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                                                                     Exhibit 4.2

                         NORTHWEST BIOTHERAPEUTICS, INC.

                          STOCKHOLDER RIGHTS AGREEMENT

     THIS STOCKHOLDER RIGHTS AGREEMENT is dated as of February 26, 2002 (this
"Rights Agreement"), and is between Northwest Biotherapeutics, Inc., a Delaware
corporation ("NWBio") and Mellon Investor Services LLC, a New Jersey limited
liability company, as Rights Agent ("Rights Agent").

     NWBio's Board of Directors has authorized and declared a dividend of one
Right (as hereinafter defined) for each share of Common Stock, $0.001 par
value, of NWBio (the "Common Stock") outstanding at the Close of Business (as
hereinafter defined) on March 4, 2002 (the "Record Date") and has authorized the
issuance of one Right (as such number may hereafter be adjusted pursuant to the
provisions of this Rights Agreement) with respect to each share of Common Stock
that shall become outstanding between the Record Date and the earliest of the
Distribution Date, the Redemption Date or the Expiration Date (as such terms are
hereinafter defined); provided, however, that Rights may be issued with respect
to shares of Common Stock that shall become outstanding after the Distribution
Date and prior to the earlier of the Redemption Date or the Expiration Date in
accordance with the provisions of Section 23. Each Right shall initially
represent the right to purchase one (1) Common Share.

     Accordingly, in consideration of the premises and the mutual agreements set
forth in this Rights Agreement, NWBio and Rights Agent hereby agree as follows:

1.   DEFINITIONS. The following terms, as used herein, have the following
meanings:

     "Acquiring Person" shall mean any Person which, alone or together with all
Affiliates and Associates of such Person, shall become, after the date hereof,
the Beneficial Owner of 15% or more of the Common Shares then outstanding, but
shall not include (a) NWBio, any Subsidiary of NWBio, any employee benefit plan
of NWBio or any of its Subsidiaries, or any Person holding Common Shares for or
pursuant to the terms of any such employee benefit plan or (b) any such Person
who has become such a Beneficial Owner solely because (i) of a change in the
aggregate number of Common Shares outstanding since the last date on which such
Person acquired Beneficial Ownership of any Common Shares or (ii) it acquired
Beneficial Ownership in the good-faith belief that such acquisition would not
(y) cause such Beneficial Ownership to exceed 15% of the Common Shares then
outstanding and such Person relied in good faith in computing the percentage of
its Beneficial Ownership on publicly filed reports or documents of NWBio that
are inaccurate or out-of-date or (z) otherwise cause a Distribution Date or the
adjustment provided for in Section 11(a) to occur. Notwithstanding clause (b) of
the prior sentence, if any Person that is not an Acquiring Person due to such
clause (b) does not reduce its percentage of Beneficial Ownership of Common
Shares to below 15% by the Close of Business on the tenth Business day after
notice from NWBio (the date of notice being the first day) that such Person's
Beneficial Ownership of Common Stock so exceeds 15%, such Person shall, at the
end of such ten Business Day period, become an Acquiring Person (and such clause
(b) shall no

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longer apply to such Person). For purposes of this definition, the determination
of whether any Person acted in "good faith" shall be conclusively determined by
NWBio's Board of Directors.

     "Affiliate" and "Associate" when used with reference to any Person, shall
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
Rights Agreement.

     A Person shall be deemed the "Beneficial Owner" of and shall be deemed to
"beneficially own" and shall be deemed to have "Beneficial Ownership" of, any
securities:

          (a) which such Person or any of such Person's Affiliates or
     Associates, directly or indirectly, has the right to acquire within 60 days
     of such time pursuant to any agreement, arrangement or understanding
     (whether or not in writing), or upon the exercise of conversion rights,
     exchange rights, warrants or options, or otherwise); provided, however,
     that a Person shall not be deemed the "Beneficial Owner" of, or to
     "beneficially own," securities tendered pursuant to a tender 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
     payment or exchange;

          (b) which such Person or any of such Person's Affiliates or
     Associates, directly or indirectly, has the right to vote or dispose of, or
     has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the
     General Rules and Regulations under the Exchange Act), including pursuant
     to any agreement, arrangement or understanding (whether or not in writing);
     provided, however, that a Person shall not be deemed the "Beneficial Owner"
     of, or to "beneficially own," any security under this subparagraph (b) as a
     result of an agreement, arrangement or understanding to vote such security
     (1) arising solely from a revocable proxy or consent given in response to a
     public proxy or consent solicitation made pursuant to, and in accordance
     with, the Exchange Act and the applicable rules and regulations thereunder,
     or (2) made in connection with, or pursuant to, and in accordance with, the
     Exchange Act and the applicable rules and regulations thereunder, or (3)
     made in connection with, or to otherwise participate in, a proxy or consent
     solicitation made, or to be made, pursuant to, and in accordance with, the
     applicable provisions of the Exchange Act and the applicable rules and
     regulations thereunder, whether or not such agreement, arrangement or
     understanding described in clause (1) or (2) above is also then reportable
     by such Person on Schedule 13D under the Exchange Act (or any comparable or
     successor report); or

          (c) which are beneficially owned, directly or indirectly, by any other
     Person (or any Affiliates or Associates thereof) with which such Person or
     any of such Person's Affiliates or Associates has any agreement,
     arrangement or understanding (whether or not in writing) for the purpose of
     acquiring, holding, voting (except pursuant to a revocable proxy as
     described in clause (1) to subparagraph (b) of this definition) or
     disposing of any voting securities of NWBio; provided, however, that
     nothing in this definition shall cause a person engaged in business as an
     underwriter of securities to be the "Beneficial Owner" of, or to
     "beneficially own," any securities acquired through such person's
     participation

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     in good faith in a firm commitment underwriting until the expiration of 40
     days after the date of such acquisition.

     "Book Value," when used with reference to Common Shares issued by any
Person, shall mean the amount of such Person's equity applicable to each Common
Share, determined (a) in accordance with generally accepted accounting
principles in effect on the date as of which such Book Value is to be
determined, (b) using all the consolidated assets and all the consolidated
liabilities of such Person on the date as of which Book Value is to be
determined, except that no value shall be included in such assets for goodwill
arising from consummation of a business combination, and (c) after giving effect
to (i) the exercise of all rights, options and warrants to purchase such Common
Shares (other than the Rights), and the conversion of all securities convertible
into such Common Shares, at an exercise or conversion price, per Common Share,
that is less than such Book Value before giving effect to such exercise or
conversion (whether or not exercisability or convertibility is conditioned upon
the occurrence of a future event), (ii) all dividends and other distributions on
the capital stock of such Person declared prior to the date as of which such
Book Value is to be determined and to be paid or made after such date, and (iii)
any other agreement, arrangement or understanding (written or oral), or
transaction or any other action prior to the date as of which such Book Value is
to be determined that would have the effect of thereafter reducing such Book
Value.

     "Business Combination" shall have the meaning set forth in Section
11(c)(i).

     "Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in Seattle, Washington,
are authorized or obligated by law or executive order to close.

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

     "Common Shares," when used with reference to NWBio prior to a Business
Combination, shall mean the shares of Common Stock of NWBio, $0.001 par value,
or any other shares of capital stock of NWBio into which the Common Stock shall
be reclassified or changed. "Common Shares," when used with reference to any
Person (other than NWBio prior to a Business Combination), shall mean shares of
capital stock of such Person (if such Person is a corporation) of any class or
series, or units of equity interests in such Person (if such Person is not a
corporation) of any class or series, the terms of which do not limit (as a
maximum and not merely in proportional terms) the amount of dividends or income
as payable or distributable on such class or series or the amount of assets
distributable on such class or series upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person and do not provide that
such class or series is subject to redemption at the option of such Person, or
any shares of capital stock or units of equity interests into which the
foregoing shall be reclassified or changed; provided, however, that, if at any
time there shall be more than one such class or series of capital stock or
equity interests of such Person, "Common Shares" of such Person shall include
all such classes and series substantially in the proportion of the total number
of shares or other units of each such class or series outstanding at such time.

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     "Common Stock" shall have the meaning set forth in the introductory
paragraph of this Rights Agreement.

     The term "control" with respect to any person shall mean the power to
direct the management or policies of such Person, directly or indirectly, by or
through stock ownership, agency or otherwise, or pursuant to or in connection
with an agreement, arrangement or understanding (written or oral) with one or
more other Persons by or through stock ownership, agency or otherwise; and the
terms "controlling" and "controlled" shall have meanings correlative to the
foregoing.

     "Director" shall mean a member of the Board of Directors of NWBio, who is
not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or
a nominee or representative of an Acquiring Person or of any such Affiliate or
Associate, while such Person is a member of the Board.

     "Distribution Date" shall have the meaning set forth in Section 3(b).

     "Exchange Act" shall mean the Securities Exchange Act of 1934, as in effect
on the date in question, unless otherwise specifically provided in this Rights
Agreement.

     "Exchange Consideration" shall have the meaning set forth in Section
11(b)(i).

     "Expiration Date" shall have the meaning set forth in Section 7(a).

     "Fully Diluted Basis" shall mean that, for purpose of calculating any
Person's percentage ownership of the Common Stock, except as described below,
all outstanding options or warrants to acquire Common Stock, or securities
convertible or exchangeable into Common Stock, shall be assumed to be exercised,
converted and exchanged into the shares of Common Stock into which they,
pursuant to their terms, may then or thereafter upon the passage of time be
exercised, converted or exchanged. For purposes of determining the aggregate
shares of outstanding Common Stock, unexercised stock options issued to
employees or directors for compensatory purposes pursuant to an employee stock
option or other stock incentive plan approved by a majority of the Directors of
NWBio shall not be deemed to have been exercised except that for purposes of
determining the aggregate shares of Common Stock held by such Person, all such
stock options held by such Person shall be deemed to be exercised.

     "Group" shall mean any Group, as defined by Sections 13(d)(3) and 14(d)(2)
of the Exchange Act.

     "Involuntary Acquisition" shall mean, with respect to any Person, the
purchase or acquisition of beneficial ownership of Common Stock by such Person
as a result of any stock split, dividend, distribution, rights offering by NWBio
or any Subsidiary of NWBio, recapitalization of NWBio, reclassification or other
change in the terms of the Securities held by such Person, adjustment in the
conversion or exchange ratio of any convertible or exchangeable

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security or exercise, conversion or exchange of any option, right, warrant or
convertible or exchangeable security held by such Person.

     "Major Part," when used with reference to the assets of NWBio and its
Subsidiaries as of any date, shall mean assets (a) having a fair market value
aggregating 50% or more of the total fair market value of all the assets of
NWBio and its subsidiaries (taken as a whole) as of the date in question, (b)
accounting for 50% or more of the total value (net of depreciation and
amortization) of all the assets of NWBio and its Subsidiaries (taken as a whole)
as would be shown on a consolidated or combined balance sheet of NWBio and its
Subsidiaries as of the date in question, prepared in accordance with generally
accepted accounting principles then in effect, or (c) accounting for 50% or more
of the total amount of net income or revenues of NWBio and its Subsidiaries
(taken as a whole) as would be shown on a consolidated or combined statement of
income of NWBio and its Subsidiaries for the period of 12 months ending on the
last day of NWBio's monthly accounting period next preceding the date in
question, prepared in accordance with generally accepted accounting principles
then in effect.

     "Market Value," when used with reference to Common Shares on any date,
shall mean the average of the daily closing prices, per share, of such Common
Shares for the period that is the shorter of (a) 30 consecutive Trading Days
immediately prior to the date in question and (b) the number of consecutive
Trading Days beginning on the Trading Day immediately after the date of the
first public announcement of the event requiring a determination of the Market
Value and ending on the Trading Day immediately prior to the record date of such
event; provided, however, that, in the event that the Market Value of such
Common Shares is to be determined in whole or in part during a period following
the announcement by the issuer of such Common Shares of any action of the type
described in Section 12(a) that would require an adjustment thereunder, then,
and in each such case, the Market Value of such Common Shares shall be
appropriately adjusted to reflect the effect of such action on the market price
of such Common Shares. The closing price for each Trading Day shall be the
closing price quoted on the New York Stock Exchange, or, if such securities are
not listed on such exchange, on the principal United States securities exchange
registered under the Exchange Act (or any recognized foreign stock exchange) on
which such securities are listed or, if such securities are not listed on any
exchange, the average of the closing bid and ask quotations with respect to a
share of such securities on the Nasdaq Stock Market or such other system then in
use or, if no such quotations are available, the average of the closing bid and
ask price as furnished by a professional market maker making a market in such
securities selected by NWBio's Board of Directors. If, on any such Trading Day,
no market maker is making a market in such securities, the closing price of such
securities on such Trading Day shall be deemed to be the fair value of such
securities as determined in good faith by NWBio's Board of Directors (whose
determination shall be described in a statement filed with Rights Agent and
shall be binding on Rights Agent, the holders of Rights and all other Persons).

     "NWBio" shall have the meaning set forth in the introductory paragraph of
this Rights Agreement; provided, however, that if there is a Business
Combination, "NWBio" shall have the meaning set forth in Section 11(c)(iii).

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     "Permitted Offer: shall mean (i) a tender offer or an exchange offer for
all outstanding shares of Common Stock at a price and on terms determined by at
least a majority of the Directors who are not officers or employees of NWBio,
after receiving advice from one or more investment banking firms, to be (a) at a
price and on terms that are fair to and in the best interests of NWBio's
stockholders (taking into account all factors that such members of the Board
deem relevant including, without limitation, prices that could reasonably be
achieved if NWBio or its assets were sold in an orderly basis designed to
realize maximum value) and (b) otherwise in the best interests of NWBio and its
stockholders, or (ii) a tender offer or exchange offer resulting in acceptance
by stockholders holding, in the aggregate, 90% or more of the outstanding Common
Stock (other than shares beneficially owned by the Acquiring Person, by its
Affiliate and by officers and directors of NWBio).

     "Person" shall mean an individual, corporation, limited liability company,
partnership, joint venture, association, trust, unincorporated organization or
other entity.

     "Principal Party" shall mean the Surviving Person in a Business
Combination; provided, however, that, if such Surviving Person is a direct or
indirect Subsidiary of any other Person, "Principal Party" shall mean the Person
which is the ultimate parent of such Surviving Person and which is not itself a
Subsidiary of another Person. In the event ultimate control of such Surviving
Person is shared by two or more Persons, "Principal Party" shall mean that
Person which is immediately controlled by such two or more Persons.

     "Purchase Price" with respect to each Right shall mean $19.25, subject to
adjustment as provided herein, and shall be payable in lawful money of the
United States of America. All references herein to the Purchase Price shall mean
the Purchase Price as in effect at the time in question.

     "Record Date" shall have the meaning set forth in the introductory
paragraph of this Rights Agreement.

     "Redemption Date" shall have the meaning set forth in Section 24(a).

     "Redemption Price" with respect to each Right shall mean $0.0001, as such
amount may from time to time be adjusted in accordance with Section 12. All
references in this Rights Agreement to the Redemption Price shall mean the
Redemption Price as in effect at the time in question.

     "Registered Common Shares" shall mean Common Shares that are, as of the
date of consummation of a Business Combination, and have continuously been for
the 12 months immediately preceding such date, registered under Section 12 of
the Exchange Act.

     "Right Certificate" shall mean a certificate evidencing a Right in
substantially the form attached to this Rights Agreement as Exhibit A.

     "Right" shall mean the right to purchase Common Shares (or other
securities) as provided in this Rights Agreement.

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     "Securities Act" shall mean the Securities Act of 1933, as in effect on the
date in question, unless otherwise specifically provided in this Rights
Agreement.

     "Subsidiary" shall mean a Person, at least a majority of the total
outstanding voting power being the power under ordinary circumstances (and not
merely upon the happening of a contingency) to vote in the election of directors
of such Person (if such Person is a corporation) of which is owned, directly or
indirectly, by another Person or by one or more other subsidiaries of such other
Person or by one or more other Subsidiaries of such other Person.

     "Surviving Person" shall mean (a) the Person which is the continuing or
surviving Person in a consolidation or merger specified in Section 11(c)(i)(A)
or 11(c)(i)(B) or (b) the Person to which the Major Part of the assets of NWBio
and its Subsidiaries is sold, leased, exchanged or otherwise transferred or
disposed of in a transaction specified in Section 11(c)(i)(C); provided,
however, that if the Major Part of the assets of the Person and its subsidiaries
is sold, leased, exchanged or otherwise transferred or disposed of in one or
more related transactions specified in Section 11(c)(i)(C) to more than one
Person, the "Surviving Person" in such case shall mean the Person that acquired
assets of NWBio and/or its Subsidiaries with the greatest fair market value in
such transaction or transactions.

     "Trading Day" shall mean a day on which the principal national securities
exchange (or principal recognized foreign stock exchange, as the case may be) on
which any securities or Rights, as the case may be, are listed or admitted to
trading is open for the transaction of business or, if the securities or Rights
in question are not listed or admitted to trading on any national securities
exchange (or recognized foreign stock exchange, as the case may be), a Business
Day.

2.   APPOINTMENT OF RIGHTS AGENT. NWBio hereby appoints Rights Agent to act as
agent for NWBio in accordance with the terms and conditions of this Rights
Agreement, and Rights Agent hereby accepts such appointment. NWBio may from time
to time appoint one or more co-Rights Agents as it may deem necessary or
desirable. In the event NWBio appoints one or more co-Rights Agents, the
respective duties of Rights Agent and any co-Rights Agents shall be as NWBio
shall determine. The Rights Agent shall have no duty to supervise, and in no
event shall be liable for, the acts or omissions of any such co-Rights Agent.

3.   ISSUE OF RIGHTS AND RIGHT CERTIFICATES.

     (a) One Right shall be associated with each Common Share outstanding on the
Record Date, each additional Common Share that shall become outstanding between
the Record Date and the earliest Distribution Date, the Redemption Date and the
Expiration Date, and each additional Common Share with which Rights are issued
after the Distribution Date but prior to the earlier of the Redemption Date and
the Expiration Date as provided in Section 23; provided, however, that if the
number of outstanding Rights are combined into a smaller number of outstanding
Rights pursuant to Section 12(a), the appropriate fractional right determined
pursuant to such Section shall thereafter be associated with each Common Share.

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     (b) Until the earlier of (i) the Close of Business on the tenth Business
Day after the date that NWBio learns that a Person has become an Acquiring
Person and (ii) the Close of Business on such date, if any, as may be designated
by NWBio's Board of Directors following the commencement of, or first public
disclosure of an intent to commence, a tender or exchange offer by any Person
(other than NWBio, any Subsidiary of NWBio, any employee benefit plan of NWBio
or any of its Subsidiaries, or any Person holding Common Shares for or pursuant
to the terms of any such employee benefit plan) for outstanding Common Shares,
if upon consummation of such tender or exchange offer such Person could be the
Beneficial Owner of 15% or more of the outstanding Common Shares (the Close of
Business on the earlier of the dates set forth in (i) and (ii) being the
"Distribution Date"), (y) the Rights will be evidenced by the certificates for
Common Shares registered in the names of the holders thereof and not be separate
Right Certificates and (z) the Rights, including the right to receive Right
Certificates, will be transferable only in connection with the transfer of the
Common Shares. As soon as practicable after the Distribution Date and receipt by
Rights Agent of a list of stockholders of Common Shares, Rights Agent will send,
by first-class, postage-prepaid mail, to each record holder of Common Shares as
of the Distribution Date, at the address of such holder shown on the records of
NWBio, a Right Certificate evidencing one whole Right for each Common Share (or
for the number of Common Shares with which one whole Right is then associated if
the number of Rights per Common Share held by such record holder has been
adjusted in accordance with the provisions of Section 3(a)). If the number of
Rights associated with each Common Share has been adjusted in accordance with
the provisions of Section 3(a), at the time of distributing the Right
Certificates, NWBio may make any necessary and appropriate rounding adjustments
so that Right Certificates representing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Right in accordance with
Section 15(a). As of and after the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.

