Document:

<PAGE>

                                                                     Exhibit 4.4
                                                                     -----------

                                                                  Execution Copy

                              INSMED INCORPORATED

                                      and

                           FIRST UNION NATIONAL BANK
                                (Rights Agent)

                               Rights Agreement

                           Dated as of May 16, 2001
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                              Page
                                                                                              ----
<S>                                                                                           <C>
Section 1.  Certain Definitions............................................................     1

Section 2.  Appointment of Rights Agent....................................................     6

Section 3.  Issue of Right Certificates....................................................     6

Section 4.  Form of Right Certificates.....................................................     8

Section 5.  Countersignature and Registration..............................................     9

Section 6.  Transfer, Split Up, Combination and Exchange of Right Certificates;
             Mutilated, Destroyed, Lost or Stolen Right Certificates.......................     9

Section 7.  Exercise of Rights; Purchase Price; Expiration Date of Rights..................    10

Section 8.  Cancellation and Destruction of Right Certificates.............................    12

Section 9.  Reservation and Availability of Capital Stock..................................    12

Section 10. Preferred Stock Record Date....................................................    13

Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights.............    14

Section 12. Certification of Adjusted Purchase Price or Number of Shares...................    21

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

Section 14. Fractional Rights, and Fractional Shares.......................................    24

Section 15. Rights of Action...............................................................    25

Section 16. Agreement of Right Holders.....................................................    26

Section 17. Right Certificate Holder Not Deemed a Shareholder..............................    26

Section 18. Concerning the Rights Agent....................................................    27

Section 19. Merger or Consolidation or Change of Name of Rights Agent......................    27

Section 20. Duties of Rights Agent.........................................................    28

Section 21. Change of Rights Agent.........................................................    30
</TABLE>

                                       i
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<TABLE>
<S>                                                                                            <C>
Section 22. Issuance of New Right Certificates.............................................    31

Section 23. Redemption.....................................................................    31

Section 24. Exchange.......................................................................    32

Section 25. Notice of Certain Events.......................................................    33

Section 26. Notices........................................................................    34

Section 27. Supplements and Amendments.....................................................    35

Section 28. Successors.....................................................................    36

Section 29. Determinations and Actions Taken by the Board of Directors.....................    36

Section 30. Benefits of this Agreement.....................................................    36

Section 31. Severability...................................................................    36

Section 32. Governing Law..................................................................    37

Section 33. Counterparts...................................................................    37

Section 34. Descriptive Headings...........................................................    37

Exhibit A    Form of Articles of Amendment to Articles of Incorporation, as amended........   A-1

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

Exhibit C    Summary of Rights to Purchase Preferred Stock.................................   C-1
</TABLE>

                                      ii
<PAGE>

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

          This Agreement, dated as of May 16, 2001 between Insmed Incorporated,
a Virginia corporation (the "Company"), and First Union National Bank, a
national banking association (the "Rights Agent"):

                              W I T N E S S E T H
                              - - - - - - - - - -

            WHEREAS, on May 16, 2001, the Board of Directors of the Company
determined it desirable and in the best interests of the Company and its
shareholders for the Company to adopt a shareholder rights plan;

            WHEREAS, on May 16, 2001 (the "Rights Dividend Declaration Date"),
the Board of Directors of the Company authorized and declared a dividend
distribution of one Right (as hereinafter defined) for each share of common
stock, par value $.01 per share, of the Company (the "Common Stock") outstanding
upon the Close of Business (as hereinafter defined) on June 1, 2001 (the "Record
Date"), and has authorized the issuance of one Right (as such number may
hereinafter be adjusted pursuant to the provisions of Section 11((n)) hereof)
for each share of Common Stock issued between the Record Date and the
Distribution Date (as hereinafter defined) and in certain other circumstances
provided herein, each Right initially representing the right to purchase one
one-thousandth (1/1000/th/) of a share of Series A Junior Participating
Preferred Stock of the Company having the rights, powers and preferences set
forth in the form of Articles of Amendment to the Articles of Incorporation, as
amended, attached hereto as Exhibit A, upon the terms and subject to the
                            ---------
conditions hereinafter set forth (the "Rights");

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

Section 1.  Certain Definitions.
            -------------------

            For purposes of this Agreement, the following terms have the
meanings indicated:

            (a)  "1933 Act" shall have the meaning assigned to it in Section
9(b).

