Preferred Shares at a price, or securities convertible into the Preferred Shares
with a conversion price, less than the then-current market price of the
Preferred Shares, or (iii) upon the distribution to holders of the Preferred
Shares of evidences of indebtedness, cash (excluding regular periodic cash
dividends), assets, stock (excluding dividends payable in the Preferred Shares)
or subscription rights or warrants (other than those referred to above). The
number of outstanding Rights and the number of one one-hundredths of the
Preferred Shares issuable upon exercise of each Right will be subject to
adjustment in the event of a stock dividend on the Common Shares payable in
Common Shares or a subdivision, combination or reclassification of Common Shares
occurring, in any such case, prior to the Distribution Date.

         The Preferred Shares issuable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled, in connection with the
declaration of a dividend on the Common Shares, to a preferential dividend
payment equal to the greater of (i) $1.00 per share and (ii) an amount equal to
100 times the related dividend declared per Common Share. Subject to customary
anti-dilution provisions, in the event of liquidation, the holders of Preferred
Shares will be entitled to a preferential liquidation payment equal to the
greater of (a) $100 per share and (b) an amount equal to 100 times the
liquidation payment made per Common Share. Because of the nature of the
Preferred Shares' dividend, voting and liquidation rights, the value of the one
one-hundredth interest in a Preferred Share purchasable upon exercise of a Right
should approximate the value of one Common Share.

         Rights will be exercisable to purchase Preferred Shares only after the
Distribution Date occurs and prior to the occurrence of a Flip-in Event as
described below. A Distribution Date resulting from the commencement of a tender
offer or exchange offer described in clause (ii) of the second paragraph of this
summary could precede the occurrence of a Flip-in Event and thus result in the
Rights being exercisable to purchase Preferred Shares. A Distribution Date
resulting from any occurrence described in clause (i) of the second paragraph of
this summary would necessarily follow the occurrence of a Flip-in Event and thus
result in the Rights being exercisable to purchase Common Shares or other
securities as described below.

         Under the Rights Agreement, in the event (a "FLIP-IN EVENT") that (i)
any person or group, together with its affiliates and associates, becomes an
Acquiring Person (ii) any Acquiring Person or any affiliate or associate thereof
merges into or combines with the Company and the Company is the surviving
corporation, (iii) any Acquiring Person or any affiliate or associate thereof
effects certain other transactions with the Company, or (iv) during such time as
there is an Acquiring Person the Company effects certain transactions, in each
case as described in the Rights Agreement, then, in each such case, proper
provision will be made so that from and after the latest of the Share
Acquisition Date, the Distribution Date and the date of the occurrence of such
Flip-in Event each holder of a Right, other than Rights that are or were owned
beneficially by an Acquiring Person (which, from and after the date of a Flip-in
Event, will be void), will have the right to receive, upon exercise thereof at
the then-current exercise price of the Right, that number of Common Shares (or,
under certain circumstances, an economically equivalent security or securities
of the Company) that at the time of such Flip-in Event have a market value of
two times the exercise price of the Right.

                                       C-2

<PAGE>   54

         In the event (a "FLIP-OVER EVENT") that, at any time after a person has
become an Acquiring Person, (i) the Company merges with or into any person and
the Company is not the surviving corporation, (ii) any person merges with or
into the Company and the Company is the surviving corporation, but all or part
of the Common Shares are changed or exchanged for stock or other securities of
any other person or cash or any other property, or (iii) 50% or more of the
Company's assets or earning power, including securities creating obligations of
the Company, are sold, in each case as described in the Rights Agreement, then,
and in each such case, proper provision will be made so that from and after the
latest of the Share Acquisition Date, the Distribution Date and the date of the
occurrence of such Flip-over Event, each holder of a Right, other than Rights
which have become void, will 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 (or, under certain circumstances, an economically
equivalent security or securities) of such other person that at the time of such
Flip-over Event have a market value of two times the exercise price of the
Right.

         From and after the later of the Share Acquisition Date and the
Distribution Date, Rights (other than any Rights that have become void) will be
exercisable as described above, upon payment of the aggregate exercise price in
cash. In addition, at any time after the later of the Share Acquisition Date and
the Distribution Date and prior to the acquisition by any person or group of
affiliated or associated persons of 50% or more of the outstanding Common
Shares, the Company may exchange the Rights (other than any rights that have
become void), in whole or in part, at an exchange ratio of one Common Share per
Right (subject to adjustment).

         With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment in the Purchase
Price of at least 1%. The Company will not be required to issue fractional
Preferred Shares (other than fractions that are integral multiples of one
one-hundredth of a Preferred Share, which may, at the option of the Company, be
evidenced by depositary receipts) or fractional Common Shares or other
securities issuable upon the exercise of Rights. In lieu of issuing such
securities, the Company may make a cash payment, as provided in the Rights
Agreement.

         The Company may, at its option, redeem the Rights in whole, but not in
part, at a price of $0.01 per Right, subject to adjustment (the "REDEMPTION
PRICE"), at any time prior to the close of business on the later of the
Distribution Date and the Share Acquisition Date. Immediately upon any
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.

         The Rights Agreement may be amended by the Company without the approval
of any holders of Rights Certificates, including amendments that increase or
decrease the Purchase Price, that add other events requiring adjustment to the
Purchase Price payable and the number of the Preferred Shares or other
securities issuable upon the exercise of the Rights or that modify procedures
relating to the redemption of the Rights, except that no amendment may be made
that decreases the stated Redemption Price to an amount less than $0.01 per
Right.

         The Board will have the exclusive power and authority to administer the
Rights Agreement and to exercise all rights and powers specifically granted to
the Board or to the Company therein, or as may be necessary or advisable in the
administration of the Rights Agreement, including without limitation the right
and power to interpret the provisions of the

                                       C-3

<PAGE>   55

Rights Agreement and to make all determinations deemed necessary or advisable
for the administration of the Rights Agreement (including any determination to
redeem or not redeem the Rights or to amend or not amend the Rights Agreement).
All such actions, calculations, interpretations and determinations (including
any omission with respect to any of the foregoing) which are done or made by the
Board in good faith will be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights and all other parties and will not
subject the Board to any liability to any person, including without limitation
the Rights Agent and the holders of the Rights.

         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 Agreement is available free of charge from the Company.

         This summary description of the Rights is as of the Record Date, does
not purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is incorporated herein by this reference.

                                       C-4

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00010-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00010-of-00352.parquet"}]]