     (c) With respect to any certificate for Common Shares, until the earliest
of the Distribution Date, the Redemption Date and the Expiration Date, the
Rights associated with the Common Shares represented by any such certificate
shall be evidenced by the certificate alone, the registered holders of the
associated Rights and the surrender for transfer of any such certificate shall
also constitute the transfer of the Rights associated with the Common Shares
represented thereby.

     (d) Certificates issued for Common Shares after the Record Date (including,
without limitation, upon transfer or exchange of outstanding Common Shares), but
prior to the earliest of the Distribution Date, the Redemption Date and the
Expiration Date, shall have printed on, written on or otherwise affixed to them
the following legend:

          This certificate also evidences and entitles the holder hereof to
     certain Rights as set forth in the Northwest Biotherapeutics, Inc.
     Stockholder Rights Agreement dated as of February 26, 2002, as it may be
     amended from time to time (the "Rights Agreement"), between Northwest
     Biotherapeutics, Inc. ("Northwest Biotherapeutics") and Mellon Investor
     Services LLC, as Rights Agent (or between Northwest Biotherapeutics and any
     successor Rights Agent under 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

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     Northwest Biotherapeutics. Under certain circumstances, as set forth in the
     Rights Agreement, such Rights will be evidenced by separate certificates
     and will no longer be evidenced by this certificate. Northwest
     Biotherapeutics will mail to the holder of this certificate a copy of the
     Rights Agreement without charge after receipt of a written request
     therefor. Rights beneficially owned by Acquiring Persons or their
     Affiliates or Associates (as such terms are defined in the Rights
     Agreement) and by any subsequent holder of such Rights are null and void
     and nontransferable.

Notwithstanding the requirements of this paragraph (d), the omission of a legend
shall not affect the enforceability of any part of this Rights Agreement or the
rights of any holder of Rights.

4.   FORM OF RIGHT CERTIFICATES. The Right Certificates (and the form of
election to purchase and form of assignment to be printed on the reverse side
thereof) shall be in substantially the form set forth as Exhibit A and may have
such marks or identification or designation and such legends, summaries or
endorsements printed thereon as NWBio may deem appropriate, which do not affect
the rights, duties or responsibilities of Rights Agent and as are not
inconsistent with the provisions of this Rights Agreement, or as may be required
to comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Sections 7, 11 and 23, the Right Certificates, whenever issued,
shall be dated as of the Distribution Date, and on their face shall entitle the
holders thereof to purchase such number of Common Shares as shall be set forth
therein for the Purchase Price set forth therein.

5.   EXECUTION, COUNTERSIGNATURE AND REGISTRATION.

     (a) The Right Certificates shall be executed on behalf of NWBio by the
Chairman and President, the Chief Financial Officer or an Executive Vice
President of NWBio, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by Rights Agent and shall not be
valid or obligatory for any purpose unless so countersigned. In case any officer
of NWBio who shall have signed any of the Right Certificates shall cease to be
such an officer of NWBio before countersignature by Rights Agent and issuance
and delivery by NWBio, such Right Certificates may nevertheless be countersigned
by Rights Agent and issued and delivered by NWBio with the same force and effect
as though the person who signed the Right Certificate had not ceased to be such
an officer of NWBio; and any Right Certificate may be signed on behalf of NWBio
by any person who, at the actual date of execution of such Right Certificate,
shall be a proper officer of NWBio to sign such Right Certificate, although at
the date of execution of this Rights Agreement any such person was not an
officer of NWBio.

     (b) Following the Distribution Date and receipt by Rights Agent of all
relevant information, Rights Agent will keep or cause to be kept, at its office
designated for such purpose, books for registration and transfer of the Right
Certificates issued under this Rights Agreement. Such books shall show the names
and addresses of the respective holders of the Right Certificates, the number of
Rights evidenced by each Right Certificate, the certificate number of each Right
Certificate and the date of each Right Certificate.

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6.   TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES; LOST,
     STOLEN, DESTROYED OR MUTILATED RIGHT CERTIFICATES; UNCERTIFICATED RIGHTS.

     (a) Subject to the provisions of Sections 7(e) and 15, at any time after
the Distribution Date, and at or prior to the Close of Business on the earlier
of the Redemption Date and the Expiration, any Right Certificate or Right
Certificates may be transferred, spilt-up, combined or exchanged for another
Right Certificate or Right Certificates representing, in the aggregate, the same
number of rights as the Right Certificate or Right Certificates surrendered then
represented. Any registered holder desiring to transfer, split-up, combine or
exchange any Right Certificate shall make such request in writing delivered to
Rights Agent and shall surrender the Right Certificate or Right Certificates to
be transferred, split-up, combined or exchanged at the office of Rights Agent
designated for such purpose; provided, however, that neither Rights Agent nor
NWBio shall be obligated to take any action whatsoever with respect to the
transfer of any Right Certificate surrendered for transfer until the registered
holder shall have completed and signed the Right Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as NWBio shall
reasonably request. Thereupon, Rights Agent shall, subject to the provisions of
Sections 7(e) and 15, countersign and deliver to the Person entitled thereto a
Right Certificate or Right Certificates, as the case may be, so requested. NWBio
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. The Rights Agent shall have no duty or
obligation under this Section unless and until it is satisfied that all such
taxes and/or governmental charges have been paid.

     (b) Upon receipt by NWBio and Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a valid
Right Certificate, and in case of loss, theft or destruction, of indemnity or
security satisfactory to them, and, at NWBio's request, reimbursement to NWBio
and Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to Rights Agent and cancellation of the Right Certificate of like
tenor, NWBio shall deliver such new Right Certificate to Rights Agent for
countersignature and delivery to the registered agent in lieu of the Right
Certificate so lost, destroyed or mutilated.

     (c) Notwithstanding any other provision of this Rights Agreement, NWBio and
Rights Agent may amend this Rights Agreement to provide for uncertificated
Rights in addition to or in place of Rights evidenced by Right Certificates.

7.   EXERCISE OF RIGHTS; EXPIRATION DATE OF RIGHTS.

     (a) Subject to 7(e) and except as otherwise provided in this Rights
Agreement (including Section 11), each Right shall entitle the registered holder
thereof, upon exercise thereof as provided in this Rights Agreement, to purchase
for the Purchase Price, at any time after the Distribution Date and at or prior
to the earlier of (i) the Close of Business on February 25, 2012 (the Close of
Business on such date being the "Expiration Date"), and (ii) the

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<PAGE>

Redemption Date, upon payment of the Purchase Price, one Common Share, subject
to adjustment from time to time as provided in Sections 11 and 12.

     (b) The registered holder of any Right Certificate may exercise the rights
evidenced thereby (except as otherwise provided in this Rights Agreement) in
whole or in part at any time after the Distribution Date, upon surrender of the
Right Certificate, with the form of election to purchase on the reverse side
thereof duly executed, to Rights Agent at the office of Rights Agent designated
for such purpose, together with payment of the Purchase Price for the Common
Shares as to which the Rights are exercised, at or prior to the earlier of (i)
the Expiration Date and (ii) the Redemption Date.

     (c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase duly executed, accompanied by payment of
the Purchase Price for the Common Shares to be purchased together with an amount
equal to any applicable transfer tax, in lawful money of the United States of
America, in cash, certified check or money order payable to the order of NWBio,
equal to the Purchase Price of the Rights the holder elects to exercise, Rights
Agent shall thereupon (i) either (A) promptly request from any transfer agent of
the Common Shares (or make available if Rights Agent is the transfer agent)
certificates for the number of Common Shares to be purchased and NWBio hereby
irrevocably authorizes its transfer agent to comply with all such requests or
(B) if NWBio shall have elected to deposit the Common Shares with a depositary
agent under a depositary arrangement, promptly request from the depositary agent
depositary receipts representing the number of Common Shares to be purchased (in
which case certificates for the Common Shares to be represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and NWBio
will direct the depositary agent to comply with all such requests, (ii) when
appropriate, promptly request from NWBio the amount of cash to be paid in lieu
of the issuance of fractional shares in accordance with Section 15, (iii)
promptly after receipt of such certificates or depositary receipts, cause the
same to be delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder, and (iv) when appropriate, after receipt, promptly deliver such cash to
or upon the order of the registered holder of such Right Certificate.

     (d) In case the registered holder of any Right Certificate shall exercise
fewer than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by Rights
Agent and delivered to the registered holder of such Right Certificate or to his
or her duly authorized assigns, subject to the provisions of Section 6 and
Section 15.

     (e) Notwithstanding anything in this Rights Agreement to the contrary, any
Rights that are at any time beneficially owned by an Acquiring Person or any
Affiliate or Associate of an Acquiring Person shall be null and void and
nontransferable, and any holder of such Right (including any purported
transferee or subsequent holder) shall not have any right to exercise or
transfer any such Right.

     (f) Notwithstanding anything in this Rights Agreement to the contrary,
neither Rights Agent nor NWBio shall be obligated to undertake any action with
respect to a registered holder

                                       11

<PAGE>

of any Right Certificates upon the occurrence of any purported exercise as set
forth in this Section 7, unless such registered holder shall have (i) properly
completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Right Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as NWBio shall reasonably request.

     (g) NWBio may temporarily suspend, for a period of time not to exceed 90
calendar days after the Distribution Date, the exercisability of the Rights in
order to prepare and file a registration statement under the Securities Act, on
an appropriate form, with respect to the Common Shares purchasable upon exercise
of the Rights and permit such registration statement to become effective,
provided, however, that no such suspension shall remain in effect after, and the
Rights shall without any further action by NWBio or any other Person become
exercisable immediately upon, the effectiveness of such registration statement.
Upon any such suspension, NWBio shall issue a public announcement (with prompt
written notice thereof to Rights Agent) stating that the exercisability of the
Rights has been temporarily suspended and shall issue a further public
announcement (with prompt written notice thereof to Rights Agent) at such time
as the suspension is no longer in effect. Notwithstanding any provision in this
Rights Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction if any requisite qualification under the blue sky or securities
laws or such jurisdiction shall not have been obtained or the exercise of the
Rights shall not be permitted under applicable law.

8.   CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Right Certificates
surrendered or presented for the purpose of exercise, transfer, split-up,
combination or exchange shall, and any Right Certificate surrendered or
presented for any purpose that represents Rights that have become null and void
and nontransferable pursuant to Section 7(e) shall, if surrendered or presented
to NWBio or to any of its agents, be delivered to Rights Agent for cancellation
or in canceled form, or if surrendered or presented to Rights Agent, shall be
canceled by it, and no Right Certificates shall be issued in lieu thereof except
as expressly permitted by this Rights Agreement. NWBio shall deliver to Rights
Agent for cancellation and retirement, and Rights Agent shall so cancel and
retire, any Right Certificate purchased or acquired by NWBio. Rights Agent shall
deliver all canceled Right Certificates to NWBio, or shall, at NWBio's written
request, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to NWBio.

9.   RESERVATION AND AVAILABILITY OF COMMON SHARES.

     (a) NWBio covenants and agrees that it will use its best efforts to reserve
that number of authorized and unissued Common Shares that is sufficient to
permit the exercise in full of all outstanding Rights.

     (b) In the event that there shall not be sufficient authorized and unissued
Common Shares to permit the exercise or exchange of Rights in accordance with
Section 11, NWBio covenants and agrees that, at the Distribution Date, it will
use its best efforts to have authorized additional Common Shares for issuance
upon the exercise or exchange of Rights pursuant to Section 11.

                                       12

<PAGE>

     (c) NWBio covenants and agrees that it will take all such action as may be
necessary to ensure that all Common Shares delivered upon exercise or exchange
of Rights shall, at the time of delivery of the certificates for such Common
Shares (subject to the payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and non-assessable shares.

     (d) So long as the Common Shares issuable upon the exercise or exchange of
Rights are to be listed on any national securities exchange or on Nasdaq, NWBio
covenants and agrees to use its best efforts to cause, from and after such time
as the Rights become exercisable or exchangeable, all Common Shares reserved for
such issuance to be listed on such securities exchange or on Nasdaq, upon
official notice of issuance upon such exercise or exchange.

     (e) NWBio further covenants and agrees that it will pay when due and
payable any and all taxes and governmental charges that may be payable in
respect of the issuance and delivery of Right Certificates or of any Common
Shares upon the exercise or exchange of Rights. NWBio shall not, however, be
required to pay any tax or governmental charge that may be payable in respect of
any transfer or delivery of Right Certificates to a Person other than or in
respect of the issuance or delivery of certificates for the Common Shares in a
name other than that of, the registered holder of the Right Certificate
evidencing Rights surrendered for exercise or exchange or to issue or deliver
any certificates for Common Shares upon the exercise or exchange of any Rights
until any such tax shall have been 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 NWBio's satisfaction that no such tax or charge is due.

10.  COMMON SHARES RECORD DATE. Each Person in whose name any certificate for
Common Shares is issued upon the exercise or exchange of Rights shall for all
purposes be deemed to have become the holder of record of the Common Shares
represented thereby on, and such certificate shall be dated, the date on which
any Right Certificate evidencing such Rights was duly surrendered and payment of
any Purchase Price (and any applicable taxes or charges) was made; provided,
however, that if the date of such surrender and payment is a date on which the
Common Share transfer books of NWBio are closed, such Person shall be deemed to
have become the record holder of such shares on, and such certificate shall be
dated, the next succeeding Business Day on which the Common Share transfer books
of NWBio are open.

11.  CERTAIN ADJUSTMENTS IN RIGHTS; EXCHANGE OF RIGHTS FOR SHARES; BUSINESS
     COMBINATIONS.

     (a) Upon a Person becoming an Acquiring Person, unless the event causing
such Person to become an Acquiring Person is a Permitted Offer, or an event
described in Section 11(c), then proper provision shall be made so that each
holder of a Right (except as provided in Section 7(e)) shall thereafter have a
right to receive, upon exercise thereof for the Purchase Price in accordance
with the terms of this Rights Agreement, such number of Common Shares as shall
equal the result obtained by multiplying the Purchase Price by a fraction, the
numerator of which is the number of Common Shares for which a Right is then
exercisable and the denominator of which is 50% of the Market Value of the
Common Shares on the date on which such Person

                                       13

<PAGE>

becomes an Acquiring Person. As soon as practicable after a Person becomes an
Acquiring Person (provided NWBio shall not have elected to make the exchange
permitted by Section 11(b)(i) for all outstanding Rights), NWBio covenants and
agrees to use its best efforts to:

          (i) Prepare and file a registration statement under the Securities
Act, on an appropriate form, with respect to the Common Shares purchasable upon
exercise of the Rights;

          (ii) Cause such registration statement to become effective as soon as
practicable after such filing;

          (iii) Cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act) until
the Expiration Date; and

          (iv) Qualify or register the Common Shares purchasable upon the
exercise of the Rights under blue sky or securities laws of such jurisdictions
as may be necessary or appropriate.

     (b)  (i) NWBio's Board of Directors may, at its option, at any time after a
Person becomes an Acquiring Person, mandatorily exchange all or part of the
then-outstanding and exercisable Rights (which shall not include Rights that
have become null and void and nontransferable pursuant to the provisions of
Section 7(e)) for consideration per right consisting of one-half of the
securities that would be issuable at such time upon the exercise of one Right in
accordance with Section 11(a) (the consideration issuable per Right pursuant to
this Section 11(b)(i) being the "Exchange Consideration"). If NWBio's Board of
Directors elects to exchange all the Rights for the Exchange Consideration
pursuant to this Section 11(b)(i) prior to the physical distribution of the
Right Certificates, NWBio may distribute the Exchange Consideration in lieu of
distributing Right Certificates, in which case for purposes of this Rights
Agreement holders of Rights shall be deemed to have simultaneously received and
surrendered for exchange Right Certificates on the date of such distribution.

          (ii) Any action of NWBio's Board of Directors ordering the exchange of
any Rights pursuant to Section 11(b)(i) shall be irrevocable and, immediately
upon the taking of such action and without any further action and without any
notice, the right to exercise any such Right pursuant to Section 11(a) shall
terminate and the only right thereafter of a holder of such Right shall be to
receive the Exchange Consideration in exchange for each such Right held by such
holder of, if the Exchange Consideration shall not have been paid, to exercise
any such Right pursuant to Section 11(c)(i). NWBio shall promptly give the
Rights Agent and public notice, of any such exchange; provided, however, that
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. NWBio promptly shall mail a notice of any such exchange to all
holders of such Rights at their last addresses as they appear on the registry
books of Rights Agent. Any notice that is mailed in the manner provided in this
Rights Agreement shall 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 Rights for the Exchange Consideration will be effected and, in the event of
any partial exchange, the number of Rights that will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other

                                       14

<PAGE>

than Rights that shall have become null and void and nontransferable pursuant to
the provisions of Section 7(e)) held by each holder of Rights.

     (c)  (i) In the event that, following a Distribution Date, directly or
indirectly, any transactions specified in the following clause (A), (B) or (C)
of this Section 11(c)(i) (each such transaction being a "Business Combination")
shall be consummated:

               (A) NWBio shall consolidate with, or merge with and into, any
other Person,

               (B) any Person shall merge with and into NWBio and, in connection
with such merger, all or part of the Common Shares shall be changed into or
exchanged for capital stock or other securities of NWBio or any other Person or
cash or any other property, or

               (C) NWBio shall sell, lease, exchange or otherwise transfer or
dispose of (or one or more of its subsidiaries shall sell, lease, exchange or
otherwise transfer or dispose of), in one or more transactions, the Major Part
of the assets of NWBio and its Subsidiaries (taken as a whole) to any other
Person or Persons,

then, in each such case, proper provision shall be made so that each holder of a
Right, except as provided in Section 7(e), shall thereafter have the right to
receive, upon the exercise thereof for the Purchase Price in accordance with the
terms of this Rights Agreement, the securities specified below (or, at such
holder's option, if any Business Combination is consummated at any time after a
Person becomes an Acquiring Person, the securities specified in Section 11(a)):

                    (1) If the Principal Party in such Business Combination has
Registered Common Shares outstanding, each Right shall thereafter represent the
right to receive, upon the exercise thereof for the Purchase Price in accordance
with the terms of this Rights Agreement, such number of Registered Common Shares
of such Principal Party, free and clear of all liens, encumbrances or other
adverse claims, as shall have an aggregate Market Value equal to the result
obtained by multiplying the Purchase Price by a fraction, the numerator of which
is the number of Common Shares for which a Right is then exercisable and the
denominator of which is 50% of the Market Value of the Registered Common Shares
of such Principal Party on the date on which such Principal Party becomes an
Acquiring Person, or

                    (2) If the Principal Party in such Business Combination does
not have Registered Common Shares outstanding, each Right shall thereafter
represent the right to receive, upon the exercise thereof for the Purchase Price
in accordance with the terms of this Rights Agreement, at the election of the
holder of such Right at the time of the exercise thereof, any of:

                         (x) such number of Common Shares of the Surviving
Person in such Business Combination as shall have an aggregate Book Value
immediately after giving effect to such Business Combination equal to the result
obtained by multiplying the Purchase Price by a fraction, the numerator of which
is the number of Common Shares for which a Right is then exercisable and the
denominator of which is 50% of the Market Value of the

                                       15

<PAGE>

Common shares of such Principal Party on the date such Principal Party becomes
an Acquiring Person;

                         (y) such number of Common Shares of the Principal Party
in such Business Combination (if the Principal Party is not also the Surviving
Person in such Business Combination) as shall have an aggregate Book Value
immediately after giving effect to such Business Combination equal to the result
obtained by multiplying the Purchase Price by a fraction, the numerator of which
is the number of Common Shares for which a Right is then exercisable and the
denominator of which is 50% of the Market Value of the Common shares of such
Principal Party on the date such Principal Party becomes an Acquiring Person; or

                         (z) if the Principal Party in such Business Combination
is an Affiliate of one or more Persons which have Registered Common Shares
outstanding, such number of Registered Common Shares of whichever of such
Affiliates of the Principal Party has Registered Common Shares with the greatest
aggregate Market Value on the date of consummation of such Business Combination
as shall have an aggregate Market Value on the date of such Business Combination
equal to the result obtained by multiplying the Purchase Price by a fraction,
the numerator of which is the number of Common Shares for which a Right is then
exercisable and the denominator of which is 50% of the Market Value of the
Common shares of such Principal Party on the date such Principal Party becomes
an Acquiring Person.