            (b)  "Acquiring Person" shall mean any Person who or that, together
with all Affiliates and Associates of such Person, is the Beneficial Owner of a
Substantial Block, but shall not include (i) the Company, (ii) any Subsidiary of
the Company, (iii) any employee benefit plan or employee stock plan of the
Company, or of any Subsidiary of the Company, or any Person organized,
appointed, established or holding Voting Stock by, for or pursuant to, the terms
of any such plan, (iv) any Person who becomes the Beneficial Owner of a
Substantial Block solely as a result of a reduction in the number of shares of
Voting Stock outstanding due to the repurchase of shares of Voting Stock by the
Company unless and until such Person, after becoming aware that such Person has
become the Beneficial Owner of a Substantial Block of the then outstanding
shares of Voting Stock, acquires beneficial ownership of additional shares of
Voting Stock representing one percent (1%) or more of the shares of Voting Stock
then
<PAGE>

outstanding, or (v) any such Person who has reported or is required to report
such ownership on Schedule 13G under the Securities and Exchange Act of 1934, as
amended and in effect on the date of this Agreement (the "Exchange Act") (or any
comparable or successor report) or on Schedule 13D under the Exchange Act (or
any comparable or successor report) which Schedule 13D does not state any
intention to or reserve the right to control or influence the management or
policies of the Company or engage in any of the actions specified in Item 4 of
such schedule (other than the disposition of the Common Stock) and, within 10
Business Days of being requested by the Company to advise it regarding the same,
certifies to the Company that such Person acquired shares of Common Stock in
excess of 15% inadvertently or without knowledge of the terms of the Rights and
who, together with all Affiliates and Associates, thereafter does not acquire
additional shares of Common Stock while the Beneficial Owner of 15% or more of
the shares of Common Stock then outstanding; provided, however, that if the
Person requested to so certify fails to do so within 10 Business Days (unless
extended by the Board of Directors of the Company), then such Person shall
become an Acquiring Person immediately after such 10-Business-Day period (or if
extended by the Board of Directors of the Company, immediately after such
extension).

          (c)  "Adjustment Shares" shall have the meaning assigned to it in
Section 11()().

          (d)  "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.

          (e)  A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "Beneficially Own," any securities:

               (i)   that such Person or any of such Person's Affiliates or
     Associates beneficially owns, directly or indirectly, within the meaning of
     Rule 13d-3 of the General Rules and Regulations under the Exchange Act ;

               (ii)  that such Person or any of such Person's Affiliates or
     Associates has (A) the right to acquire (whether such right is exercisable
     immediately or only after the passage of time) pursuant to any agreement,
     arrangement or understanding (whether or not in writing), or upon the
     exercise of any conversion, exchange or purchase rights (other than the
     Rights), warrants or options, or otherwise, provided, however, that a
     Person shall not be deemed the Beneficial Owner of, or to "Beneficially
     Own," (I) securities tendered pursuant to a tender or exchange offer made
     by or on behalf of such Person or any of such Person's Affiliates or
     Associates until such tendered securities are accepted for purchase or
     exchange, (II) securities issuable upon exercise of Rights at any time
     prior to the occurrence of a Triggering Event (as hereinafter defined), or
     (III) securities issuable upon exercise of Rights from and after the
     occurrence of a Triggering Event which Rights were acquired by such Person
     or any of such Person's Affiliates or Associates prior to the Distribution
     Date (as hereinafter defined) or pursuant to Section 3(a) or Section 22
     hereof (the "Original Rights") or pursuant to Section 11(a)(i) hereof in
     connection with an adjustment made with respect to any Original Rights; or,
     (B) the right to vote pursuant to any agreement, arrangement or
     understanding; or

                                       2
<PAGE>

               (iii)  that are beneficially owned, directly or indirectly by any
     other Person with which such Person or any of such Person's Affiliates or
     Associates has any agreement, arrangement or understanding for the purpose
     of acquiring, holding, voting or disposing of any securities of the
     Company;

provided, however, that a Person shall not be deemed the Beneficial Owner of, or
to Beneficially Own, any security if the agreement, arrangement or understanding
to vote such security arises solely from a revocable proxy given to such Person
in response to a public proxy solicitation made pursuant to and in accordance
with, the applicable General Rules and Regulations under the Exchange Act, and
provided, further, that nothing in this paragraph ((e)) shall cause a Person
--------  -------
engaged in business as an underwriter of securities to be the Beneficial Owner
of, or to Beneficially Own, any securities acquired through such Person's
participation in good faith in a firm commitment underwriting pursuant to an
underwriting agreement with the Company.

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

          (g)  "Close of Business" on any given date shall mean 5:00 P.M.,
Richmond, Virginia time, on such date; provided, however, that if such date is
not a Business Day it shall mean 5:00 P.M., Richmond, Virginia time, on the next
succeeding Business Day.

          (h)  "Common Stock" shall have the meaning assigned to it in the
second recital of this Agreement, and "common stock" (i) when used with
reference to any Person other than the Company shall mean the capital stock with
the greatest voting power of such Person or, if such Person is a Subsidiary of
another Person, the Person that ultimately controls such first-mentioned Person
and (ii) when used with reference to any Person other than the Company that
shall not be organized in corporate form shall mean units of beneficial interest
that (A) shall represent the right to participate generally in the profits and
losses of such Person (including, without limitation, any flow-through tax
benefits resulting from an ownership interest in such Person) and which (B) one
is entitled to exercise the greatest voting power of such Person or, in the case
of a limited partnership, shall have the power to remove the general partner or
partners.

          (i)  "Common Stock Equivalents" shall have the meaning assigned to it
in Section 11((a))((iii)).

          (j)  "Company" shall have the meaning assigned to it in the first
paragraph of this Agreement.

          (k)  "Current Market Price" shall have the meaning assigned to it in
Section 11((c))((i)).

          (l)  "Current Value" shall have the meaning assigned to it in Section
11((a))((iii)).

          (m)  "Distribution Date" shall have the meaning assigned to it in
Section 3((a)).

                                       3
<PAGE>

          (n)  "Equivalent Preferred Stock" shall have the meaning assigned to
it in Section 11((c)).

          (o)  "Equivalent Stock" shall have the meaning assigned to it in
Section 7.

          (p)  "Exchange Act" shall have the meaning assigned to it in Section
1((b)).

          (q)  "Exchange Ratio" shall have the meaning assigned to it in Section
24.

          (r)  "Expiration Date" shall have the meaning assigned to it in
Section 7((a)).

          (s)  "Final Expiration Date" shall have the meaning assigned to it in
Section 7((a)).

          (t)  "Nasdaq" shall have the meaning assigned to it in Section 9.

          (u)  "Person" shall mean any individual, corporation, partnership,
limited liability company, or other entity and shall include any successor by
merger or otherwise of such entity, and any particular Person shall include any
"group" acting as described in Section 13(d)(3) of the Exchange Act.

          (v)  "Preferred Stock" shall mean shares of Series A Junior
Participating Preferred Stock, without par value, of the Company (including any
authorized fraction of a share of Preferred Stock) and, to the extent that there
are not a sufficient number of shares of Series A Junior Participating Preferred
Stock authorized to permit the full exercise of the Rights, any other series of
preferred stock of the Company designated for such purpose containing terms
substantially similar to the terms of the Series A Junior Participating
Preferred Stock.

          (w)  "Principal Party" shall have the meaning assigned to it in
Section 13.

          (x)  "Purchase Price" shall have the meaning assigned to it in Section
4.

          (y)  "Record Date" shall have the meaning assigned to it in the second
recital of this Agreement.

          (z)  "Redemption Price" shall have the meaning assigned to it in
Section 23.

          (aa) "Right Certificate" shall have the meaning assigned to it in
Section 3.

                                       4
<PAGE>

          (bb) "Rights" shall have the meaning assigned to it in the second
recital to this Agreement.

          (cc) "Rights Agent" shall have the meaning assigned to it in the first
paragraph of this Agreement.

          (dd) "Rights Dividend Declaration Date" shall have the meaning
assigned to it in the second recital to this Agreement.

          (ee) "Section 11(a)(ii) Event" shall have the meaning assigned to it
in Section 7((e)).

          (ff) "Section 11(a)(ii) Trigger Date" shall have the meaning assigned
to it in Section 11((a))((iii)).

          (gg) "Section 13 Event" shall have the meaning assigned to it in
Section 7((e)).

          (hh) "Spread" shall have the meaning assigned to it in Section
11((a))((iii)).

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

          (jj) "Subsidiary" shall mean, with respect to any Person, any
corporation or other entity of which securities or other ownership interests
having ordinary voting power sufficient, in the absence of contingencies, to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person and any
Affiliate of such Person.

          (kk) "Substantial Block" shall mean either (i) a number of shares of
Voting Stock having in the aggregate 15% or more of the general voting power or
(ii) 15% or more of the Rights.

          (ll) "Substitution Period" shall have the meaning assigned to it in
Section 11((a))((iii)).

          (mm) "Summary of Rights" shall have the meaning assigned to it in
Section 3((b)).

          (nn) "Trading Day" shall have the meaning assigned to it in Section
11((c))((i)).

          (oo) "Triggering Event" shall mean a Section 11(a)(ii) Event or
Section 13 Event.

          (pp) "Voting Stock" shall mean shares of the Company's capital stock
having general voting power.  For the purposes hereof, "voting power," when used
with reference to the

                                       5
<PAGE>

capital stock of, or units of equity interests in, any Person shall mean 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) or to participate in the management and control of such Person
(if such Person is not a corporation).