          (ii) NWBio shall not consummate any Business Combination unless each
issuer of Common Shares for which Rights may be exercised, as set forth in this
Section 11(c), shall have sufficient authorized and unissued Common Shares that
have not been reserved for issuance (and that shall, when issued upon exercise
thereof in accordance with this Rights Agreement, be validly issued, fully paid
and non-assessable and free of preemptive rights, rights of first refusal or
other restrictions or limitations on the transfer or ownership thereof) to
permit the exercise in full of the Rights in accordance with this Section 11(c)
and unless prior thereto:

               (A) a registration statement under the Securities Act, on an
appropriate form, with respect to the Rights and the Common Shares of such
issuer purchasable upon exercise of the Rights shall be effective under the
Securities Act; and

               (B) NWBio and each such issuer shall have:

                    (1) executed and delivered to Rights Agent as a supplemental
agreement providing for the assumption by such issuer of the obligations set
forth in this Section 11(c) (including the obligation of such issuer to issue
Common Shares upon the exercise of Rights in accordance with the terms set forth
in Sections 11(c)(i) and 11(c)(iii) and further providing that such issuer, at
its own expense, will use its best efforts to:

                         (x) cause a registration statement under the Securities
Act, on an appropriate form, with respect to the Rights and Common Shares of
such issuer purchasable upon the exercise of the Rights to remain effective
(with a prospectus at all times meeting the requirements of the Securities Act)
until the Expiration Date;

                                       16

<PAGE>

                         (y) qualify or register the Rights and Common Shares of
such issuer purchasable upon exercise of the Rights under the blue sky or
securities laws of such jurisdictions as may be necessary or appropriate; and

                         (z) list the Rights and Common Shares of such issuer
purchasable upon the exercise of the Rights on each national securities exchange
on which the Common Shares were listed prior to the consummation of the Business
Combination or, if the Common Shares were not listed on a national securities
exchange prior to the consummation of the Business Combination, on a national
securities exchange or on Nasdaq;

                    (2) furnished to Rights Agent a written opinion of
independent counsel stating that such supplemental agreement is a valid, binding
and enforceable agreement of such issuer; and

                    (3) filed with Rights Agent a certificate of a nationally
recognized firm of independent accountants, which Rights Agent may rely
conclusively on, setting forth the number of Common Shares of such issuer that
may be purchased upon the exercise of each Right after the consummation of such
Business Combination.

          (iii) After consummation of any Business Combination and subject to
the provisions of Sections 11(c)(ii), (A) each issuer of Common Shares for which
Rights may be exercised as set forth in this Section 11(c) shall be liable for,
and shall assume, by virtue of such Business Combination, all the obligations
and duties of NWBio pursuant to this Rights Agreement, (B) the term "Company"
shall thereafter be deemed to refer to such issuer, (C) each such issuer shall
take such steps in connection with such consummation as may be necessary to
ensure that the provisions of this Rights Agreement (including the Provisions of
Section 11(a) and 11(b)) shall thereafter be applicable, as nearly as reasonably
may be, in relation to its Common Shares thereafter deliverable upon the
exercise of the Rights, and (D) the number of Common Shares of each such issuer
thereafter receivable upon exercise of any Right shall be determined in
accordance with the provisions of Sections 11(a) and 12(a), and the provisions
of Sections 7, 9 and 10 with respect to the Common Shares shall apply, as nearly
as reasonably may be, on like terms to any such Common Shares.

     (d) In the event that the number of Common Shares that are authorized by
NWBio's Certificate of Incorporation but not outstanding or reserved for
issuance for purposes other than upon exercise of the Rights is not sufficient
to permit the exercise in full of the Rights in accordance with Section 11,
NWBio shall, to the extent permitted by applicable law and regulation, (a)
determine the excess of (1) the value of the Common Shares issuable upon the
exercise of a Right (computed using the Current Market Price used to determine
the number of Common Shares (the "Current Market Value")) over (2) the Purchase
Price (such excess is herein referred to as the "Spread"), and (B) with respect
to each Right, make adequate provision to substitute for the Common Shares, upon
the exercise of the Rights and payment of the applicable Purchase Price, (1)
cash, (2) a reduction in the Purchase Price, (3) other equity securities of
NWBio, (4) debt securities of NWBio, (5) other assets, or (6) any combination of
the foregoing, having an aggregate value equal to the Current Value, where such
aggregate value has been determined by the Board of Directors of NWBio based
upon the advice of a nationally

                                       17

<PAGE>

recognized investment banking firm selected by the Board of Directors of NWBio;
provided, however, that if NWBio shall not have made adequate provision to
deliver value pursuant to clause (B) above within 30 days following the later of
(x) the first occurrence of the event significant to the Rights specifically and
(y) the date on which NWBio's right of redemption pursuant to Section 24(a)
expires (the later of (x) and (y) being referred to herein as the "Trigger
Date"), then NWBio shall be obligated to deliver, upon surrender for exercise of
a right and without requiring payment of the Purchase Price, Common Shares (to
the extent available) and then, if necessary, cash, which shares and/or cash
have an aggregate value equal to the Spread. If the Board of Directors of NWBio
shall determine in good faith that it is likely that sufficient additional
Common Shares could be authorized for issuance upon exercise in full of the
Rights, the 30-day period set forth above may be extended to the extent
necessary, but not more than 90 days after the Trigger Date, in order that NWBio
may seek stockholder approval for the authorization of such additional shares
(such period, as it may be extended, the "Substitution Period"). To the extent
that NWBio determines that some action need be taken pursuant to the first
and/or second sentences of this Section 11(d), NWBio (x) shall provide, subject
to Section 7(e) hereof, that such action shall apply uniformly to all
outstanding Rights, and (y) may suspend the exercisability of the Rights until
the expiration of the Substitution Period in order to seek any authorization of
additional shares and/or to decide the appropriate form of distribution to be
made pursuant to such first sentence and to determine the value thereof. In the
event of any such suspension, NWBio shall issue a public announcement (with
prompt written notice thereof to Rights Agent) stating that the exercisability
of the Rights has been temporarily suspended, as well as a public announcement
(with prompt written notice thereof to Rights Agent) at such time as the
suspension is no longer in effect. For purposes of this Section 11(d), the value
of the Common Shares shall be the Current Market Price per share of the Common
Shares on the Trigger Date and the value of any Common Share Equivalent shall be
deemed to have the same value as the Common Shares on such date.

12.  CERTAIN ADJUSTMENTS.

     (a) To preserve the actual or potential economic value of the Rights, if at
any time after the date of this Rights Agreement there shall be any change in
the Common Shares whether by reason of stock dividend, stock split,
recapitalization, merger, consolidation, combination or exchange of securities,
split-up, split-off, spin off, liquidation or other similar change in
capitalization, any distribution or issuance of cash, assets, evidences of
indebtedness or subscription rights, options or warrants to holders of Common
Shares, other than the Rights or regular quarterly cash dividends) or otherwise,
then, in each such event NWBio's Board of Directors shall make appropriate
adjustments in the number of Common Shares (or the number and kind of other
securities) issuable upon exercise of each Right, the Purchase Price and
Redemption Price in effect at such time and the number of Rights outstanding at
such time (including the number of Rights or fractional Rights associated with
each Common Share) such that following such adjustment such event shall not have
had the effect of reducing or limiting the benefits the holders of the rights
would have had absent such event.

     (b) If, as a result of an adjustment made pursuant to Section 12(a), the
holder of any Right thereafter exercised shall become entitled to receive any
securities other than Common Shares, then the number of such securities so
receivable upon exercise of any Right thereafter

                                       18

<PAGE>

shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions of Sections 11(a) and 12(a),
and the provisions of Sections 8, 9 and 10 with respect to the Common Shares
shall apply, as nearly as reasonably as may be, on like terms to any such other
securities.

     (c) All Rights originally issued by NWBio subject to any adjustment made in
the amount of Common Shares or other securities relating to a Right shall
evidence the right to purchase, for the Purchase Price, the adjusted number and
kind of securities purchasable from time to time under this Rights Agreement
upon exercise of the Rights, all subject to further adjustment as provided in
this Rights Agreement.

     (d) Irrespective of any adjustment or change in the Purchase Price or the
number of Common Shares or number or kind of other securities issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the terms that were expressed in the initial Right
Certificates issued under this Rights Agreement.

     (e) In any case in which action taken pursuant to Section 12(a) requires
that an adjustment be made effective as of a record date for a specified event,
NWBio may elect to defer (and shall provide Rights Agent prompt written notice
of any such election) until the occurrence of such event the issuing to a holder
of any Right exercised after such record date the Common Shares and/or other
securities, if any, issuable upon such exercise over and above the Common Shares
and/or other securities, if any, issuable before giving effect to such
adjustment; provided, however, that NWBio shall deliver to such holder a due
bill or other appropriate instrument evidencing such holder's right to receive
such additional securities upon the occurrence of the event requiring such
adjustment.

13.  CERTIFICATE OF ADJUSTMENT. Whenever an adjustment is made as provided in
Section 11 or 12, NWBio shall (a) promptly prepare a certificate setting forth
such adjustment and file a brief statement of the facts and computations
accounting for such adjustments, (b) promptly file with Rights Agent and with
each transfer agent for the Common Shares a copy of such certificate, and (c)
mail a brief summary thereof to each holder of a Right Certificate (or, prior to
the Distribution Date, of the Common Shares) in accordance with Section 26. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment or statement therein contained and shall have no duty or
liability with respect to, and shall not be deemed to have knowledge of, any
adjustment or any such event unless and until it shall have received such a
certificate.

14.  ADDITIONAL COVENANTS.

     (a) NWBio covenants and agrees that, notwithstanding any provision of this
Rights Agreement, no adjustment to the number of Common Shares (or fractions of
a share) or other securities for which a Right is exercisable or the number of
Rights outstanding or associated with each Common Share or any similar or other
adjustment shall be made or be effective if such adjustment would have the
effect of reducing or limiting the benefits the holders of the Rights would have
had absent such adjustment, including, without limitation, the benefits under

                                       19

<PAGE>

Sections 11 and 12, unless the terms of this Rights Agreement are amended so as
to preserve such benefits.

     (b) NWBio covenants and agrees that, after the Distribution Date, except as
permitted by Section 27, it will not take (or permit any Subsidiary of NWBio to
take) any action if at the time such action is taken it is reasonably
foreseeable that such action will reduce or otherwise limit the benefits the
holders of the Rights would have had absent such action, including, without
limitation, the benefits under Sections 11 and 12. Any action taken by NWBio
during any period after any Person becomes an Acquiring Person but prior to the
Distribution Date shall be null and void unless such action could be taken under
this Section 14(b) from and after the Distribution Date.

15.  FRACTIONAL RIGHTS AND FRACTIONAL SHARES.

     (a) NWBio may, but shall not be required to, issue fractions of rights or
distribute Right Certificates that evidence fractional Rights. In lieu of such
fractional Rights, NWBio may pay to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable an amount in cash equal to the same fraction of the current market
value of a whole Right. For purposes of this Section 15(a), the current market
value of a whole Right shall be the closing price of the Rights (as determined
pursuant to the second and third sentences of the definition of Market Value
contained in Section 1) for the Trading Day immediately prior to the date on
which such fractional rights would have been otherwise issuable.

     (b) NWBio may, but shall not be required to, issue fractions of Common
Shares upon exercise of the Rights or distribute certificates that evidence
fractional Common Shares. In lieu of fractional Common Shares, NWBio may elect
to (i) utilize a depository arrangement as provided by the terms of the Common
Shares or (ii) in the case of a fraction of a Common Share, pay to the
registered holders of Right Certificates at the time such Rights are exercised
as provided in this Rights Agreement an amount in cash equal to the same
fraction of the current market value of one Common Share. For purposes of this
Section 15(b), the current Market Value of a Common Share shall be the closing
price of a Common Share (as determined pursuant to the second and third
sentences of the definition of Market Value contained in Section 1) for the
Trading Day immediately prior to the date of such exercise. If, as a result of
an adjustment made pursuant to Section 12(a), the holder of any Right thereafter
exercised shall be come entitled to receive any securities other than Common
Shares, the provisions of this Section 15(b) shall apply, as nearly as
reasonably may be, on like terms to such other securities.

     (c) The holder of Rights, by the acceptance of the Rights, expressly waives
his or her right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as provided in this Section 15.

16.  RIGHTS OF ACTION.

     (a) All rights of action in respect of this Rights Agreement, except the
rights of action given to Rights Agent under this Rights Agreement, are vested
in the respective registered

                                       20

<PAGE>

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
consent of Rights Agent or of the holder of any other Right Certificate (or,
prior to the Distribution Date, of the Common Shares), may, in his or her own
behalf and for his or her own benefit, enforce, and may institute and maintain
any suit, action or proceeding against NWBio to enforce, or otherwise act in
respect of, his or her right to exercise the Rights evidenced by such Right
Certificate in the manner provided in such Right Certificate and in the Rights
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 in this Rights Agreement
and shall be entitled to specific performance of the obligations of any Person
under, and injunctive relief against actual or threatened violations of the
obligations of any Person subject to, this Rights Agreement.

     (b) Any holder of Rights who prevails in an action to enforce the
provisions of this Rights Agreement shall be entitled to recover the reasonable
costs and expenses, including attorneys' fees, incurred in such action.

17.  TRANSFER AND OWNERSHIP OF RIGHTS AND RIGHT CERTIFICATES.

     (a) Prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Common Shares.

     (b) After the Distribution Date, the Right Certificates will be
transferable, subject to Section 7(e), only on the registry books of Rights
Agent if surrendered at the office of Rights Agent designated for such purpose,
duly endorsed or accompanied by a proper instrument of transfer.

     (c) NWBio and Rights Agent may deem and treat the Person in whose name a
Right Certificate (or, prior to the Distribution Date, the associated Common
Shares 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 certificate for Common Shares made by
anyone other than NWBio or Rights Agent) for all purposes whatsoever, and
neither NWBio nor Rights Agent shall be affected by any notice to the contrary.

18.  RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder, as such, of
any Right Certificate shall be entitled to vote or receive dividends or be
deemed for any purpose the holder of the Common Shares or of any other
securities of NWBio that may at any time be issuable upon the exercise of the
Rights represented thereby.

                                       21

<PAGE>

19.  CONCERNING RIGHTS AGENT.

     (a) NWBio agrees to pay to 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 preparation, delivery, amendment, administration and execution
of this Rights Agreement and the exercise and performance of its duties
hereunder. NWBio also agrees to indemnity Rights Agent for, and to hold it
harmless against, any loss, liability, damage, judgment, fine, penalty, claim,
demand, settlement, cost or expense (including, without limitation, the
reasonable fees and expenses of legal counsel), incurred without gross
negligence or bad faith on the part of Rights Agent (which gross negligence or
bad faith must be determined by a final, non-appealable order, judgment, decree
or ruling of a court of competent jurisdiction), for any action taken, suffered
or omitted by Rights Agent in connection with the acceptance, administration,
exercise and performance of its duties under this Rights Agreement. The costs
and expenses incurred in enforcing this right of indemnification shall be paid
by NWBio. The provisions of this Section 19 and Section 21 below shall survive
the termination of this Rights Agreement, the exercise or expiration of the
Rights and the resignation or removal of Rights Agent.

     (b) Rights Agent shall be authorized and protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with its acceptance and administration of this Rights Agreement and
the exercise and performance of its duties hereunder, in reliance upon any
Rights Certificate or certificate for the Common Shares or for other securities
of NWBio, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons, or
otherwise upon the advice of counsel as set forth in Section 21 hereof.

20.  MERGER OR CONSOLIDATION OR CHANGE OF RIGHTS AGENT.

     (a) Any Person into which Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any Person resulting from any
merger or consolidation to which Rights Agent or any successor Rights Agent
shall be a party, or any Person succeeding to the stock transfer or stockholder
services business of Rights Agent or any successor Rights Agent, shall be the
successor to Rights Agent under this Rights Agreement without execution or
filing of any paper or any further act on the part of any of the parties to this
Rights Agreement, provided, however, that such Person would be ineligible for
appointment as a successor Rights Agent under the provisions of Section 22. In
case, at the time such successor Rights Agent shall succeed to the agency
created by this Rights 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, in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and, in all such cases, such
Right Certificates shall have the full force provided in the Right Certificates
and in this Rights Agreement.

                                       22

<PAGE>

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

21.  DUTIES OF RIGHTS AGENT. Rights Agent undertakes only the duties and
obligations expressly imposed by this Rights Agreement upon the following terms
and conditions, by all of which NWBio and the holders of Right Certificates (or,
prior to the Distribution Date, of the Common Shares), by their acceptance
thereof, shall be bound:

     (a) Rights Agent may consult with legal counsel (who may be legal counsel
for NWBio or an employee of Rights Agent), and the advice or opinion of such
counsel shall be full and complete authorization and protection to Rights Agent
and Rights Agent shall incur no liability for or in respect of any action taken,
suffered or omitted by it and in accordance with such advice or opinion.

     (b) Whenever in the performance of its duties under this Rights Agreement
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person) be proved
or established by NWBio prior to taking, refraining from taking or suffering any
action under this Rights Agreement, such fact or matter (unless other evidence
in respect thereof be specifically prescribed in this Rights Agreement) may be
deemed to be conclusively proved and established by a certificate signed by any
one of the Chairman and President, the Chief Financial Officer, any Executive
Vice President, the Treasurer or the Secretary of NWBio and delivered to Rights
Agent, and such certificate shall be full authorization and protection to Rights
Agent and Rights Agent shall incur no liability for or in respect of any action
taken, suffered or omitted in good faith by it under the provisions of this
Rights Agreement in reliance upon such certificate.