Section 2.  Appointment of Rights Agent.
            ---------------------------

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

Section 3.  Issue of Right Certificates.
            ---------------------------

            (a)  The "Distribution Date" shall mean the earlier of (i) the Close
of Business on the tenth Business Day (or such later date as may be determined
by the Board of Directors of the Company) after the date of the commencement of
a tender or exchange offer (as determined by reference to Rule 14d-2(a) (or any
successor rule) under the Exchange Act) by any Person (other than the Company,
any Subsidiary of the Company, or any employee benefit plan or employee stock
plan of the Company or any Subsidiary of the Company) for a number of shares of
the outstanding Voting Stock having 15% or more of the general voting power (or,
if the tenth Business Day after such date occurs before the Record Date, the
Close of Business on the Record Date), or (ii) the Close of Business on the
tenth Business Day after a Stock Acquisition Date (or, if the tenth Business Day
after such date occurs before the Record Date, the Close of Business on the
Record Date). Up to and including the Distribution Date, (x) the Rights shall be
evidenced by the certificates for Common Stock registered in the names of the
holders of Common Stock (which certificates for Common Stock shall be deemed
also to be Right Certificates) and not by separate Right Certificates, and (y)
the right to receive Right Certificates shall be transferable only in connection
with the transfer of Common Stock. As soon as practicable after the Distribution
Date, the Rights Agent shall mail, by first-class, insured, postage prepaid
mail, to each holder of Common Stock as of the Close of Business on the
Distribution Date, as shown by the records of the Company at the Close of
Business on the Distribution Date, at the address of such holder shown on such
records, a Right Certificate (the "Right Certificate"), in substantially the
form of Exhibit B hereto, evidencing one Right for each share of Common Stock so
held. In the event that an adjustment in the number of Rights per share of
Common Stock has been made pursuant to Section 11((n)) hereof, at the time of
distribution of the Right Certificates, the Company may make the necessary and
appropriate rounding adjustments (in accordance with Section 14((a)) hereof) so
that Right Certificates representing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Rights. As of and after
the Distribution Date, the Rights shall be evidenced solely by such Right
Certificates.

                                       6
<PAGE>

          (b)  The Company shall make available, as promptly as practicable
following the Record Date, a copy of a Summary of Rights, in substantially the
form attached hereto as Exhibit C (the "Summary of Rights"), to any holder of
Rights who may so request from time to time prior to the Expiration Date. With
respect to certificates for the Common Stock outstanding as of the Record Date,
until the Distribution Date, the Rights shall be evidenced by such certificates
for the Common Stock and the holders of the Common Stock shall also be the
holders of the associated Rights. Until the earlier of the Distribution Date or
the Expiration Date, the transfer of any certificates representing shares of
Common Stock in respect of which Rights have been issued shall also constitute
the transfer of the Rights associated with such shares of Common Stock.

          (c)  Unless the Board of Directors of the Company by resolution
adopted at or before the time of the issuance (including pursuant to the
exercise of rights under the Company's stock option, stock purchase or other
benefit plans) of any shares of Common Stock specifies to the contrary, Rights
shall be issued in respect of all shares of Common Stock that are issued after
the Record Date but prior to the earlier of the Distribution Date, the
Expiration Date or the date, if any, on which the Rights are redeemed.
Certificates representing shares of Common Stock outstanding prior to the Record
Date that are issued upon transfer or exchange of such Common Stock, shall also
be deemed to be certificates for Rights, and these Certificates, as well as
Certificates representing shares of Common Stock to be issued after the Record
Date, shall bear the following legend:

          This certificate also evidences and entitles the holder hereof to
          certain Rights as set forth in a Rights Agreement between Insmed
          Incorporated and the Rights Agent thereunder (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 Insmed
          Incorporated. 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. Insmed Incorporated
          will mail to the holder of this certificate a copy of the Rights
          Agreement without charge after receipt of a written request therefor.
          Under certain circumstances set forth in the Rights Agreement, Rights
          issued to, or held by, any Person who is, was or becomes an Acquiring
          Person or any Affiliate or Associate thereof (as such terms are
          defined in the Rights Agreement) or one of certain transferees
          thereof, whether currently held by or on behalf of such Person or by
          any subsequent holder, may become null and void, as provided in
          Section 7((e)) of the Rights Agreement.

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

                                       7
<PAGE>

            (d)  Until the Distribution Date, the surrender for transfer of any
of the certificates for Common Stock outstanding on or after the Close of
Business on June 1, 2001, shall also constitute the transfer of the Rights
associated with Common Stock represented by such certificates. After the
Distribution Date, the Rights shall be evidenced solely by the Right
Certificates.

Section 4.  Form of Right Certificates.
            --------------------------

            (a)  The Right Certificates (and the forms of assignment and of
election to purchase shares to be printed on the reverse thereof) shall be in
substantially the form of Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Rights may from time to time be
listed, or to conform to usage. Subject to the provisions of Section 11, Section
13 and Section 22, the Right Certificates, whenever issued, shall be dated as of
the Record Date and on their face shall entitle the holders thereof to purchase
such number of shares of Preferred Stock as shall be set forth therein at the
price per one one-thousandth (1/1000/th/) of a share set forth therein as
prescribed by Section 7((b)) (the "Purchase Price"), but the number and type of
such shares and the Purchase Price shall be subject to adjustment as provided
herein.

            (b)  Any Right Certificate issued pursuant to Section 3((a)),
Section 11((h)), or Section 22 that represents Rights Beneficially Owned by: (i)
an Acquiring Person or any Associate or Affiliate of such Acquiring Person, (ii)
a transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such, or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer that the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect avoidance of Section 7((e)), and any Right Certificate
issued pursuant to Section 6 or Section 11 upon transfer, exchange, replacement
or adjustment of any other Right Certificate referred to in this sentence, shall
contain (to the extent feasible and reasonably identifiable as such) the
following legend:

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

                                       8
<PAGE>

Section 5.  Countersignature and Registration.
            ---------------------------------

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

            (b)  Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Right Certificates upon exercise or transfer,
books for registration and transfer of the Right Certificates issued hereunder.
Such books shall show the names and addresses of the respective holders of the
Right Certificates, the number of Rights evidenced on its face by each Right
Certificate, the date of each Right Certificate and the number of each Right
Certificate.

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

            (a)  Subject to the provisions of Section 4((b)), Section 7((e)) and
Section 14, at any time after the Close of Business on the Distribution Date,
and at or prior to the Close of Business on the Expiration Date or the day prior
to the day, if any, on which the Rights are to be redeemed pursuant to Section
23, any Right Certificate or Certificates may be transferred, split up, combined
or exchanged for another Right Certificate or Right Certificates, entitling the
holder to purchase such number of shares of Preferred Stock (or, following a
Triggering Event, Common Stock, other securities, cash or other assets, as the
case may be) as the Right Certificate or Right Certificates surrendered then
entitled such holder to purchase. Any holder desiring to transfer, split up,
combine or exchange any Right Certificate shall make such request in writing,
signed by the holder with such signature guaranteed in such manner as is
reasonably satisfactory to the Rights Agent, delivered to the Rights Agent, and
shall surrender the Right Certificate or Right Certificates to be transferred,
split up, combined or exchanged at the principal stock transfer office of the
Rights Agent. Neither the Rights Agent nor the Company shall be obligated to
take any action whatsoever with respect to the transfer of any such surrendered
Right Certificate until the holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
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 the Company shall reasonably request.

                                       9
<PAGE>

Thereupon the Rights Agent shall, subject to Section 4((b)), Section 7((e)) and
Section 14, countersign and deliver to the Person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested. The
Company may require payment by the holders of Rights of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.

            (b)  Subject to Section 7((e)), upon receipt by the Company and the
Rights Agent of evidence reasonably satisfactory to them of the loss, theft,
destruction or mutilation of a Right Certificate, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to them, and
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will execute and deliver a new
Right Certificate of like tenor to the Rights Agent for countersignature and
delivery to the registered owner in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.

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

            (a)  Subject to Section 7(e), at any time after the Distribution
Date, the holder of any Right Certificate may exercise the Rights evidenced
thereby (except as otherwise provided herein including, without limitation, the
restrictions on exercisability set forth in Section 9, Section 11((a))(ii),
Section 11((a))((iii)), Section 13, Section 23 and Section 24) in whole or in
part upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at the
principal stock transfer office of the Rights Agent, together with payment of
the Purchase Price for each one one-thousandth (1/1000/th/) of a share of
Preferred Stock (or other securities, cash or other assets, as the case may be)
as to which the Rights are exercised, at or prior to the earlier of (i) the
Close of Business on May 16, 2011 or such later date as may be established by
the Board of Directors of the Company prior to the expiration of the Rights
(such date being hereinafter referred to as the "Final Expiration Date") or (ii)
the time at which the Rights are redeemed or exchanged as provided in Section 23
or Section 24 (the earlier of (i) and (ii) being herein referred to as the
"Expiration Date"). If at any time after the Rights become exercisable hereunder
but prior to the Expiration Date the Company is prohibited by its Articles of
Incorporation, as amended, from issuing Preferred Stock upon the exercise of all
of the outstanding Rights, the Company may issue upon the exercise of the Rights
shares of stock or other securities of the Company of equivalent value to the
Preferred Stock ("Equivalent Stock"), as determined by the Board of Directors of
the Company.

            (b)  The Purchase Price for each one one-thousandth (1/1000/th/) of
a share of Preferred Stock pursuant to the exercise of a Right shall initially
be $35, shall be subject to adjustment from time to time as provided in Sections
11 and 13 and to increase pursuant to Section 27, and shall be payable in
accordance with paragraph ((c)) below.

            (c)  Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
accompanied by payment of the Purchase Price for the shares to be purchased and
an amount equal to any applicable transfer tax in cash, or by certified check or
money order payable to the order of the Company, the Rights