     (c) Rights Agent shall be liable hereunder to NWBio and any other Person
only for its own gross negligence or bad faith (as determined by a final,
non-appealable order, judgment, decree or ruling of a court of competent
jurisdiction). Anything to the contrary notwithstanding, in no event shall
Rights Agent be liable for special, punitive, indirect, consequential or
incidental loss or damage of any kind whatsoever (including but not limited to
lost profits), even if Rights Agent has been advised of the likelihood of such
loss or damage. Any liability of Rights Agent under this Rights Agreement will
be limited to the amount of fees paid by NWBio to Rights Agent.

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

                                       23

<PAGE>

     (e) Rights Agent shall not have any liability for or be under any
responsibility in respect of the validity of this Rights Agreement or the
execution and delivery hereof (except the due execution of this Rights Agreement
by Rights Agent) or in respect of the validity or executions of any Right
Certificates (except its countersignature thereof); nor shall it be liable or
responsible for any breach by NWBio of any covenant or condition contained in
this Rights Agreement or in any Right Certificate; nor shall it be liable or
responsible for any adjustment required under the provisions of Section 11 or 12
or liable 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 shall it by any
act under this Rights Agreement be deemed to make any representation or warranty
as to the authorization or reservation of any Common Shares or other such
securities to be issued pursuant to this Rights Agreement or any Right
Certificate or as to whether any Common Shares or other securities will, when so
issued, be validly authorized and issued, fully paid and non-assessable.

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

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

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

                                       24

<PAGE>

such stockholder, Affiliate, director, officer or employee from acting in any
other capacity for NWBio or for any other Person.

     (i) Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself (through its
directors, officers and employees) or by or through its attorneys or agents, and
Rights Agent shall not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys or agents or for any loss to NWBio
or any other Person resulting from any such act, default, neglect or misconduct,
absent gross negligence or bad faith in the selection and continued employment
thereof (each as determined by a final, non-appealable order, judgment, decree
or ruling of a court of competent jurisdiction).

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

22.  CHANGE OF RIGHTS AGENT. Rights Agent or any successor Rights Agent may
resign and be discharged from its duties under this Rights Agreement upon 30-day
notice in writing mailed to NWBio and to each transfer agent of the Common
Shares by registered or certified mail, and to the holders of the Right
Certificates (or, prior to the Distribution Date, of the Common Shares) by
first-class mail. NWBio may remove Rights Agent or any successor Rights Agent,
upon 30-day notice in writing mailed to Rights Agent or successor Rights Agent,
as the case may be, and to each transfer agent of the Common Shares by
registered or certified mail, and to the holders of the Right Certificates (or,
prior to the Distribution Date, of the Common Shares) by first-class mail. If
Rights Agent shall resign or be removed or shall otherwise become incapable of
acting, NWBio shall appoint a successor to Rights Agent. If NWBio shall fail to
make such appointment within a period of 30 days after giving written 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 (or, prior to the Distribution Date, of the Common Shares)
(who shall, with such notice, submit his or her Right Certificate or, prior to
the Distribution Date, the certificate representing his or her Distribution
Date, for inspection by NWBio), then the registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Common Shares) may apply
to any court of competent jurisdiction for the appointment of a new Rights
Agent. Any successor Rights Agent, whether appointed by NWBio or by such a
court, shall be a Person in good standing organized and doing business under the
laws of the United States, which is authorized under such laws to exercise stock
transfer or stockholder services powers and is subject to supervision or
examination by federal or state authority, which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000. After appointment, the successor Rights Agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; provided, however,
that the predecessor Rights Agent shall deliver and transfer to the successor
Rights Agent any property at the time held by it under this Rights Agreement,
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,
NWBio shall file notice thereof in writing with the predecessor Rights Agent and
each transfer agent of

                                       25

<PAGE>

the Common Shares, and mail a notice thereof in writing to the registered
holders of the Right Certificates (or, prior to the Distribution Date, of the
Common Shares). Failure to give any notice provided for in this Section 22,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of Rights Agent or the appointment of the successor
Rights Agent, as the case may be.

23.  ISSUANCE OF ADDITIONAL RIGHTS AND RIGHT CERTIFICATES. Notwithstanding the
provisions of this Rights Agreement or of the Rights to the contrary, NWBio 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
made in accordance with the provisions of this Rights Agreement. In addition, in
connection with the issuance or sale of Common Shares following the Distribution
Date and prior to the earlier of the Redemption Date and the Expiration Date,
NWBio (a) shall issue, with respect to Common Shares so issued or sold pursuant
to the exercise of stock options or under any employee plan or arrangement, or
upon the exercise, conversion or exchange of securities, notes or debentures
issued by NWBio, and (b) may issue, in any other case, if deemed necessary or
appropriate by NWBio's Board of Directors, Right Certificates representing the
appropriate number of Rights in connection with such issuance or sale; provided,
however, that (i) no such Right Certificate shall be issued if, and to the
extent that, NWBio shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to NWBio or to the Person
to whom such Right Certificate would be issued and (ii) no such Right
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.

24.  REDEMPTION AND TERMINATION.

     (a) NWBio's Board of Directors may, at its option, at any time prior to the
earlier of (i) the Distribution Date and (ii) the Close of Business on the
Expiration Date, order the redemption of all, but not fewer than all, the
then-outstanding Rights at the Redemption Price (the date of such redemption
being the "Redemption Date"), and NWBio, at its option, may pay the Redemption
Price either in cash or Common Shares or other securities of NWBio deemed by
NWBio's Board of Directors, in the exercise of its sole discretion, to be at
least equivalent in value to the Redemption Price.

     (b) Immediately upon the action of NWBio's Board of Directors ordering the
redemption of the Rights in accordance with Section 24(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 shall be to
receive the Redemption Price. Within 10 Business Days after the action of
NWBio's Board of Directors ordering the redemption of the Rights, NWBio shall
give notice of such redemption to Rights Agent and 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 transfer agent for the
Common Shares. Each such notice or redemption will state the method by which
payment of the Redemption Price will be made. The notice, if mailed in the
manner provided in this Rights Agreement, shall be conclusively presumed to have
been duly given, whether or not the holder of rights receives such notice. In
any case, failure to give such

                                       26

<PAGE>

notice by mail, or any defect in the notice, to any particular holder of Rights
shall not affect the sufficiency of the notice to other holders of Rights.

25.  PERIODIC REVIEW. It is understood that a special committee of the Board of
Directors (the "Special Committee") shall review and evaluate this Rights
Agreement in order to consider whether the maintenance of this Rights Agreement
continues to be in the best interests of NWBio, its stockholders and any other
relevant constituencies of NWBio, at least every three years, or sooner if any
Person shall have made a proposal to NWBio, or taken any other action, that, if
effective, could cause such Person to become an Acquiring Person hereunder, if a
majority of the members of the Special Committee shall deem such review and
evaluation appropriate after giving due regard to all relevant circumstances.
Following such review, the Special Committee will communicate its conclusions to
the full Board of Directors, including any recommendation in light thereof as to
whether this Rights Agreement should be modified or the Rights should be
redeemed. The Special Committee shall be appointed by the Board of Directors of
NWBio and shall be comprised of Directors of NWBio, at least a majority of whom
are not officers, employees or Affiliates of NWBio.

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

     Northwest Biotherapeutics, Inc.
     21720 - 23rd Drive SE, Suite 100
     Bothell, WA 98021
     Attention: President

Subject to the provisions of Section 22, notices or demands authorized by this
Rights Agreement to be given or made by NWBio or by the holder of a Right
Certificate (or, prior to the Distribution Date, of the Common Shares) to or on
Rights Agent shall be sufficiently given or made if in writing and sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with NWBio) as follows:

     Mellon Investor Services LLC
     520 Pike Street, Suite 1220
     Seattle, WA 98101
     Attention: Relationship Manager

Notices or demands authorized by this Rights Agreement to be given or made by
NWBio or Rights Agent to any holder of a Right Certificate (or, prior to the
Distribution Date, of the Common Shares) shall be sufficiently given or made if
in writing and sent by first-class mail, postage prepaid, addressed to such
holder's address as shown on the registry books of Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent of the Common
Shares.

                                       27

<PAGE>

27.  SUPPLEMENTS AND AMENDMENTS. At any time prior to the Distribution Date and
subject to the last sentence of this Section 27, NWBio may, and Rights Agent
shall if NWBio so directs, supplement or amend any provision of this Rights
Agreement (including, without limitation, the date on which the Distribution
Date shall occur, the time during which the Rights may be redeemed pursuant to
Section 24) without the approval of any holder of the Rights. From and after the
Distribution Date and subject to applicable law, NWBio may, and Rights Agent
shall if NWBio so directs, amend this Rights Agreement without the approval of
any holder of Right Certificates to (a) cure any ambiguity or correct or
supplement any provision contained in this Rights Agreement that may be
defective or inconsistent with any other provision of this Rights Agreement, (b)
shorten or lengthen any time period, or (c) make any other provisions in regard
to matters or questions arising under this Rights Agreement that NWBio may deem
necessary or desirable and that shall not adversely affect the interests of the
holders of Right Certificates (other than an Acquiring Person or an Affiliate or
Associate of an Acquiring Person). Any supplement or amendment adopted during
any period after any Person has become an Acquiring Person but prior to the
Distribution Date shall be null and void unless such supplement or amendment
could have been adopted under the prior sentence from and after the Distribution
Date. Upon the delivery of a certificate from an appropriate officer of NWBio
and, if requested by Rights Agent, an opinion of counsel, that states that the
proposed supplement or amendment complies with this Section 27, Rights Agent
shall execute such supplement or amendment, provided, however, Rights Agent may,
but shall not be obligated to, enter into any supplement or amendment that
affects the Rights Agent's own rights, duties, obligations or immunities under
this Rights Agreement. Notwithstanding anything contained in this Rights
Agreement to the contrary, any time after the time a Person becomes an Acquiring
person, (x) this Agreement may be supplemented or amended only if the Board of
Directors determines that such supplement or amendment is, in their judgment, in
the best interests of NWBio and its stockholders, and (y) no supplement or
amendment shall be made that decreases the Redemption Price, shortens the
Expiration Date, increases the initial Purchase Price or decreases the number of
shares of Common Stock for which a Right is initially exercisable. Prior to the
Distribution Date, the interests of the holders of rights shall be deemed
coincident with the interests of the holders of Common Stock. In addition,
notwithstanding anything to the contrary contained in this Rights Agreement, no
supplement or amendment to this Rights Agreement shall be made that (x) reduces
the Redemption Price (except as required by Section 12(a)), (y) provides for an
earlier Expiration Date, or (z) changes the last two sentences in the definition
of Acquiring Person contained in Section 1.

28.  SUCCESSORS. All the covenants and provisions of this Rights Agreement by or
for the benefit of NWBio or Rights Agent shall bind and inure to the benefit of
their respective successors and assigns under this Rights Agreement.

                                       28

<PAGE>

29.  BENEFITS OF THIS RIGHTS AGREEMENT; DETERMINATIONS AND ACTIONS BY THE
     COMPANY'S BOARD OF DIRECTORS.

     (a) Nothing in this Rights Agreement shall be construed to give any Person
other than NWBio, Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, of the Common Shares) any
legal or equitable right, remedy or claim under this Rights Agreement; provided,
however, that this Rights Agreement shall be for the sole and exclusive benefit
of NWBio, Rights Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, of the Common Shares).

     (b) Except as explicitly otherwise provided in this Rights Agreement,
NWBio's Board of Directors shall have the exclusive power and authority to
administer this Rights Agreement and to exercise all rights and powers
specifically granted to NWBio's Board of Directors or to NWBio, or as may be
necessary or advisable in the administration of this Rights Agreement,
including, without limitation, the right and power to (i) interpret the
provisions of this Rights Agreement and (ii) make all determinations deemed
necessary or advisable for the administration of this Rights Agreement
(including, without limitation, a determination to redeem or not redeem the
Rights or to amend this Rights Agreement and a determination of whether there is
an Acquiring Person). The Rights Agent is entitled always to assume the NWBio's
Board of Directors acted in good faith and shall be fully protected and incur no
liability in reliance thereon.

30.  SEVERABILITY; CONFLICT WITH OTHER AGREEMENTS. If any term, provision,
covenant or other restriction of this Rights Agreement, including without
limitation the provisions of Section 24(a), 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 Rights
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.

31.  GOVERNING LAW. This Rights Agreement and each Right Certificate issued
under this Rights Agreement shall be deemed to be a contract made under the laws
of the State of Delaware and for all purposes shall be governed by and construed
in accordance with the laws of Delaware applicable to a contract to be made and
performed entirely within Delaware.

32.  DESCRIPTIVE HEADINGS. Descriptive headings of the several sections in this
Rights Agreement are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions of this Rights
Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       29

<PAGE>

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

MELLON INVESTOR SERVICES LLC, as               NORTHWEST BIOTHERAPEUTICS, INC.
Rights Agent

By: ______________________________            By: ______________________________
Its: _____________________________                Daniel O. Wilds, President and
                                                  CEO

                                       30<PAGE>
                                                                    Exhibit 10.1

                 REGISTRATION AND STOCK PURCHASE AGREEMENT

      Registration and Stock Purchase Agreement, dated as of July 8, 2002 (this
"Agreement"), among Philadelphia Suburban Corporation, a Pennsylvania
corporation (the "Company"), Vivendi Environnement S.A., a French corporation
("VE"), Vivendi Water S.A., a French corporation ("VW"), and Vivendi North
America Company, a Delaware corporation ("VNAC").

      WHEREAS, VW and VNAC are respectively the beneficial owners of 10,334,221
and 761,654 shares of the Company's common stock, par value $.50 per share (the
"Common Stock"); and

      WHEREAS, after the execution of this Agreement, VW, VNAC and the Company
plan to enter into an underwriting agreement substantially in the form of
Exhibit A hereto (the "Underwriting Agreement") providing for the sale by VW and
VNAC of up to 9,885,256 shares of the Common Stock (the "Public Sale"); and

      WHEREAS, following completion of the Public Sale, the Company desires to
purchase from VW, and VW desires to sell to the Company, up to 2,500,000 shares
of the Common Stock (the "Buyback").

      NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein, and on the terms and subject to the conditions set forth
herein, the parties hereto, each representing to the other that its execution,
delivery and performance of this Agreement has been fully and duly authorized,
agree as follows:

                             SECTION 1 - DEFINITIONS

      1.1 SPECIFIC DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth below:

      "Business Day" shall mean any day other than a Saturday, a Sunday or a day
on which banks in Philadelphia, Pennsylvania are authorized or obligated by law
or executive order to close.

      "Buyback Closing" shall mean the closing of the Buyback.

      "Buyback Closing Date" shall mean the date on which the Buyback Closing
occurs.

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

      "Governmental Entity" shall mean any federal, state or local judicial,
legislative, executive or regulatory authority.

      "Public Closing" shall mean the closing of the Public Sale.

      "Public Closing Date" shall mean the date on which the Public Closing
occurs.

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

      Other terms are defined elsewhere in this Agreement and, unless otherwise
indicated, shall have such meanings throughout this Agreement.
<PAGE>
                            SECTION 2 - REGISTRATION

      2.1   REGISTRATION STATEMENT.

            (a) The Company shall prepare and file with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3 or
any successor form thereto (the "Registration Statement") to register the resale
of up to 9,885,256 shares of the Common Stock held by VW and VNAC (as adjusted
for any reorganization, recapitalization, reclassification, stock dividend,
stock split or combination, or any other changes to the capital structure of the
Company, the "Registered Shares"). The Company shall use commercially reasonable
efforts to obtain an order of effectiveness from the Commission as soon as
practicable after filing. The Company shall have no obligation to keep the
Registration Statement effective for more than 60 days following the issuance of
the original order of effectiveness.

            (b) VE, VW and VNAC shall furnish such information as the Company
may reasonably request in connection with the preparation of the Registration
Statement in order to permit the Company to comply with all applicable
securities laws and requirements of the Commission within two days of such
request.

            (c) The Company shall execute the Underwriting Agreement on the date
of pricing of the Public Sale. In the event that VE, VW and VNAC agree with the
underwriters on a price for the sale of the Registered Shares in the Public
Sale, each of VW and VNAC shall execute the Underwriting Agreement (subject to
completion of pricing information) on the date of pricing of the Public Sale.
Each of VE, VW and VNAC shall use commercially reasonable efforts to cause A.G.
Edwards & Sons, Inc., Janney Montgomery Scott LLC and Edward Jones to be
included in the underwriting syndicate for the Public Sale.

      2.2 USE OF REGISTRATION STATEMENT. Each of VE, VW and VNAC hereby agrees
and acknowledges that (i) the Registration Statement shall relate exclusively to
a sale of the Registered Shares by VW and VNAC in a firm commitment underwriting
that is not being effected pursuant to Rule 415 under the Securities Act and
(ii) the Registration Statement shall be used solely in connection with the
Public Sale.

      2.3   INDEMNIFICATION.

            (a) The Company agrees to indemnify and hold harmless VE, VW and
VNAC, their directors, officers and each person, if any, who controls VE, VW and
VNAC within the meaning of Section 15 of the Securities Act, from and against
any losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) to which VE, VW and VNAC, their directors, officers and each person, if
any, who controls VE, VW and VNAC within the meaning of Section 15 of the
Securities Act, may become subject (under the Securities Act or otherwise) to
the extent that such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon, any actual or
alleged untrue statement of a material fact or actual or alleged omission to
state a material fact in the Registration Statement, including all documents
filed as a part thereof and information deemed to be incorporated by reference
therein, on the effective date thereof, or any amendment or supplements thereto,
or arise out of any failure by the Company to fulfill any undertaking or
covenant included in the Registration Statement, and the Company will, as
incurred, reimburse VE for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim; provided, however, that the Company shall not be liable in any such case
to the extent that such loss, claim, damage or liability arises out of, or is
based upon (i) an actual or alleged untrue statement or

                                       2
<PAGE>
omission in such Registration Statement in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of VE
specifically for use in preparation of the Registration Statement and not
corrected by VE in writing at least 5 Business Days prior to the sale that is
the subject of such losses, claims, damages and liabilities or (ii) an untrue
statement or omission in any prospectus that is corrected in any subsequent
prospectus, or supplement or amendment thereto, that was delivered to VE prior
to the pertinent sale or sales by VE, VW or VNAC and not delivered by VE prior
to such sale(s) to the person or entity to which it made such sale(s).

            (b) VE agrees to indemnify and hold harmless the Company, its
directors, officers and each person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act, from and against any losses,
claims, damages or liabilities (or actions or proceedings in respect thereof) to
which the Company, its directors, officers and each person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act, may become
subject (under the Securities Act or otherwise) to the extent that such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of, or are based upon (i) an actual or alleged untrue statement of a
material fact or actual or alleged omission to state a material fact in the
Registration Statement or any amendment or supplements thereto in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of VE specifically for use in preparation of the Registration Statement
(provided, however, that VE shall not be liable in any such case for any untrue
statement or omission in any prospectus or Registration Statement which
statement has been corrected, in writing, by VE and delivered to the Company at
least 5 Business Days prior to the sale that is subject of such losses, claims,
damages and liabilities), or (ii) an untrue statement or omission in any
prospectus that is corrected in any subsequent prospectus or supplement or
amendment thereto, that was delivered to VE prior to the pertinent sale or sales
by VW or VNAC and not delivered by VW or VNAC prior to such sale(s) to the
person or entity to which it made such sale(s), and VE will, as incurred,
reimburse the Company for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim.