                                      10
<PAGE>

Agent shall, subject to this Section 7 and Section 20(l), thereupon promptly (i)
(A) requisition from any transfer agent of Preferred Stock (or any Equivalent
Stock then issuable) a certificate for the number of shares of Preferred Stock
(or any Equivalent Stock then issuable) to be purchased and the Company hereby
irrevocably authorizes its transfer agent to comply with all such requests, or
(B) if the Company shall have elected to deposit the total number of shares of
Preferred Stock issuable upon exercise of the Rights hereunder with a depositary
agent, requisition from the depositary agent depositary receipts representing
such number of one one-thousandths (1/1000/ths/) of a share of Preferred Stock
as are to be purchased (in which case certificates for the shares of Preferred
Stock represented by such receipts shall be deposited by the transfer agent with
the depositary agent) and the Company will direct the depositary agent to comply
with such request, (ii) when appropriate, requisition from the Company the
amount of cash to be paid in lieu of issuance of a fractional share in
accordance with Section 14 and (iii) promptly after receipt of such certificate,
cause the same to be delivered to or upon the order of the holder of such Right
Certificate, registered in such name or names as may be designated by such
holder, and, when appropriate, after receipt promptly deliver such cash to or
upon the order of the holder of such Right Certificate. The payment of the
Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii)
hereof) shall be made in cash or by certified bank check or bank draft payable
to the order of the Company. In the event that the Company is obligated to issue
other securities (including Common Stock) of the Company, pay cash and/or
distribute other property pursuant to Section 11(a) hereof, the Company will
make all arrangements necessary so that such other securities, cash and/or other
property are available for distribution by the Rights Agent, if and when
appropriate. The Company reserves the right to require prior to the occurrence
of a Triggering Event that, upon any exercise of Rights, a number of Rights be
exercised so that only whole shares of Preferred Stock would be issued.

          (d) In case the holder of any Right Certificate shall exercise less
than all the Rights evidenced thereby, a new Right Certificate evidencing a
number of Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to, or upon the order of, the holder of such Right
Certificate or to his duly authorized assigns, subject to the provisions of
Section 14.

          (e) Notwithstanding any provision of this Agreement to the contrary,
upon the occurrence of any of the events described in Section 11(a)(ii) (a
"Section 11(a)(ii) Event") or in clauses (a), (b), (c) or (d) of the first
sentence of Section 13 (a "Section 13 Event"), any Rights that are at the time
of the occurrence of such Section 11(a)(ii) Event or Section 13 Event, as the
case may be, Beneficially Owned by (i) an Acquiring Person or any Associate or
Affiliate of such Acquiring Person or (ii) a transferee of an Acquiring Person
or of any Associate or Affiliate of such Acquiring Person (A) who becomes a
transferee after the Acquiring Person becomes such, or (B) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (1) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (2) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect the avoidance of this Section 7(e), shall become null
and void without any further action and no holder of such Rights shall

                                      11
<PAGE>

have any rights whatsoever with respect to such Rights, whether under any
provision of this Agreement or otherwise. The Company shall use all reasonable
efforts to ensure that the provisions of this Section 7((e)) and Section 4((b))
are complied with, but shall have no liability to any holder of Right
Certificates or other Person as a result of its making or failing to make any
determinations with respect to an Acquiring Person or its Affiliates, Associates
or transferees hereunder.

            (f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a holder upon the occurrence of any purported exercise as
set forth in this Section 7 unless such holder shall have (i) completed and
signed the certificate contained in the form of election to purchase set forth
on the reverse side of the 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 the Company
shall reasonably request.

Section 8.  Cancellation and Destruction of Right Certificates.
            ---------------------------------------------------

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

Section 9.  Reservation and Availability of Capital Stock.
            ----------------------------------------------

            The Company covenants and agrees that it will (a) cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities), the
number of shares of Preferred Stock (and, following the occurrence of a
Triggering Event, Common Stock and/or other securities) that will be sufficient
to permit the exercise in full of all outstanding Rights, (b) take all such
action as may be necessary to ensure that all shares of Preferred Stock (and,
following the occurrence of a Triggering Event, Common Stock and/or other
securities) delivered upon exercise of Rights shall, at the time of delivery of
the certificates for such shares (subject to payment of the Purchase Price), be
duly and validly authorized and issued and fully paid and nonassessable, (c) pay
when due and payable any and all federal and state transfer taxes and charges
that may be payable in respect of the issuance or delivery of the Right
Certificates or of any shares of Preferred Stock (and, following the occurrence
of a Triggering Event, Common Stock and/or other securities) upon the exercise
of Rights and (d) take all such action, from and after the date the Rights
become exercisable hereunder, as may be necessary to permit the exercise of the
Rights for Preferred Stock (and,

                                      12
<PAGE>

following the occurrence of a Triggering Event, Common Stock and/or other
securities), including any required registration under the Securities Act of
1933, as amended (the "1933 Act"), and, in connection therewith and if deemed
desirable by the Company, use its reasonable best efforts to list (or continue
the listing of) the Preferred Stock on a national securities exchange or the
Nasdaq Stock Market, Inc. ("Nasdaq"), and to cause all shares of Preferred Stock
reserved for issuance upon exercise of Rights to be listed on such exchange or
Nasdaq upon official notice of issuance upon such exercise. The Company will
also take such action as may be appropriate under, or to ensure compliance with,
the securities or "blue sky" laws of the various states in connection with the
exercisability of the Rights. The Company may temporarily suspend, for a period
of time not to exceed ninety (90) calendar days, the exercisability of the
Rights in order to comply with all applicable Federal and state securities laws.
Upon any such suspension, the Company shall issue a public announcement (and
shall provide written notice to the Rights Agent) stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction shall have been obtained and until a registration statement
has been declared effective. Notwithstanding the provisions of clause (c) of the
first sentence of this Section 9, the Company shall not be required to pay any
transfer tax that may be payable in respect of any transfer involved in the
transfer or delivery of Right Certificates or the issuance or delivery of
certificates for Preferred Stock (and, following the occurrence of a Triggering
Event, Common Stock and/or other securities) in a name other than that of the
holder of the Right Certificate evidencing Rights surrendered for exercise or to
issue or deliver any certificates for shares of Preferred Stock (and, following
the occurrence of a Triggering Event, Common Stock and/or other securities) upon
the exercise of any Rights until any such tax shall have been paid (any such tax
being payable by the holder of such Right Certificate at the time of surrender)
or until it has been established to the Company's satisfaction that no such tax
is due.

Section 10.  Preferred Stock Record Date.
             ----------------------------

             Each Person in whose name any certificate for shares of Preferred
Stock (and, following the occurrence of a Triggering Event, Common Stock and/or
other securities) is issued upon the exercise of Rights shall for all purposes
be deemed to have become the holder of record of the Preferred Stock (and,
following the occurrence of a Triggering Event, Common Stock and/or other
securities) represented thereby on, and such certificate shall be dated, the
date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Stock (and, following the occurrence
of a Triggering Event, Common Stock and/or other securities) transfer books of
the Company are closed, such Person shall be deemed to have become the record
holder of such shares (fractional or otherwise) on, and such certificate shall
be dated, the next succeeding Business Day on which the Preferred Stock (and,
following the occurrence of a Triggering Event, Common Stock and/or other
securities) transfer books of the Company are open.  Prior to the exercise of
the Rights evidenced thereby, the holder of a Right Certificate shall not be
entitled to any rights of a shareholder of the Company with respect to shares
for which the Rights shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other

                                      13
<PAGE>

distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.

Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights.
            ------------------------------------------------------------------

            (a) The Purchase Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.

                (i) In the event the Company shall at any time after the date
     of this Agreement (A) declare a dividend on the Preferred Stock payable in
     shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock,
     (C) combine the outstanding Preferred Stock into a smaller number of shares
     or (D) issue any shares of its capital stock in a reclassification of the
     Preferred Stock (including any such reclassification in connection with a
     consolidation or merger in which the Company is the continuing or surviving
     corporation), except as otherwise provided in this Section 11((a)) and
     Section 7((e)), then and in each such event, the number of shares of
     Preferred Stock issuable upon the exercise of a Right and the Purchase
     Price payable after such event shall be the number of shares of Preferred
     Stock issuable immediately prior to such event multiplied by a fraction the
     numerator of which is the number of Rights outstanding immediately prior to
     such event and the denominator of which is the number of Rights outstanding
     immediately after such event and the Purchase Price after such event shall
     be the Purchase Price in effect immediately prior to such event multiplied
     by such fraction. If an event occurs that would require an adjustment under
     both this Section 11((a))((i)) and Section 11((a))((ii)), the adjustment
     provided for in this Section 11((a))((i)) shall be in addition to, and
     shall be made prior to, any adjustment required pursuant to Section
     11(a)((ii)).

               (ii) In the event that any Person shall, at any time after the
     Rights Dividend Declaration Date, become an Acquiring Person, unless the
     event causing such Person to become an Acquiring Person is a transaction
     set forth in Section 13(a) hereof, then, and in each such case, proper
     provision shall be made so that each holder of a Right, except as provided
     below and in Section 7((e)), shall thereafter have the right to receive,
     upon exercise thereof at the then current Purchase Price in accordance with
     the terms of this Agreement, in lieu of a number of one one-thousandths
     (1/1000/ths/) of a share of Preferred Stock, such number of shares of
     Common Stock as shall, equal the result obtained by (x) multiplying the
     then current Purchase Price by the then number of one one-thousandths
     (1/1000/ths/) of a share of Preferred Stock for which a Right was
     exercisable immediately prior to the first occurrence of a Section
     11(a)(ii) Event, and (y) dividing that product (which, following such first
     occurrence, shall thereafter be the "Purchase Price" for each Right and for
     all purposes of this Agreement) by 50% of the Current Market Price
     (determined pursuant to Section 11((c)) hereof) per share of Common Stock
     on the date of such first occurrence (such number of shares, the
     "Adjustment Shares").