            (c) Promptly after receipt by any indemnified person of a notice of
a claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section, such indemnified
person shall notify the indemnifying person in writing of such claim or of the
commencement of such action and, subject to the provisions hereinafter stated,
in case any such action shall be brought against an indemnified person, the
indemnifying person shall be entitled to participate therein, and to assume the
defense thereof, with counsel reasonably satisfactory to the indemnified person.
After notice from the indemnifying person to such indemnified person of the
indemnifying person's election to assume the defense thereof, the indemnifying
person shall not be liable to such indemnified person for any legal expenses
subsequently incurred by such indemnified person in connection with the defense
thereof; provided, however, that if there exists or shall exist a conflict of
interest that would make it inappropriate in the reasonable judgment of the
indemnified person for the same counsel to represent both the indemnified person
and such indemnifying person or any affiliate or associate thereof, the
indemnified person shall be entitled to retain its own counsel at the expense of
such indemnifying person; provided, further, that the indemnifying person shall
not be obligated to assume the expenses of more than one counsel and, to the
extent applicable, one local counsel, to represent all indemnified persons.

            (d) If the indemnification provided for in this Section is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the Company on the one hand and VE, VW or VNAC
on the

                                       3
<PAGE>
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof), as well
as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the actual or alleged
untrue statement of a material fact or the actual or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
VE on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and VE agree that it would not be just and equitable if contribution
pursuant to this subsection (d) were determined by pro rata allocation or by any
other method of allocation which does not take into account the equitable
considerations referred to above in this subsection (d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this subsection
(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.

      2.4 REGISTRATION EXPENSES. VE shall reimburse the Company for all
reasonable and documented expenses of the Company incurred in connection with
the preparation and filing of the Registration Statement, including, but not
limited to, (i) all registration fees paid to the Commission relating to the
Registered Shares, (ii) all reasonable and documented expenses incurred in
connection with the printing and distribution of preliminary prospectuses and
the final prospectus (including any amendments and supplements thereto) used in
connection with the offering of the Registered Shares, (iii) the reasonable and
documented fees and disbursements of the Company's legal counsel (up to a
maximum amount of $75,000) billed in connection with the preparation and filing
of the Registration Statement and the delivery of a customary legal opinion in
connection with the offering of the Registered Shares, (iv) the reasonable and
documented fees and disbursements of the Company's auditors billed in connection
with the delivery of customary consents and comfort letters in connection with
the Registration Statement and (v) any travel expenses of the Company's officers
and employees and any other expenses of the Company in connection with attending
or hosting meetings with prospective purchasers of the Registered Shares
(collectively, the "Registration Fees"). Notwithstanding the foregoing, VE shall
not be liable for any expenses incident to the performance of the Company's
obligations under the Exchange Act, including, without limitation, the
preparation of audited annual financial statements and unaudited interim
financial statements and the filing of any Annual Reports on Form 10-K, any
Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K (including
any amendments thereto). The Company shall deduct the Registration Fees from the
funds transferred to VW on the Buyback Closing Date as provided in Section
3.2(b); provided however, if this Agreement or the Underwriting Agreement is
terminated, VE shall pay the Registration Fees to the Company in immediately
available funds within 15 days of such termination.

                             SECTION 3 - THE BUYBACK

      3.1 PURCHASE AND SALE OF SHARES. On the terms and subject to the
conditions, and in reliance on the representations and warranties, set forth
herein, at the Buyback Closing, VW shall sell and transfer to the Company, and
the Company shall purchase from VW, 2,500,000 shares of the Common Stock (as
adjusted for any reorganization, recapitalization, reclassification, stock
dividend, stock split or combination, or any other changes to the capital
structure of the Company, and as such number of shares may be reduced pursuant
to Section 3.3 below, the "Buyback Shares") at a cash purchase price per share
equal to the purchase price per share offered to the public in connection with
the Public Sale (the "Purchase Price").

                                       4
<PAGE>
      3.2   CLOSING; DELIVERY AND PAYMENT.

            (a) The Buyback Closing shall take place at the offices of Morgan,
Lewis & Bockius LLP, 1701 Market Street, Philadelphia, PA 19103, or at such
other place as VW and the Company shall agree, at 9:00 a.m. (local time) on, (i)
if the over-allotment option described in Section 2(d) of the Underwriting
Agreement is exercised, the later of (A) the date of the closing of such
over-allotment option and (B) the 30th day following the Public Closing Date
(unless such day is not a Business Day, in which case the Buyback Closing Date
shall be on the next succeeding Business Day) or as soon thereafter as
practicable after the conditions set forth in Section 5 have been satisfied or
(ii) if the over-allotment option described in Section 2(d) of the Underwriting
Agreement is not exercised, the 30th day following the Public Closing Date
(unless such day is not a Business Day, in which case the Buyback Closing Date
shall be on the next succeeding Business Day) or as soon thereafter as
practicable after the conditions set forth in Section 5 have been satisfied.

            (b) On the Buyback Closing Date, VW shall deliver to the Company
such instruments of transfer, in form and substance reasonably satisfactory to
the Company, as shall be sufficient to transfer the Buyback Shares to the
Company, and in exchange therefor (and upon receipt of confirmation from the
Company's transfer agent of its receipt of the instruments of transfer to be
delivered to it), the Company shall pay to VW in immediately available funds to
the account(s) designated by VW, an amount equal to (i) the aggregate Purchase
Price for the Buyback Shares plus (ii) the amount of the Underwriting Commission
Fees (as defined in Section 3.3), if any, minus (iii) the sum of (A) the amount
of the Registration Fees (as defined in Section 2.4) plus (B) the amount of the
Pre-registration Expenses (as defined in Section 8.1).

            (c) At the Buyback Closing, counsel to VW shall deliver its opinion
to the Company as to the matters set forth in Sections 4.1(a) and 4.3(ii) and
(iii), in form and substance substantially similar to the enforceability and
conveyance opinions delivered by such counsel in connection with the
Underwriting Agreement, and dated as of the Buyback Closing Date.

            (d) At the Buyback Closing, counsel to the Company shall deliver its
opinion to VW, as to the matters set forth in Section 4.1(a), in form and
substance substantially similar to the enforceability opinion delivered by such
counsel in connection with the Underwriting Agreement, and dated as of the
Buyback Closing Date.

      3.3 OVER-ALLOTMENT SHARES. Any shares of the Common Stock purchased by the
underwriters of the Public Sale pursuant to the exercise of the over-allotment
option described in Section 2(d) of the Underwriting Agreement (the
"Over-allotment Shares") shall reduce, on a one-for-one basis, the number of
Buyback Shares that the Company is required to purchase at the Buyback Closing.
The Company shall pay to VW on the Buyback Closing Date, in the manner provided
in Section 3.2(b), an amount equal to 50% of the aggregate amount of
underwriting discounts and commissions paid by VW or deducted by the
underwriters of the Public Sale in connection with the purchase of the
Over-allotment Shares (the "Underwriting Commission Fees").

                 SECTION 4 - REPRESENTATIONS AND WARRANTIES

      4.1 BY THE PARTIES. Each of VE, VW and VNAC represents and warrants to the
Company, and the Company represents and warrants to VE, VW and VNAC, as follows:

            (a) It has all necessary authority for the execution, delivery and
performance of this Agreement by it; it has duly executed and delivered this
Agreement; and this Agreement is a valid and

                                       5
<PAGE>
legally binding agreement, enforceable against it in accordance with its terms,
assuming the due execution and delivery by the other parties; and

            (b) The performance of this Agreement by it will not violate or
conflict with any law, regulation, order or agreement, or, to the extent
applicable, such party's charter or organizational documents, and such party is
not required to obtain any governmental approvals or third party consents to
enter into and perform its obligations pursuant to this Agreement. Such
execution and performance does not and will not constitute a default under any
agreement or obligation binding on it or result in the forfeiture or loss of any
rights or assets by it except as specifically provided for in this Agreement.

      4.2 BY THE COMPANY, VW AND VNAC. The Company represents to VW and VNAC and
each of VW and VNAC represents to the Company that the Underwriting Agreement,
when executed and delivered, will be a valid and legally binding agreement,
enforceable against it in accordance with its terms, assuming the due execution
and delivery by the other parties.

      4.3 BY VW. VW represents and warrants to the Company that (i) it is the
beneficial owner of 10,334,221 shares of the Common Stock (the "VW Shares") and
owns no other shares of the Common Stock, (ii) the Buyback Shares are owned, and
will at the Buyback Closing be conveyed to the Company by VW, free and clear of
any liens, charges or encumbrances, (iii) upon delivery of the Buyback Shares,
and payment therefor pursuant hereto, good and valid title to the Buyback Shares
will pass to the Company, (iv) the VW Shares included in the Option Shares (as
defined in Section 6.2) (if any) are owned, and will on the date of any closing
with respect to the Option Shares (if any) be conveyed to the Company by VW,
free and clear of any liens, charges or encumbrances and (v) upon delivery of
the VW Shares included in the Option Shares (if any), and payment therefor
pursuant hereto, good and valid title to the VW Shares included in the Option
Shares (if any) will pass to the Company.

      4.4 BY VNAC. VNAC represents and warrants to the Company that (i) it is
the beneficial owner of 761,654 shares of the Common Stock (the "VNAC Shares")
and owns no other shares of the Common Stock, (ii) the VNAC Shares included in
the Option Shares (if any) are owned, and will on the date of any closing with
respect to the Option Shares (if any) be conveyed to the Company by VNAC, free
and clear of any liens, charges or encumbrances and (iii) upon delivery of the
VNAC Shares included in the Option Shares (if any), and payment therefor
pursuant hereto, good and valid title to the VNAC Shares included in the Option
Shares (if any) will pass to the Company.

      4.5 BY VE. VE represents and warrants to the Company that, except to the
extent it may be deemed to be the beneficial owner of the VW Shares and the VNAC
Shares, it owns no shares of the Common Stock.

      4.6 BY THE COMPANY. As of the date it became effective under the
Securities Act, the Registration Statement contained, and the prospectus
contained therein (the "Prospectus") and any amendments or supplements thereto
will contain, as of the date the Prospectus or any such amendment or supplement
is filed with the Securities and Exchange Commission (the "Commission"), all
statements which are required to be stated therein by, and will conform in all
material respects to, the requirements of the Securities Act and the rules and
regulations of the Commission thereunder. The documents incorporated, or to be
incorporated, by reference in the Prospectus, at the time they became effective
or were or will be filed with the Commission, conformed or will conform, as the
case may be, in all material respects, to the requirements of the Exchange Act
or the Securities Act, as applicable, and the rules and regulations of the
Commission thereunder. The Registration Statement and any amendment thereto will
not contain, as of the date it becomes effective, any untrue statement of a
material fact and will not omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Prospectus and any
amendments

                                       6
<PAGE>
and supplements thereto, as of the date the Prospectus or any such amendment or
supplement is filed with the Commission, will not contain any untrue statement
of material fact and will not omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided however, that
the Company makes no representations or warranties as to the information
contained in or omitted from the Registration Statement or the Prospectus, or
any such amendment or supplement, in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of VE, VW or VNAC
or any underwriter set forth in the Underwriting Agreement, specifically for use
in the preparation thereof.

      4.7 NO OTHER WARRANTIES. Except as expressly set forth in this Agreement,
no party is relying on any express or implied representations or warranties
relating to any party or to the consummation of the transactions contemplated
hereby. Except as and to the extent expressly set forth in this Agreement, each
party hereto hereby disclaims all liability and responsibility for any statement
or information made or communicated (orally or in writing) to any other party
hereto or any affiliate, representative or agent thereof (including without
limitation any opinion, information or advice by any officer, director,
consultant, affiliate, representative or agent of the disclaiming party).

    SECTION 5 - CONDITIONS TO THE PARTIES' OBLIGATIONS TO CONSUMMATE THE
                                     BUYBACK

      5.1 CONDITIONS TO THE OBLIGATIONS OF VW TO CONSUMMATE THE BUYBACK. The
obligation of VW to consummate the Buyback is subject to the satisfaction (or
waiver) of the following conditions:

            (a) No Injunctions. There shall not be in effect any statute,
regulation, order, decree or judgment of any Governmental Entity that makes
illegal or enjoins or prevents in any material respect the consummation of the
transactions contemplated by this Agreement.

            (b) Representations. All representations made by the Company in
Section 4 hereof shall be true and correct in all material respects at and as of
the Buyback Closing Date.

            (c) The Public Sale. The Public Closing shall have occurred.

            (d) Legal Opinion. The legal opinion referred to in Section 3.2(d)
shall have been delivered to VW.

      5.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO CONSUMMATE THE
BUYBACK. The obligation of the Company to consummate the Buyback is subject to
the satisfaction (or waiver) of the following conditions:

            (a) No Injunctions. There shall not be in effect any statute,
regulation, order, decree or judgment of any Governmental Entity that makes
illegal or enjoins or prevents in any material respect the consummation of the
transactions contemplated by this Agreement.

            (b) Representations. All representations made by VE, VW and VNAC in
Section 4 hereof shall be true and correct in all material respects at and as of
the Buyback Closing Date.

            (c) The Public Sale. The Public Closing shall have occurred.

            (d) Legal Opinion. The legal opinion referred to in Section 3.2(c)
shall have been delivered to the Company.

                                       7
<PAGE>
                                  SECTION 6-COVENANTS

         6.1      RESTRICTIONS ON SALE OF SECURITIES. VE, VW and VNAC and the
Company agree that the provisions contained in Sections 4(b)(i) and 4(a)(viii)
of the Underwriting Agreement regarding restrictions on the sale of securities
of the Company by VE, VW and VNAC and the Company, respectively, shall apply as
of the date hereof until the earlier to occur of (i) the termination of this
Agreement and (ii) the expiration of such restrictions in accordance with the
terms of the Underwriting Agreement.

         6.2      UNSOLD REGISTERED SHARES.

                  (a) Each of VW and VNAC hereby grants to the Company an option
to purchase at a cash purchase price per share equal to the Purchase Price any
or all of the Subject Shares that are not sold in the Public Sale (the
"Option"). "Subject Shares" shall mean the number of shares of the Common Stock
held by VW and VNAC after the Public Closing Date other than the Buyback Shares.

                  (b) The Company's right to exercise the Option is subject to
the condition that the Public Closing occur.

                  (c) The Option may be exercised by the Company at any time
within 30 days following the Public Closing Date. In the event the Company
wishes to exercise the Option, the Company shall send a written notice to VW and
VNAC , with a copy to VE (the "Option Exercise Notice"), specifying the total
number of Subject Shares it wishes to purchase (the "Option Shares"); provided
that the Option Exercise Notice is delivered no later than three Business Days
prior to the Option Closing Date. The closing of such purchase (the "Option
Closing") shall take place on the Buyback Closing Date (the "Option Closing
Date").

                  (d) On the Option Closing Date, VW and VNAC shall deliver to
the Company such instruments of transfer, in form and substance reasonably
satisfactory to the Company, as shall be sufficient to transfer the Option
Shares to the Company, and in exchange therefor (and upon receipt of
confirmation from the Company's transfer agent of its receipt of the instruments
of transfer to be delivered to it) the Company shall pay to VW and VNAC the
aggregate Purchase Price for the Option Shares in immediately available funds to
the account(s) designated by VW and VNAC.

                  (e) At the Option Closing, counsel to VW and VNAC shall
deliver its opinion to the Company as to the matters set forth in Sections
4.3(iv) and (v) and Sections 4.4 (ii) and (iii), in form and substance
substantially similar to the conveyance opinion delivered by such counsel in
connection with the Underwriting Agreement, and dated as of the Option Closing
Date.

                  (f) The Option Closing shall take place at the offices of
Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, PA 19103, or at
such other place as VW, VNAC and the Company shall agree, at 9:00 a.m. (local
time) on the Option Closing Date.

                             SECTION 7 -TERMINATION

         7.1      TERMINATION. This Agreement may be terminated at any time
prior to the Buyback Closing:

                  (a) by written agreement of VE, VW, VNAC and the Company;

                                       8
<PAGE>

                  (b) either by VE, VW and VNAC or by the Company, by written
notice of such termination to the other, if the Underwriting Agreement has not
been executed on or prior to 6:00 p.m. Eastern Standard time on September 30,
2002;

                  (c) either by VE, VW and VNAC or by the Company if any court
of competent jurisdiction or other competent Governmental Entity shall have by
statute, rule, regulation, order, decree or injunction or other action
permanently restrained, enjoined or otherwise prohibited any of the transactions
contemplated by this Agreement.

         7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Company or VE as provided in Section 7.1, this Agreement
will forthwith become void and have no effect, other than the provisions of
Sections 2.3 and 2.4, which provisions shall survive such termination.

                            SECTION 8 - MISCELLANEOUS

         8.1 PRE-REGISTRATION EXPENSES. VE will reimburse the Company for the
fees and disbursements of the Company's legal counsel (up to a maximum amount of
$60,000) billed in connection with legal services rendered prior to April 1,
2002 in evaluating VE's proposals regarding potential transactions involving the
shares of the Common Stock held by VW and VNAC (the "Pre-registration Legal
Expenses"). VE will reimburse the Company for up to $20,000 of expenses billed
by UBS Warburg LLC in connection with its engagement by the Company (together
with the Pre-registration Legal Expenses, the "Pre-registration Expenses"). The
Company shall deduct the Pre-registration Expenses from the funds transferred to
VW on the Buyback Closing Date as provided in Section 3.2(b).

         8.2 NOTICES. All notices or other communications hereunder shall be
deemed to have been duly given and made if in writing and if served by personal
delivery upon the party for whom it is intended, if delivered registered or
certified mail, return receipt requested, or by a national or international
courier service, if sent by facsimile transmission, provided that the facsimile
transmission is promptly confirmed by telephone confirmation thereof, or on the
third day after posting in the United States postage prepaid if sent by
registered or certified mail, return receipt requested, to the person at the
address set forth below, or such other address as may be designated in writing
hereafter, in the same manner, by such person:

                  To the Company:

                  Philadelphia Suburban Corporation
                  762 W. Lancaster Avenue
                  Bryn Mawr, PA 19010
                  Attention:  Roy H. Stahl, Esq.
                  Executive Vice President and General Counsel
                  Fax:  610.645.1061

                                       9
<PAGE>

                  with a copy to:

                  Morgan, Lewis & Bockius LLP
                  1701 Market Street
                  Philadelphia, PA  19103
                  Attention:  Stephen A. Jannetta, Esq.
                  Fax:  215.963.5299

                  To VE, VW or VNAC:

                  Vivendi Environnement S.A.
                  36-38, avenue Kleber
                  75116 Paris
                  France
                  Attention:  Jerome Contamine
                  Fax:  (+33.1)71.75.10.09

                  Vivendi Water S.A.
                  52, rue d'Anjou
                  75008 Paris
                  France
                  Attention:  Olivier Grunberg
                  Fax: (+33.1) 49.24.69.11

                  Vivendi North America Company
                  60 East 42nd Street, 36th Floor
                  New York, NY 10165
                  Attention: Jerome Contamine
                  Fax: (+33.1) 71.75.10.09

                  with a copy to:

                  Cleary, Gottlieb, Steen & Hamilton
                  41, avenue de Friedland
                  75008 Paris
                  France
                  Attention:  Andrew A. Bernstein, Esq.
                  Fax: (+33.1) 45.63.66.37

         8.3 AMENDMENT; WAIVER. Any provision of this Agreement may be amended
or waived if, and only if, such amendment or waiver is in writing and signed, in
the case of any amendment, by the parties hereto, or in the case of a waiver, by
the party against whom the waiver is to be effective. No failure or delay by any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and,
except as otherwise provided herein, shall not be exclusive of any rights or
remedies provided by law.

         8.4 ASSIGNMENT. No party to this Agreement may assign any of its rights
or obligations under this Agreement without the consent of the other party
hereto.

                                       10
<PAGE>

         8.5 ENTIRE AGREEMENT. This Agreement (which includes the Exhibit
hereto) contains the entire agreement among the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and
understandings, oral or written, between or among them with respect to such
matters, and any written agreement of the parties that expressly provides that
it is not superseded by this Agreement.

         8.6 PARTIES IN INTEREST. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns. Except as expressly set forth herein, nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto, and their successors or permitted assigns, any rights or
remedies under or by reason of this Agreement.

         8.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK (without reference to its rules as to conflicts of laws).

         8.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.

         8.9 ACCESS TO INFORMATION. From the date hereof until the Public
Closing Date, the Company shall give VE and the Representatives (as defined in
the Underwriting Agreement) of the prospective underwriters in respect of the
Public Sale, and their respective accountants, attorneys, consultants, agents
and other representatives such access as may reasonably be requested, during
normal business days and working hours, to senior management and other
appropriate parties, and to appropriate records and documents to permit a
customary due diligence investigation of the Company's business and affairs and
evaluate the accuracy and completeness of the information set forth in the
Registration Statement. Any information obtained by VE as a result of such
access shall be used solely for the purpose of satisfying such due diligence
investigation. Any investigation pursuant to this Section shall be conducted in
such manner as not to interfere unreasonably with the conduct of the business of
the Company.

         8.10 FURTHER ASSURANCES. Each party hereto shall take such actions and
execute and deliver such other documents, certifications and further assurances
as the other party hereto may reasonably request in order to carry out the
purposes of this Agreement. In furtherance of the foregoing, the Company will
make available, at locations selected by UBS Warburg LLC and Deutsche Bank
Securities Inc., as representatives of the underwriters of the Public Sale,
including locations in Europe if requested, its chief executive officer, its
chief financial officer and its advisors, upon reasonable advance notice, for
meetings with prospective purchasers of the Registered Shares and for road show
presentations regarding the Company's business.

         8.11 PUBLIC ANNOUNCEMENT. Except to the extent required by law or stock
exchange rule (and then only after prior notice to and consultation with the
other), neither VE, VW, VNAC nor the Company nor their respective
representatives will, without the other party's prior written consent, disclose
to any person (other than the persons employed by either VE, VW, VNAC, U.S.
Filter Corp., or the Company or their respective representatives who are
actively and directly participating in the transactions contemplated by this
Agreement) any information about the transactions contemplated by this Agreement
or the terms, conditions or other facts relating thereto, including the fact
that discussions are taking place with respect thereto or the status thereof or
the contents of any proposal with respect thereto.

                                       11
<PAGE>

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

                                            PHILADELPHIA SUBURBAN CORPORATION

                                            By: /s/ Nicholas D. DeBenedictis
                                               ________________________________
                                                 Name: Nicholas D. DeBenedictis
                                                 Title: Chairman and Chief
                                                        Executive Officer

                                            VIVENDI ENVIRONNEMENT S.A.

                                            By: /s/ Jerome Contamine
                                               ________________________________
                                                 Name: Jerome Contamine
                                                 Title: Chief Financial Officer

                                            VIVENDI WATER S.A.

                                            By: /s/ Olivier Grunberg
                                               ________________________________
                                                 Name: Olivier Grunberg
                                                 Title: Chief Financial Officer

                                            VIVENDI NORTH AMERICA COMPANY

                                            By: /s/ Jerome Contamine
                                               ________________________________
                                                 Name: Jerome Contamine
                                                 Title: President

<PAGE>
                                                                     Exhibit A

                                8,595,875 Shares

                        Philadelphia Suburban Corporation

                                  Common Stock

                                ($.50 Par Value)

                             UNDERWRITING AGREEMENT

                                                                       [ , 2002]

Deutsche Bank Securities Inc.
UBS Warburg LLC
As Representatives of the
      several Underwriters

c/o  Deutsche Bank Securities Inc.
One South Street
Baltimore, Maryland 21202

Ladies and Gentlemen:

      Certain shareholders named in Schedule II hereto (the "SELLING
SHAREHOLDERS") of Philadelphia Suburban Corporation, a Pennsylvania corporation
(the "COMPANY"), propose to sell to the several underwriters (the
"UNDERWRITERS") named in Schedule I hereto for whom you are acting as
representatives (the "REPRESENTATIVES") an aggregate of 8,595,875 shares of the
Company's Common Stock, $.50 par value (the "FIRM SHARES"). The respective
amounts of the Firm Shares to be so purchased by the several Underwriters are
set forth opposite their names in Schedule I hereto, and the respective amounts
to be sold by the Selling Shareholders are set forth opposite their names in
Schedule II hereto. Vivendi Water S.A. (the "OPTION SELLING SHAREHOLDER") also
proposes to sell at the Underwriters' option an aggregate of up to 1,289,381
additional shares of the Company's Common Stock (the "OPTION SHARES") as set
forth below.

      As the Representatives, you have advised the Company and the Selling
Shareholders (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers

                                       A-1
<PAGE>
of Firm Shares set forth opposite their respective names in Schedule I, plus
their pro rata portion of the Option Shares if you elect to exercise the
over-allotment option in whole or in part for the accounts of the several
Underwriters. The Firm Shares and the Option Shares (to the extent the
aforementioned option is exercised) are herein collectively called the "SHARES."

      In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:

      1.    REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDERS.

            (a)  The Company represents and warrants to each of the Underwriters
and the Selling Shareholders as follows:

            (i) A registration statement on Form S-3 (File No. 333-______) with
respect to the Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "ACT"), and the
rules and regulations (the "RULES AND REGULATIONS") of the Securities and
Exchange Commission (the "COMMISSION") thereunder and has been filed with the
Commission. The Company and the offering and sale of the Shares contemplated by
this Agreement meet the requirements and comply with the conditions for the use
of Form S-3. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you or your representatives or are publicly available in accordance
with the Rules and Regulations. Such registration statement, together with any
registration statement filed by the Company pursuant to Rule 462 (b) of the Act,
is herein referred to as the "REGISTRATION STATEMENT," which shall be deemed to
include all information omitted therefrom in reliance upon Rule 430A and
contained in the Prospectus referred to below, has become effective under the
Act and no post-effective amendment to the Registration Statement has been filed
as of the date of this Agreement. "PROSPECTUS" means the form of prospectus
first filed with the Commission pursuant to Rule 424(b). Each preliminary
prospectus included in the Registration Statement prior to the time the
Registration Statement becomes effective is herein referred to as a "PRELIMINARY
PROSPECTUS." Any reference herein to the Registration Statement, any Preliminary
Prospectus or to the Prospectus or to any amendment or supplement to any of the
foregoing documents shall be deemed to refer to and include any documents
incorporated by reference therein, and, in the case of any reference herein to
any Prospectus, also shall be deemed to include any documents incorporated by
reference therein, and any supplements or amendments thereto, filed with the
Commission after the date of filing of the Prospectus under Rules 424(b) or
430A, and prior to the termination of the offering of the Shares by the
Underwriters.

            (ii) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the Commonwealth of
Pennsylvania, with corporate power and

                                       A-2
<PAGE>
authority to own or lease its properties and conduct its business as described
in the Registration Statement. Each of the significant subsidiaries of the
Company as listed on Schedule III (collectively, the "SUBSIDIARIES") has been
duly organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, with corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement. The Company and each of the Subsidiaries are duly
qualified to transact business in all jurisdictions in which the conduct of
their business requires such qualification, except for such jurisdictions where
the failure to so qualify would not have a material adverse effect on the
earnings, business, management, properties, assets, rights, operations or
condition (financial or otherwise) of the Company and of the Subsidiaries taken
as a whole (a "MATERIAL ADVERSE EFFECT"). The outstanding shares of capital
stock of each of the Subsidiaries have been duly authorized and validly issued,
are fully paid and non-assessable and are owned by the Company or another
Subsidiary free and clear of all liens, encumbrances and equities and claims;
and no options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into shares of
capital stock or ownership interests in the Subsidiaries are outstanding, other
than those described in the Registration Statement or described in any document
incorporated by reference therein.

            (iii) The outstanding shares of Common Stock of the Company,
including all shares to be sold by the Selling Shareholders, have been duly
authorized and validly issued and are fully paid and non-assessable and no
preemptive rights of shareholders exist with respect to any of the Shares or the
issue and sale thereof, other than those described in the Registration Statement
or described in any document incorporated by reference therein. Neither the
filing of the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than those which
have been waived or satisfied, for or relating to the registration of any shares
of Common Stock.

            (iv) All of the Shares conform in all material respects to the
description thereof contained in or incorporated by reference in the
Registration Statement. The form of certificates for the Shares conforms to the
corporate law of the jurisdiction of the Company's incorporation.

            (v) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. As of the date it became effective
under the Act, the Registration Statement contained, and the Prospectus and any
amendments or supplements thereto will contain, as of the date the Prospectus,
such amendment or supplement is filed with the Commission, all statements which
are required to be stated therein by, and conforms to, or will conform to, as
the case may be, the requirements of the Act and the Rules and Regulations. The
documents incorporated, or to be incorporated, by reference in the Prospectus,
at the time they became effective or were or will be filed with the Commission
as the case may be, conformed or will conform, as the case may be, in all
material respects to the requirements of the Securities Exchange Act of 1934
("EXCHANGE ACT") or the Act, as applicable, and the rules and regulations of the
Commission thereunder. The

                                       A-3
<PAGE>
Registration Statement did not, as of the date it became effective, contain and
any amendment thereto will not contain, any untrue statement of a material fact
and did not omit, and will not omit, to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Prospectus and any
amendments and supplements thereto, as of the date the Prospectus, such
amendment or supplement is filed with the Commission do not contain, and will
not contain, any untrue statement of material fact; and do not omit and will not
omit, to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted from the
Registration Statement or the Prospectus, or any such amendment or supplement,
in reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of any Underwriter through the Representatives or the
Selling Shareholders, specifically for use in the preparation thereof.

            (vi) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth or
incorporated by reference in the Registration Statement, present fairly in all
material respects the financial position and the results of operations and cash
flows of the Company and the consolidated Subsidiaries, at the indicated dates
and for the indicated periods. Such financial statements and related schedules
have been prepared in accordance with generally accepted principles of
accounting, consistently applied throughout the periods involved, except as
disclosed therein in all material respects, and all adjustments necessary for a
fair presentation of results for such periods have been made. The summary
financial and statistical data included or incorporated by reference in the
Registration Statement presents fairly in all material respects the information
shown therein and such data has been compiled on a basis consistent with the
financial statements presented therein and the books and records of the company.

            (vii) PricewaterhouseCoopers LLP, who have certified certain of the
financial statements filed with the Commission as part of, or incorporated by
reference in, the Registration Statement, are independent public accountants as
required by the Act and the Rules and Regulations. KPMG LLP, who have certified
the financial statements for fiscal year 1999 filed with the Commission as part
of, or incorporated by reference in, the Registration Statement, are independent
public accountants as required by the Act and the Rules and Regulations.

            (viii) There are no legal or governmental proceedings pending to
which the Company or the Subsidiaries is a party or of which any property of the
Company or the Subsidiaries is the subject that are required to be disclosed in
the Registration Statement that are not so disclosed as required; and to the
Company's knowledge, no such proceedings are threatened or contemplated.

            (ix) Each of the Company and the Subsidiaries has good and
marketable title to all of their respective properties and assets reflected in
the consolidated financial statements

                                        A-4
<PAGE>
hereinabove described except where the failure to have such title would not have
a Material Adverse Effect, subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except those reflected in such financial statements or
described in the Registration Statement or which are not material in amount.
Each of the Company and the Subsidiaries occupies their leased properties under
valid and existing leases, with only such exceptions with respect to any
particular lease as do not interfere in any material respect with the conduct of
the business of the Company.

            (x) Each of the Company and the Subsidiaries has filed all material
Federal, State, local and foreign tax returns, or have filed for extensions of
the due dates for such returns which have been required to be filed and have
paid all taxes indicated by such returns and all assessments received by them or
any of them to the extent that such taxes have become due, or has received
timely extensions thereof, other than any taxes which the Company or any
Subsidiary is contesting in good faith. The Company does not know of any actual
or proposed additional material tax assessments.

            (xi) Since the respective dates as of which information is given or
incorporated by reference in the Registration Statement, as it may be amended or
supplemented, except as described therein or in such incorporated information,
there has not been any change or any development that has had or will have a
Material Adverse Effect, whether or not occurring in the ordinary course of
business, and there has not been any material transaction entered into by the
Company or the Subsidiaries, other than transactions in the ordinary course of
business and changes and transactions described in the Registration Statement,
as it may be amended or supplemented. Each of the Company and the Subsidiaries
has no material contingent obligations which are not disclosed in the Company's
financial statements which are included in the Registration Statement.

            (xii) Neither the Company nor any of the Subsidiaries is or with
the giving of notice or lapse of time or both, will be, in violation of or in
default under (i) its Charter or By-Laws, or (ii) under any agreement, lease,
contract, indenture or other instrument or obligation to which it is a party or
by which it, or any of its properties, is bound and, solely with respect to this
clause (ii), which violation or default would have a Material Adverse Effect.
The execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof will
not conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, any material indenture, mortgage, deed of trust or
other material agreement or instrument to which the Company or any Subsidiary is
a party or by which the Company or any Subsidiary or any of their respective
properties is bound, or of the Charter or By-Laws of the Company or any law,
order, rule or regulation judgement, order, writ or decree applicable to the
Company or any Subsidiary of any court or of any government, regulatory body or
administrative agency or other governmental body having jurisdiction, except
where such breach or default would not, except with respect to the Charter or
By-laws individually or in the aggregate, have a Material Adverse Effect.

                                       A-5
<PAGE>
            (xiii) The execution and delivery of, and the performance by the
Company of its obligations under, this Agreement has been duly and validly
authorized by all necessary corporate action on the part of the Company, and
this Agreement has been duly executed and delivered by the Company.

            (xiv) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.

            (xv) Each of the Company and the Subsidiaries holds, has obtained
or meets the requirements for all material licenses, certificates and permits,
consents, orders, approvals and other authorizations from governmental
authorities which are necessary to the conduct of their businesses and has made
all declarations and filings with, all federal, state, local and other
governmental authorities (including foreign regulatory agencies), all
self-regulatory organizations and all courts and other tribunals, domestic or
foreign, necessary to own or lease, as the case may be, and to operate its
properties and to carry on its business as conducted as of the date hereof,
except where the lack thereof would not have a Material Adverse Effect, and
neither the Company nor any such subsidiary has received any actual written
notice of any proceeding relating to revocation or modification of any such
material license, permit, certificate, consent, order, approval or other
authorization that would materially interfere with its ownership or lease, as
the case may be, or the operation of its properties or the carrying on of its
business as conducted on the date hereof, except as described in the
Registration Statement and the Prospectus; and each of the Company and its
subsidiaries is in material compliance with all laws and regulations relating to
the conduct of its business as conducted as of the date hereof, except where
such noncompliance would not have a Material Adverse Effect.

            (xvi) Neither the Company, nor to the Company's knowledge, any of
its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares.

            (xvii) Neither the Company nor any Subsidiary is an "investment
company" or an entity "controlled" by an "investment company" within the meaning
of such terms under the Investment Company Act of 1940, (as amended, the "1940
ACT") and the rules and regulations of the Commission thereunder.

            (xviii) The Company and each of its Subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurances that
in all material respects (i)

                                       A-6
<PAGE>
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

            (xix) The Company and each of its Subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks relative to the conduct of
their respective businesses as currently conducted and the value of their
respective properties and as is reasonable and customary for companies engaged
in similar businesses.

            (xx) There are no existing or, to the best knowledge of the Company,
threatened labor disputes with the employees of the Company or any of the
Subsidiaries which are likely to have a Material Adverse Effect.

            (xxi) Except as described in the Registration Statement or any of
the documents incorporated by reference therein, the Company and each of its
Subsidiaries (i) are in compliance with any and all applicable foreign, federal,
state and local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received or meets
the requirements for all material permits, licenses or other approvals required
of them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any such
permit, license or approval, except where such noncompliance with Environmental
Laws, failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits, licenses or
approvals would not, singly or in the aggregate, have a Material Adverse Effect.
Except as described in the Registration Statement or any of the documents
incorporated by reference therein, there are no legal or governmental
proceedings pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries under any Environmental Law
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.

            (xxii) In the ordinary course of its business, the Company reviews
of the effect of Environmental Laws on the business, operations and properties
of the Company and each of its subsidiaries, in the course of which it
identifies and evaluates associated costs and liabilities (including, without
limitation, any capital or operating expenditures required for clean-up, closure
of properties or compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties). Except as described in the Registration Statement
or any of the documents incorporated by reference therein, on the basis of such
review, the Company has reasonably concluded that such

                                       A-7
<PAGE>
associated costs and liabilities would not, singly or in the aggregate, have a
Material Adverse Effect.

      (b)   Each of the Selling Shareholders severally represents and
warrants as follows:

            (i) Such Selling Shareholder now has and at the Closing Date and the
Option Closing Date, as the case may be (as such dates are hereinafter defined)
will have good and marketable title to the Firm Shares and the Option Shares to
be sold by such Selling Shareholder, free and clear of any liens, encumbrances,
equities and claims, and full right, power and authority to effect the sale and
delivery of such Firm Shares and Option Shares; and upon the delivery of,
against payment for, such Firm Shares and Option Shares pursuant to this
Agreement, the Underwriters will acquire good and marketable title thereto, free
and clear of any liens, encumbrances, equities and claims.

            (ii) Such Selling Shareholder has full right, power and authority to
execute and deliver this Agreement and to perform its obligations under this
Agreement. The execution and delivery of this Agreement and the consummation by
such Selling Shareholder of the transactions herein contemplated and the
fulfillment by such Selling Shareholder of the terms hereof will not require any
consent, approval, authorization, or other order of any court, regulatory body,
administrative agency or other governmental body (except as may be required
under the Act, state securities laws or Blue Sky laws) and will not result in a
breach of any of the terms and provisions of, or constitute a default under,
organizational documents of such Selling Shareholder, or any indenture,
mortgage, deed of trust or other agreement or instrument to which such Selling
Shareholder is a party, or of any order, rule or regulation applicable to such
Selling Shareholder of any court or of any regulatory body or administrative
agency or other governmental body having jurisdiction.

            (iii) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to, or which has constituted, or
which might reasonably be expected to cause or result in the stabilization or
manipulation of the price of the Common Stock of the Company and, other than as
permitted by the Act, such Selling Shareholder will not distribute any
prospectus or other offering material in connection with the offering of the
Shares.

            (iv) Without having undertaken to determine independently the
accuracy or completeness of either the representations and warranties of the
Company contained herein or the information contained in the Registration
Statement, such Selling Shareholder has no reason to believe that the
representations and warranties of the Company contained in this Section 1 are
not true and correct, is familiar with the Registration Statement and has no
knowledge of any material fact, condition or information not disclosed in the
Registration Statement which has adversely affected or may adversely affect the
business of the Company or any of the Subsidiaries; and the sale of the Firm
Shares and the Option Shares by such Selling Shareholder pursuant hereto is not
prompted by any information concerning the Company or any of the Subsidiaries
which is not set

                                       A-8
<PAGE>
forth in the Registration Statement or the documents incorporated by reference
therein. The information pertaining to such Selling Shareholder under the
caption "Selling Shareholders" in the Prospectus is complete and accurate in all
material respects.

      2.    PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.

            (a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Selling
Shareholders agree to sell to the Underwriters and each Underwriter agrees,
severally and not jointly, to purchase, at a net purchase price of $_____ per
share (representing the public offering price of $___ per share less
underwriting discounts and commissions of $___ per share), the number of Firm
Shares set forth opposite the name of each Underwriter in Schedule I hereof,
subject to adjustments in accordance with Section 9 hereof. The number of Firm
Shares to be purchased by each Underwriter from each Seller shall be as nearly
as practicable in the same proportion to the total number of Firm Shares being
sold by each Seller as the number of Firm Shares being purchased by each
Underwriter bears to the total number of Firm Shares to be sold hereunder. The
obligations of each of the Selling Shareholders shall be several and not joint.

            (b) Payment for the Firm Shares to be sold hereunder is to be made
in Federal (same day) funds to an account designated by each Selling Shareholder
for the shares to be sold by such Selling Shareholder, in each case against
delivery of the Firm Shares therefor to the Representatives for the several
accounts of the Underwriters. Such payment and delivery are to be made through
the facilities of The Depository Trust Company, New York New York ("DTC") at
10:00 a.m., New York time, on the third business day after the date of this
Agreement or at such other time and date not later than five business days
thereafter as you and the Company shall agree upon, such time and date being
herein referred to as the "Closing Date." (As used herein, "business day" means
a day on which the New York Stock Exchange is open for trading and on which
banks in New York are open for business and not permitted by law or executive
order to be closed.)

            (c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Option Selling Shareholder hereby grants an option to the several Underwriters
to purchase the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. No Option Shares shall be sold or delivered by the
Underwriters unless the Firm Shares previously have been, or simultaneously with
the Option Shares are, sold and delivered. The option granted hereby may be
exercised in whole or in part by giving written notice (i) at any time before
the Closing Date and (ii) only once thereafter within 30 days after the date of
this Agreement, by you, as Representatives of the several Underwriters, to the
Selling Shareholders and the Company setting forth the number of Option Shares
as to which the several Underwriters are exercising the option and the time and
date at which such Option Shares are to be delivered. The time and date at which
the Option Shares are to be delivered shall be determined by the Representatives
but shall not be later than three full business days after written notice of the
exercise of such option, nor in any event prior

                                       A-9
<PAGE>
to the Closing Date (such time and date being herein referred to as the "Option
Closing Date"). If the date of exercise of the option is three or more days
before the Closing Date, the notice of exercise shall set the Closing Date as
the Option Closing Date. The number of Option Shares to be purchased by each
Underwriter shall be in the same proportion to the total number of Option Shares
being purchased as the number of Firm Shares being purchased by such Underwriter
bears to the total number of Firm Shares, adjusted by you in such manner as to
avoid fractional shares. The option with respect to the Option Shares granted
hereunder may be exercised only to cover over-allotments in the sale of the Firm
Shares by the Underwriters. You, as Representatives of the several Underwriters,
may cancel such option at any time prior to its expiration by giving written
notice of such cancellation to the Selling Shareholders and the Company. To the
extent, if any, that the option is exercised, payment for the Option Shares
shall be made on the Option Closing Date in Federal (same day) funds to an
account designated by the Option Selling Shareholder for the Option Shares to be
sold by the Option Selling Shareholder against delivery of the Option Shares
through the facilities of DTC.

      3.    OFFERING BY THE UNDERWRITERS.

            It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the public
offering price set forth in the Prospectus. The Representatives may from time to
time thereafter change the public offering price and other selling terms. To the
extent, if at all, that any Option Shares are purchased pursuant to Section 2
hereof, the Underwriters will offer them to the public on the foregoing terms.

            It is further understood that you will act as the Representatives
for the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.

      4.    COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDERS.

            (a) The Company covenants and agrees with the several Underwriters
with respect to (i) through (x) below, and with the Selling Shareholders with
respect to (i) through (v) only that:

                  (i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus or document incorporated by reference
therein of which the Representatives or the Selling Shareholders shall not
previously have been advised and furnished with a copy or to which the
Representatives or the Selling Shareholders shall have reasonably

                                       A-10
<PAGE>
objected in writing or which is not in compliance with the Rules and Regulations
and (C) file on a timely basis all reports and any definitive proxy or
information statements required to be filed by the Company with the Commission
subsequent to the date of the Prospectus and prior to the termination of the
offering of the Shares by the Underwriters.

                  (ii) The Company will advise the Representatives and the
Selling Shareholders promptly of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the use of
the Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.

                  (iii) The Company will cooperate with the Representatives and
the Selling Shareholders in endeavoring to qualify the Shares for sale under the
securities laws of such jurisdictions as the Representatives may reasonably have
designated in writing and will make such applications, file such documents, and
furnish such information as may be reasonably required for that purpose,
provided the Company shall not be required to qualify as a foreign corporation
or to file a general consent to service of process in any jurisdiction where it
is not now so qualified or required to file such a consent. The Company will,
from time to time, prepare and file such statements, reports, and other
documents, as are or may be required to continue such qualifications in effect
for so long a period as the Representatives may reasonably request for
distribution of the Shares.

                  (iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to each Selling Shareholder one
copy of the Registration Statement including all exhibits filed therein and to
the Representatives such number of copies of the Registration Statement, one of
which will be signed and will include all exhibits filed therewith, and
documents incorporated by reference therein, and of all amendments thereto, as
the Representatives may reasonably request.

                  (v) Within the time during which a prospectus relating to the
Shares is required to be delivered under the Act, the Company will comply with
the Act and the Rules and Regulations, and the Exchange Act, and the rules and
regulations of the Commission thereunder, so as to permit the completion of the
distribution of the Shares as contemplated in this Agreement and the Prospectus.
If during the period in which a prospectus is required by law to be delivered by
an Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Underwriters or the
Selling Shareholders, it becomes necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the

                                       A-11
<PAGE>
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will either (i) prepare
and file with the Commission an appropriate amendment to the Registration
Statement or supplement to the Prospectus or (ii) prepare and file with the
Commission an appropriate filing under the Exchange Act which shall be
incorporated by reference in the Prospectus so that the Prospectus as so amended
or supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.

                  (vi) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earning
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.

                  (vii) The Company shall not (a) issue, offer, sell, contract
to sell, pledge or otherwise dispose of, directly or indirectly, or file with
the SEC any registration statement relating to, any additional shares of its
common stock or securities convertible into or exchangeable or exercisable for
any shares of its common stock, enter into a transaction which would have the
same effect or publicly disclose the intention to make any such offer, sale,
pledge, disposition or filing, or (b) grant any options whatsoever in respect of
its shares, except grants of employee stock options pursuant to the terms of a
plan in effect on the date of this Agreement, in each case for a period of 90
days after the date of this Agreement, without the prior written consent of the
Representatives. The foregoing restrictions shall not apply to any registration
statement, or any shares issued thereunder, relating to the Company's proposed
acquisition of Pennichuck Corporation, the issuance by the Company of up to
150,000 Shares under the Company's shelf registration statements or the issuance
of shares under the Company's Dividend Reinvestment and Direct Stock Purchase
Plan.

                  (viii) The Company has caused each executive officer and
director of the Company to furnish to you, on or prior to the date of this
agreement, a letter or letters, in form and substance satisfactory to the
Underwriters ("LOCKUP AGREEMENTS"), pursuant to which each such person shall
agree not to offer, sell, sell short or otherwise dispose of, directly or
indirectly, any shares of Common Stock of the Company or other capital stock of
the Company, or any other securities convertible, exchangeable or exercisable
for Common Shares or derivative of Common Shares owned by such person or request
the registration for the offer or sale of any of the foregoing (or as to which
such person has the right to direct the disposition of) for a period of 90 days
after the date of this Agreement, directly or indirectly, except with the prior
written consent of the Representatives.

                                       A-12
<PAGE>
                  (ix) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
for the Common Stock.

                  (x) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that constitutes or might reasonably
be expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.

            (b) Each of the Selling Shareholders covenants and agrees with each
of the several Underwriters that:

                  (i) Each Selling Shareholder shall not offer, sell, contract
to sell, pledge or otherwise dispose of, directly or indirectly, any additional
shares of the Company's common stock or securities convertible into or
exchangeable or exercisable for any shares of the Company's common stock, enter
into a transaction which would have the same effect or publicly disclose the
intention to make any such offer, sale, pledge, disposition or filing for a
period of 90 days after the date of this Agreement, without the prior written
consent of the Representatives. The foregoing restrictions shall not apply to
the proposed purchase by the Company of 2,500,000 shares from the Selling
Shareholders, as described in the Registration and Share Purchase Agreement
between the Company and the Selling Shareholders.

                  (ii) In order to document the Underwriters' compliance with
the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 and the Interest and Dividend Tax Compliance Act of
1983 with respect to the transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-8 or W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).

                  (iii) Such Selling Shareholder will not take, directly or
indirectly, any action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.

      5.    COSTS AND EXPENSES.

            The parties agree that the Underwriters shall not be responsible for
the following expenses (1) accounting fees of the Company; (2) the fees and
disbursements of counsel for the Company and the Selling Shareholders; (3) the
cost of printing and delivering to, or as requested by, the Underwriters copies
of the Registration Statement, Preliminary Prospectuses and the Prospectus, and
any supplements or amendments thereto; (4) the filing fees of the Commission;
(5) the filing fees and expenses (including legal fees and disbursements)
incident to securing any required review by the NASD of the terms of the sale of
the Shares; (6) and the expenses, including the fees and disbursements of
counsel for the Underwriters, incurred in connection with the qualification of
the Shares under State securities or Blue Sky laws. Nothing herein, however,
shall

                                       A-13
<PAGE>
prevent the Company and the Selling Shareholders from apportioning such costs
among themselves under separate agreements. To the extent, if at all, that any
of the Selling Shareholders engage special legal counsel to represent them in
connection with this offering, the fees and expenses of such counsel shall be
borne by such Selling Shareholder. Any transfer taxes imposed on the sale of the
Shares to the several Underwriters will be paid by the Selling Shareholders pro
rata. The Company and the Selling Shareholders shall not, however, be required
to pay for any of the Underwriters' expenses (other than those related to
qualification under NASD regulation and State securities or Blue Sky laws)
except that, if this Agreement shall not be consummated because the conditions
in Section 6 hereof are not satisfied, or because this Agreement is terminated
by the Representatives pursuant to Section 11 hereof, or by reason of any
failure, refusal or inability on the part of the Company or the Selling
Shareholders to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on their part to be
performed, unless such failure, refusal or inability is due primarily to the
default or omission of any Underwriter, the Selling Shareholders shall reimburse
the several Underwriters for reasonable out-of-pocket expenses, including fees
and disbursements of counsel, reasonably incurred in connection with
investigating, marketing and proposing to market the Shares or in contemplation
of performing their obligations hereunder; but the Company and the Selling
Shareholders shall not in any event be liable to any of the several Underwriters
for damages on account of loss of anticipated profits from the sale by them of
the Shares.

      6.    CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.

            The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option Closing
Date are subject to the accuracy, as of the Closing Date or the Option Closing
Date, as the case may be, of the representations and warranties of the Company
and the Selling Shareholders contained herein, and to the performance by the
Company and the Selling Shareholders of their covenants and obligations
hereunder and to the following additional conditions:

            (a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Act shall have been made within the applicable time period
prescribed by, and in compliance with, the Rules and Regulations, and any
request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and no proceedings for that purpose
shall have been taken or, to the knowledge of the Company or the Selling
Shareholders, shall be contemplated or threatened by the Commission and no
injunction, restraining order or order of any nature by a Federal or state court
of competent jurisdiction shall have been issued as of the Closing Date which
would prevent the issuance of the Shares.

                                       A-14
<PAGE>
            (b) The Representatives and the Selling Shareholders shall have
received on the Closing Date or the Option Closing Date, as the case may be, the
opinions of Morgan, Lewis & Bockius LLP ("MORGAN LEWIS"), counsel for the
Company, dated the Closing Date or the Option Closing Date, as the case may be,
addressed to the Underwriters (and stating that it may be relied upon by counsel
to the Underwriters) and the Selling Shareholders to the effect that:

                  (i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the Commonwealth of
Pennsylvania, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement; each of
Pennsylvania Suburban Water Company ("PSWC") and Consumers Water Company ("CWC")
has been duly organized and is validly existing as a corporation in good
standing under the laws of the Commonwealth of Pennsylvania, with corporate
power and authority to own or lease its properties and conduct its business as
described in the Registration Statement; the Company is duly qualified to
transact business in all jurisdictions in which the conduct of its business
requires such qualification, or in which the failure to qualify would have a
materially adverse effect upon the business of the Company and the Subsidiaries
taken as a whole; and the outstanding shares of capital stock of each of PSWC
and CWC have been duly authorized and validly issued and are fully paid and
non-assessable and are owned by the Company; and, to the best of such counsel's
knowledge, the outstanding shares of capital stock of each of PSWC and CWC is
owned free and clear of all liens, encumbrances and equities and claims.

                  (ii) The authorized shares of the Company's Common Stock have
been duly authorized; the outstanding shares of the Company's Common Stock,
including the Shares to be sold by the Selling Shareholders, have been duly
authorized and validly issued and are fully paid and non-assessable; all of the
Shares conform in all material respects as to legal matters to the description
thereof contained in the Prospectus; the certificates for the Shares, assuming
they are in the form filed with the Commission; conform to the requirements of
the Pennsylvania Business Corporation Law of 1988, as amended (the "PBCL"); and
no preemptive rights of shareholders exist with respect to any of the Shares or
the issue or sale thereof arising under the Company's Charter, By-laws or the
PBCL.

                  (iii) Based upon the oral advice of a member of the Staff of
the Commission, the Registration Statement has become effective under the Act
and, to the best of the knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened under the
Act.

                  (iv) The Registration Statement, as of the date it became
effective, the Prospectus and each amendment or supplement thereto and document
incorporated by reference therein, as of each of their respect dates, comply as
to form in all material respects with the requirements of the Act or the
Exchange Act as applicable and the applicable rules and regulations

                                       A-15
<PAGE>
thereunder (except that such counsel need express no opinion as to the financial
statements and related schedules incorporated by reference therein).

                  (v) The statements under the captions "Recent Developments --
Pennichuck Acquisition" and "Relationship with Vivendi Environnment S.A. --
Agreement to Repurchase Shares and Financing Plan" in the Prospectus, insofar as
such statements constitute a summary of documents referred to therein or matters
of law, fairly summarize in all material respects the information called for
with respect to such documents and matters.

                  (vi) Such counsel does not know of any contracts or documents
required to be filed as exhibits to or incorporated by reference in the
Registration Statement or described in the Registration Statement or the
Prospectus which are not so filed, incorporated by reference or described as
required, and to counsel's knowledge, such contracts and documents as are
summarized in the Registration Statement or the Prospectus are fairly summarized
in all material respects.

                  (vii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any of the Subsidiaries
except as set forth in the Prospectus.

                  (viii) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not violate
or result in a breach of any of the terms or provisions of, or constitute a
default under, the Charter or By-Laws of the Company, or any material indenture,
mortgage, deed of trust or other material agreement or instrument to which the
Company or any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries may be bound and which is known to such counsel.

                  (ix) This Agreement has been duly authorized, executed and
delivered by the Company.

                  (x) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by State securities
and Blue Sky laws as to which such counsel need express no opinion) except such
as have been obtained or made, specifying the same.

                  (xi) The Company is not an "investment company" or an entity
"controlled" by an "investment company" within the meaning of such terms under
the 1940 Act and the rules and regulations of the Commission thereunder.

                                       A-16
<PAGE>
            In rendering such opinion Morgan Lewis may rely as to matters
governed by the laws of states other than Pennsylvania, New York or Federal laws
on local counsel in such jurisdictions, provided that in each case Morgan Lewis
shall state that they believe that they and the Underwriters are justified in
relying on such other counsel. In addition to the matters set forth above, the
Underwriters shall receive a statement from such counsel to the effect that
nothing has come to the attention of such counsel which leads them to believe
that (i) the Registration Statement, at the time it became effective under the
Act (including the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 430A under the Act), as of the
date hereof and as of the Closing Date or the Option Closing Date, as the case
may be, contained or contains an untrue statement of a material fact or omitted
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (except that such counsel need
express no view as to financial statements, schedules and statistical
information therein), and (ii) the Prospectus, or any supplement thereto, on the
date it was filed pursuant to the Rules and Regulations and as of the Closing
Date or the Option Closing Date, as the case may be, contained or contains an
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Morgan Lewis
may state that their belief is based upon the procedures set forth therein, but
is without independent check and verification.

            (c) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinions of Roy H. Stahl, Esq.,
Executive Vice President - General Counsel for the Company, dated the Closing
Date or the Option Closing Date, as the case may be, addressed to the
Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:

                  (i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Pennsylvania, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement; each of the
Subsidiaries has been duly organized and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; the Company and each of the
Subsidiaries are duly qualified to transact business in all jurisdictions in
which the conduct of their business requires such qualification, or in which the
failure to qualify would have a Materially Adverse Effect; and the outstanding
shares of capital stock of each of the Subsidiaries have been duly authorized
and validly issued and are fully paid and non-assessable and are owned by the
Company or a Subsidiary; and, to the best of such counsel's knowledge, the
outstanding shares of capital stock of each of the Subsidiaries is owned free
and clear of all liens, encumbrances and equities and claims, and no options,
warrants or other rights to purchase,

                                       A-17
<PAGE>
agreements or other obligations to issue or other rights to convert any
obligations into any shares of capital stock or of ownership interests in the
Subsidiaries are outstanding.

                  (ii) Except as described in or contemplated by the Prospectus
or the documents incorporated by reference therein, there are no outstanding
securities of the Company convertible or exchangeable into or evidencing the
right to purchase or subscribe for any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus or the documents incorporated by reference therein, no holder of any
securities of the Company or any other person has the right, contractual or
otherwise, which has not been satisfied or effectively waived, to cause the
Company to sell or otherwise issue to them, or to permit them to underwrite the
sale of, any of the Shares or the right to have any Common Shares or other
securities of the Company included in the Registration Statement or the right,
as a result of the filing of the Registration Statement, to require registration
under the Act of any shares of Common Stock or other securities of the Company.

                  (iii) Each of the Company and the Subsidiaries owns,
possesses, has obtained or meets the requirements for all licenses, permits,
certificates, consents, orders, approvals and other authorizations from, and has
made all declarations and filings with, all federal, state, local and other
governmental authorities (including foreign regulatory agencies), all
self-regulatory organizations and all courts and other tribunals, domestic or
foreign, necessary to own or lease, as the case may be, and to operate its
properties and to carry on its business as conducted as of the date hereof
except where the lack thereof would not have a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any actual written
notice of any proceeding relating to revocation or modification of any such
license, permit, certificate, consent, order, approval or other authorization
that would materially interfere with its ownership or lease, as the case may be,
or the operation of its properties or the carrying on of its business as
conducted on the date hereof, except as described in the Registration Statement
and the Prospectus; and to the best of his knowledge, each of the Company and
the Subsidiaries is in material compliance with all laws and regulations
relating to the conduct of its business as conducted as of the date of the
Prospectus except where such noncompliance would not have a Material Adverse
Effect.

            (d) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Cleary, Gottlieb,
Steen & Hamilton ("CLEARY GOTTLIEB"), counsel for the Selling Shareholders,
dated the Closing Date or the Option Closing Date, as the case may be, addressed
to the Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:

                  (i) This Agreement has been duly authorized, executed and
delivered on behalf of the Selling Shareholders and is a valid and binding
agreement of each Selling Shareholder.

                                       A-18
<PAGE>

                  (ii) Each Selling Shareholder has full legal right, power and
authority, and any approval required by law (other than as required by State
securities and Blue Sky laws as to which such counsel need express no opinion),
to sell, assign, transfer and deliver the portion of the Shares to be sold by
such Selling Shareholder.

                  (iii) Assuming that (a) DTC is a "clearing corporation" as
defined in Section 8-102(a)(5) of the Uniform Commercial Code (the "UCC"), and
(b) each of the Underwriters acquires its interest in the Shares it has
purchased without notice of any adverse claim (within the meaning of Section
8-105 of the UCC), each Underwriter that has purchased Shares from the Selling
Shareholders, made payment therefor pursuant to this Agreement and has had such
Shares credited to a securities account of such Underwriter maintained with DTC
will have acquired a securities entitlement (within the meaning of Section
8-102(a)(17) of the UCC) to such Shares, and no action based on an adverse claim
may be asserted against such Underwriter with respect to such security
entitlement.

      In rendering such opinion, Cleary Gottlieb may rely as to matters governed
by the laws of states other than New York or Federal laws on local counsel in
such jurisdictions, provided that in each case Cleary Gottlieb shall state that
they believe that they and the Underwriters are justified in relying on such
other counsel.

            (e) The Representatives shall have received from Davis Polk &
Wardwell ("DAVIS POLK"), counsel for the Underwriters, an opinion dated the
Closing Date or the Option Closing Date, as the case may be, substantially to
the effect specified in subparagraph (x) of Paragraph (b) of this Section 6 and
subparagraph (i) of Paragraph (d) of this Section 6. In rendering such opinion
Davis Polk may rely as to all matters governed other than by the laws of the
State of New York or Federal laws on the opinion of counsel referred to in
Paragraph (b) of this Section 6. In addition to the matters set forth above,
such opinion shall also include a statement to the effect that nothing has come
to the attention of such counsel which leads them to believe that (i) the
Registration Statement, or any amendment thereto, as of the time it became
effective under the Act (including the information deemed to be a part of the
Registration Statement at the time it became effective pursuant to Rule 430A
under the Act) as of the Closing Date or the Option Closing Date, as the case
may be, contained or contains an untrue statement of a material fact or omitted
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as the case
may be, contained or contains an untrue statement of a material fact or omitted
or omits to state a material fact, necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, Davis Polk may state that their belief is based upon the procedures
set forth therein, but is without independent check and verification.

                                       A-19
<PAGE>

            (f) You shall have received, on each of the date hereof, the Closing
Date and, if applicable, the Option Closing Date, a letter dated the date
hereof, the Closing Date or the Option Closing Date, as the case may be, in form
and substance satisfactory to you, of PricewaterhouseCoopers LLP confirming that
they are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in their
opinion the financial statements and schedules examined by them and included in
the Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus. You shall
also have received, on each of the date hereof, the Closing Date and, if
applicable, the Option Closing Date, a letter dated the date hereof, the Closing
Date or the Option Closing Date, as the case may be, in form and substance
satisfactory to you, of KMPG with regard to certain financial information for
fiscal year 1999.

            (g) The Representatives and the Selling Shareholders shall have
received on the Closing Date and, if applicable, the Option Closing Date, as the
case may be, a certificate or certificates of Nicholas DeBenedictis, President
and Chairman of the Company, and David Smeltzer, Chief Financial Officer of the
Company, solely in their respective capacities as such, to the effect that, as
of the Closing Date or the Option Closing Date, as the case may be, each of them
severally represents as follows:

                  (i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration Statement
has been issued, and, to his knowledge after due inquiry, no proceedings for
such purpose have been taken or are, to his knowledge, contemplated or
threatened by the Commission;

                  (ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;

                  (iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made as and when required by such rules;

                  (iv) He has carefully examined the Registration Statement and
the Prospectus and, in his opinion, as of the effective date of the Registration
Statement, the statements contained in the Registration Statement were true and
correct, and such Registration Statement and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and since the effective date of the Registration Statement, no
event has occurred which

                                       A-20
<PAGE>

should have been set forth in a supplement to or an amendment of the Prospectus
which has not been so set forth in such supplement or amendment; and

                  (v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been any
change or any development that has had or will have a Material Adverse Effect.

            (h) The Company and the Selling Shareholders shall have furnished to
the Representatives such further certificates and documents confirming the
representations and warranties, covenants and conditions contained herein and
related matters as the Representatives my reasonably have requested.

            (i) The Lockup Agreements described in Section 4(a)(viii) are in
full force and effect.

            The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Davis Polk, counsel
for the Underwriters.

            If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company and the Selling Shareholders of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.

            In such event, the Selling Shareholders, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).

      7.    CONDITIONS OF THE OBLIGATIONS OF THE SELLING SHAREHOLDERS.

            The obligations of the Selling Shareholders to sell and deliver the
portion of the Shares required to be delivered as and when specified in this
Agreement are subject to the conditions that at the Closing Date or the Option
Closing Date, as the case may be, no stop order suspending the effectiveness of
the Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened and the Selling Shareholders shall have been
furnished the opinion described in Section 6(b) and the certificate described in
Section 6(g).

      8.    INDEMNIFICATION.

            (a) The Company agrees:

                                       A-21
<PAGE>

            (1) to indemnify and hold harmless each Underwriter and each person,
      if any, who controls any Underwriter within the meaning of either Section
      15 of the Act or Section 20 of the Exchange Act, against any losses,
      claims, damages or liabilities to which such Underwriter or any such
      controlling person may become subject under the Act or otherwise, insofar
      as such losses, claims, damages or liabilities (or actions or proceedings
      in respect thereof) arise out of or are based upon (i) any untrue
      statement or alleged untrue statement of any material fact contained in
      the Registration Statement, any Preliminary Prospectus, the Prospectus or
      any amendment or supplement thereto, or (ii) the omission or alleged
      omission to state therein a material fact required to be stated therein or
      necessary to make the statements therein not misleading in the light of
      the circumstances under which they were made; provided, however, that the
      Company will not be liable in any such case to the extent that any such
      loss, claim, damage or liability arises out of or is based upon an untrue
      statement or alleged untrue statement, or omission or alleged omission
      made in the Registration Statement, any Preliminary Prospectus, the
      Prospectus, or such amendment or supplement, in reliance upon and in
      conformity with written information furnished to the Company by or through
      the Representatives or the Selling Shareholders specifically for use in
      the preparation thereof; and

            (2) to reimburse each Underwriter and each such controlling person
      upon demand for any legal or other out-of-pocket expenses reasonably
      incurred by such Underwriter or such controlling person in connection with
      investigating or defending any such loss, claim, damage or liability,
      action or proceeding or in responding to a subpoena or governmental
      inquiry related to the offering of the Shares, whether or not such
      Underwriter or controlling person is a party to any action or proceeding.
      In the event that it is finally judicially determined that the
      Underwriters were not entitled to receive payments for legal and other
      expenses pursuant to this subparagraph, the Underwriters will promptly
      return all sums that had been advanced pursuant hereto.

            (b) The Selling Shareholders agree to indemnify the Underwriters and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, against any losses, claims,
damages or liabilities to which such Underwriter or controlling person may
become subject under the Act or otherwise to the same extent as indemnity is
provided by the Company pursuant to Section 8(a) above; provided, however, that
each Selling Shareholders' indemnity obligation shall be limited to losses,
claims, damages or liabilities arising out of or based upon an untrue statement
or alleged untrue statement, or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through such Selling Shareholder
specifically for use in the preparation thereof. In no event shall the liability
of any Selling Shareholder for indemnification under Section 8(a) exceed the
proceeds received by such Selling Shareholder from the Underwriters in the
offering. This indemnity obligation will be in addition to any liability which
the Company may otherwise have.

                                       A-22
<PAGE>

            (c) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, the Selling Shareholders, and each person, if
any, who controls the Company or the Selling Shareholders within the meaning of
the Act, against any losses, claims, damages or liabilities to which the Company
or any such director, officer, Selling Shareholder or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made; and will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, Selling Shareholder or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.

            (d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"INDEMNIFIED PARTY") shall promptly notify the person against whom such
indemnity may be sought (the "INDEMNIFYING PARTY") in writing. No
indemnification provided for in Section 8(a), (b) or (c) shall be available to
any party who shall fail to give notice as provided in this Section 8(d) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a), (b) or (c). In case any such proceeding shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or within 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel, (ii) the named parties to any such proceeding (including any
impleaded parties)

                                       A-23
<PAGE>

include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them or (iii) the indemnifying party shall
have failed to assume the defense and employ counsel acceptable to the
indemnified party within a reasonable period of time after notice of
commencement of the action. It is understood that the indemnifying party shall
not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated in
writing by you in the case of parties indemnified pursuant to Section 8(a) or
(b) and by the Company and the Selling Shareholders in the case of parties
indemnified pursuant to Section 8(c). The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.

            (e) To the extent the indemnification provided for in this Section 8
is unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling Shareholders on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Shareholders
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus; provided however, that nothing herein shall be construed to prevent
the Company and the Selling Shareholders from allocating any such losses,
claims, damages or liabilities among themselves pursuant to a separate agreement
between such parties. The relative fault shall be determined by

                                       A-24
<PAGE>

reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Selling Shareholders on
the one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.

            The Company, the Selling Shareholders and the Underwriters agree
that it would not be just and equitable if contributions pursuant to this
Section 8(e) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 8(e). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 8(e) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (e), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter, (ii) no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation, and (iii) no
Selling Shareholder shall be required to contribute any amount in excess of the
proceeds received by such Selling Shareholder from the Underwriters in the
offering. The Underwriters' obligations in this Section 8(e) to contribute are
several in proportion to their respective underwriting obligations and not
joint.

            (f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon it by any other contributing party and consents to the service of such
process and agrees that any other contributing party may join it as an
additional defendant in any such proceeding in which such other contributing
party is a party.

            (g) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or any person controlling any Underwriter, or to the Company, its
directors or officers, or any person

                                       A-25
<PAGE>

controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
8.

      9.    DEFAULT BY UNDERWRITERS.

            If on the Closing Date or the Option Closing Date, as the case may
be, any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company or a Selling
Shareholder), you, as Representatives of the Underwriters, shall use your
reasonable efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the Selling
Shareholders such amounts as may be agreed upon and upon the terms set forth
herein, the Shares which the defaulting Underwriter or Underwriters failed to
purchase. If during such 36 hours you, as such Representatives, shall not have
procured such other Underwriters, or any others, to purchase the Shares agreed
to be purchased by the defaulting Underwriter or Underwriters, then (a) if the
aggregate number of shares with respect to which such default shall occur does
not exceed 10% of the Shares to be purchased on the Closing Date or the Option
Closing date, as the case may be, the other Underwriters shall be obligated,
severally, in proportion to the respective numbers of Shares which they are
obligated to purchase hereunder, to purchase the Shares which such defaulting
Underwriter or Underwriters failed to purchase, or (b) if the aggregate number
of shares of Shares with respect to which such default shall occur exceeds 10%
of the Shares to be purchased on the Closing Date or the Option Closing Date, as
the case may be, the Company and the Selling Shareholders or you as
Representatives will have the right, by written notice given within the next
36-hour period to the parties to this Agreement, to terminate this Agreement
without liability on the part of the non-defaulting Underwriters or of the
Company or of the Selling Shareholders except to the extent provided in Sections
5 and 8 hereof. In the event of a default by any Underwriter or Underwriters, as
set forth in this Section 9, the Closing Date or Option Closing Date, as the
case may be, may be postponed for such period, not exceeding seven days, as the
Company or you, as Representatives, may determine in order that the required
changes in the Registration Statement or in the Prospectus or in any other
documents or arrangements may be effected. The term "Underwriter" includes any
person substituted for a defaulting Underwriter. Any action taken under this
Section 9 shall not relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.

      10.   NOTICES.

            All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to Deutsche Bank Securities
Inc., One South Street, Baltimore, Maryland 21202; Attention: Syndicate Manager,
with a copy to Deutsche Bank Securities Inc., 31 West 52nd Street, New York, New
York 10019, Attention: General Counsel.

                                       A-26
<PAGE>

            To the Company:

            Philadelphia Suburban Corporation
            762 W. Lancaster Avenue
            Bryn Mawr, PA 19010
            Attention:  Roy H. Stahl, Esq.
            Executive Vice President and General Counsel
            Fax:  610.645.1061

            with a copy to:

            Morgan, Lewis & Bockius LLP
            1701 Market Street
            Philadelphia, PA  19103
            Attention:  Stephen A. Jannetta, Esq.
            Fax:  215.963.5299

            To the Selling Shareholders:

            Vivendi Water S.A.
            52, rue d'Anjou
            75008 Paris
            France
            Attention:  Olivier Grunberg
            Fax: (+33.1) 49.24.69.11

            Vivendi North America Company
            60 East 42nd Street, 36th Floor
            New York, NY 10165
            Attention: Jerome Contamine
            Fax: (+33.1) 71.75.10.09

            with a copy to:

            Cleary, Gottlieb, Steen & Hamilton
            41, avenue de Friedland
            75008 Paris
            France
            Attention:  Andrew A. Bernstein, Esq.

                                       A-27
<PAGE>

            Fax: (+33.1) 45.63.66.37

      11.   TERMINATION.

            This Agreement may be terminated by you, as Representatives, by
written notice to the Company and the Selling Shareholders (a) at any time prior
to the Closing Date or any Option Closing Date (if different from the Closing
Date and then only as to Option Shares) if any of the following has occurred:
(i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development occurs that has had a Material Adverse Effect (ii) any outbreak or
escalation of hostilities or declaration of war or national emergency or other
national or international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, escalation, declaration, emergency,
calamity, crisis or change on the financial markets of the United States would,
in your reasonable judgment, make it impracticable or inadvisable to market the
Shares or to enforce contracts for the sale of the Shares, or (iii) suspension
of trading in securities generally on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market or limitation on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such Exchange, (iv) the enactment, publication, decree or other promulgation of
any statute, regulation, rule or order of any court or other governmental
authority which in your reasonable opinion would create a Material Adverse
Effect (v) the declaration of a banking moratorium by United States or New York
State authorities, (vi) any downgrading, or placement on any watch list for
possible downgrading, in the rating of any of the Company's debt securities by
any "nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Exchange Act); (vii) the suspension of trading
of the Company's common stock by the New York Stock Exchange, the Commission, or
any other governmental authority or, (viii) the taking of any action by any
governmental body or agency in respect of its monetary or fiscal affairs which
in your reasonable opinion has a material adverse effect on the securities
markets in the United States; or

            (b) as provided in Sections 6 and 9 of this Agreement.

            Any such termination shall be without liability of any party to any
other party except that the provisions of Section 5 and 8 hereof shall at all
times be effective.

      12.   SUCCESSORS.

            This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Selling Shareholders and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.

      13.   INFORMATION PROVIDED BY UNDERWRITERS AND SELLING SHAREHOLDERS.

                                       A-28
<PAGE>

            The Company, the Selling Shareholders and the Underwriters
acknowledge and agree that the only information furnished or to be furnished by
any Underwriter to the Company for inclusion in any Prospectus or the
Registration Statement consists of the information set forth under the caption
"Underwriting" in the Prospectus. The Company, the Selling Shareholders and the
Underwriters acknowledge and agree that the only information furnished or to be
furnished by any Selling Shareholder to the Company for inclusion in any
Prospectus or the Registration Statement consists of the information set forth
under the captions "Selling Shareholders" and "Relationship with Vivendi
Environnement S.A. -- General" in the Prospectus.

      14.   MISCELLANEOUS.

            The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.

            This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

            This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York.

      15.   SUBMISSION TO JURISDICTION
            Except as set forth below, no claim arising out of or in any way
relating to this Agreement may be commenced, prosecuted or continued in any
court other than the courts of the State of New York located in the City and
County of New York or in the United States District Court for the Southern
District of New York, which courts shall have jurisdiction over the adjudication
of such matters, and each of the Company and the Selling Shareholders consents
to the jurisdiction of such courts and personal service with respect thereto.
Each of the Company and the Selling Shareholders hereby consents to personal
jurisdiction, service and venue in any court in which any claim arising out of
or in any way relating to this Agreement is brought by any third party against
UBS Warburg LLC, Deutsche Bank Securities Inc. or any indemnified party. Each of
UBS Warburg LLC, Deutsche Bank Securities Inc., the Company (on its behalf and,
to the extent permitted by applicable law, on behalf of its shareholders and
affiliates) and the Selling Shareholders waives all right to trial by jury in
any action, proceeding or counterclaim (whether based upon contract, tort or
otherwise) in any way arising out of or relating to this Agreement. Each of the
Company and Selling Shareholders agrees that a final judgment in any such
action, proceeding or counterclaim brought in any such court shall be conclusive
and binding upon the Company or such Selling Shareholder and may be enforced in
any other courts in the jurisdiction of which the Company or such Selling
Shareholder is or may be subject, by suit upon such judgment.

                                       A-29
<PAGE>

                        *                 *                 *

                                       A-30
<PAGE>

      If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Shareholders, the
Company and the several Underwriters in accordance with its terms.

      Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Shareholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Shareholder pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-Fact to take such
action.

                              Very truly yours,

                              PHILADELPHIA SUBURBAN CORPORATION

                              By:_____________________________________
                              Title:

                              Selling Shareholders listed on Schedule II

                              By:_____________________________________
                                          Attorney-in-Fact

      The foregoing Underwriting Agreement
      is hereby confirmed and accepted as
      of the date first above written.

      DEUTSCHE BANK SECURITIES INC.
      UBS WARBURG LLC

      As Representatives of the several
      Underwriters listed on Schedule I

By: Deutsche Bank Securities Inc.         By:   UBS Warburg LLC

By: _________________________             By: _________________________
      Authorized Officer                              Authorized Officer

By: _________________________             By: _________________________
      Authorized Officer                              Authorized Officer

                                       A-31
<PAGE>

                                  SCHEDULE I

                           SCHEDULE OF UNDERWRITERS

<TABLE>
<CAPTION>
                                                Number of Firm Shares
      Underwriter                                  to be Purchased
      -----------                                  ---------------
<S>                                             <C>
Deutsche Bank Securities Inc.
UBS Warburg LLC

                                                      ----------

                  Total                               ----------
</TABLE>

                                       A-32
<PAGE>

                                   SCHEDULE II

                       SCHEDULE OF SELLING SHAREHOLDERS

<TABLE>
<CAPTION>
                                                  Number of Firm Shares
      Selling Shareholder                               to be Sold
      -------------------                               ----------
<S>                                               <C>

</TABLE>

                                       A-33
<PAGE>

                                  SCHEDULE III

                           SIGNIFICANT SUBSIDIARIES

      Pennsylvania Suburban Water Company
      Consumers Water Company

                                       A-34

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