                                      14
<PAGE>

               (iii)  In the event that the number of shares of Common Stock
     that are authorized by the Company's Articles of Incorporation, as amended,
     but are not outstanding or reserved for issuance for purposes other than
     upon exercise of the Rights, are not sufficient to permit the exercise in
     full of the Rights in accordance with the foregoing subparagraph ((ii)) of
     this Section 11((a)), and subject to such limitations as are necessary to
     prevent a default under any agreement for money borrowed as presently
     constituted to which the Company is a party and subject to any limitations
     contained in Section 13.1-653 of the Virginia Stock Corporation Act, the
     Company shall: (A) determine the value of the Adjustment Shares issuable
     upon the exercise of a Right (the "Current Value"), and (B) with respect to
     each Right (subject to Section 7((e)) hereof), make adequate provision to
     substitute for the Adjustment Shares, upon the exercise of a Right and
     payment of the applicable Purchase Price, (1) cash, (2) a reduction in the
     Purchase Price, (3) Common Stock or other equity securities of the Company
     (including, without limitation, shares, or units of shares, of preferred
     stock, such as the Preferred Stock, that the Board of Directors of the
     Company has deemed to have essentially the same value or economic rights as
     shares of Common Stock (such shares of preferred stock being referred to as
     "Common Stock Equivalents")), (4) debt securities of the Company, (5) other
     assets, or (6) any combination of the foregoing, having an aggregate value
     equal to the Current Value (less the amount of any reduction in the
     Purchase Price), where such aggregate value has been determined by the
     Board of Directors of the Company based upon the advice of a nationally
     recognized investment banking firm selected by the Board of Directors of
     the Company; provided, however, that if the Company shall not have made
     adequate provision to deliver value pursuant to clause (B) above within 30
     calendar days following the later of (x) the first occurrence of a Section
     11(a)(ii) Event and (y) the date on which the Company's right of redemption
     pursuant to Section 23(a) expires (the later of (x) and (y) being referred
     to herein as the "Section 11(a)(ii) Trigger Date"), then the Company shall
     be obligated to deliver, upon the surrender for exercise of the Right and
     without requiring payment of the Purchase Price, shares of Common Stock (to
     the extent available) and then, if necessary, cash, which shares and/or
     cash have an aggregate value equal to the Spread. For purposes of the
     preceding sentence, the term "Spread" shall mean the excess of (i) the
     Current Value over (ii) the Purchase Price. If the Board of Directors of
     the Company determines in good faith that it is likely that sufficient
     additional shares of Common Stock could be authorized for issuance upon
     exercise in full of the Rights, the 30 calendar day period set forth above
     may be extended to the extent necessary, but not more than 90 calendar days
     after the Section 11(a)(ii) Trigger Date, in order that the Company may
     seek shareholder approval for the authorization of such additional shares
     (such 30 calendar day period, as it may be extended, is herein called the
     "Substitution Period"). To the extent that action is to be taken pursuant
     to the first and/or third sentences of this Section 11((a))((ii)), the
     Company (1) shall provide, subject to Section 7((e)) hereof, that such
     action shall apply uniformly to all outstanding Rights, and (2) may suspend
     the exercisability of the Rights until the expiration of the Substitution
     Period in order to seek such shareholder approval for such authorization of
     additional shares and/or to decide the appropriate form of distribution to
     be made pursuant to such first sentence and to determine the value thereof.
     In the event of any such suspension, the Company shall issue a public
     announcement stating that the exercisability of the Rights has been

                                      15
<PAGE>

     temporarily suspended, as well as a public announcement at such time as the
     suspension is no longer in effect. For purposes of this Section
     11((a))()(iii), the value of each Adjustment Share shall be the Current
     Market Price per share of the Common Stock on the Section 11(a)(ii) Trigger
     Date and the per share or per unit value of any Common Stock Equivalent
     shall be deemed to equal the Current Market Price per share of the Common
     Stock on such date.

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

          (c) In the event the Company shall fix a record date for the making of
a distribution to all holders of Preferred Stock (including any such
distribution made in connection with a consolidation, merger or share exchange
in which the Company is the continuing or surviving corporation) of evidences of
indebtedness, cash (other than a regular quarterly cash dividend of the Company
in compliance with Section 13.1-653 of the Virginia Stock Corporation Act), or
other assets (other than a dividend payable in Preferred Stock, but including
any dividend payable in stock other than Preferred Stock) or evidences of
indebtedness, or of subscription rights or warrants (excluding those referred to
in Section 11((c)), the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, of which the numerator shall be the
Current Market Price per share of Preferred Stock (as defined in Section
11((c))((i)) on such record date, less the fair market value (as determined in
good faith by

                                      16
<PAGE>

the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent) of the portion of the cash, assets or
evidences of indebtedness so to be distributed or of such subscription rights or
warrants applicable to one share of Preferred Stock, and of which the
denominator shall be such Current Market Price per share of Preferred Stock.
Such adjustments shall be made successively whenever such a record date is
fixed; and in the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.

               (i) For the purpose of any computation hereunder, other than
     computations made pursuant to Section 11((a))((iii)), the "current market
     price" per share of Common Stock on any date shall be deemed to be the
     average of the daily closing prices per share of such Common Stock for the
     30 consecutive Trading Days immediately prior to such date, and for
     purposes of computations made pursuant to Section 11((a))((iii)) hereof,
     the "Current Market Price" per share of Common Stock on any date shall be
     deemed to be the average of the daily closing prices per share of such
     Common Stock for the ten (10) consecutive Trading Days immediately
     following such date; provided, however, that in the event that the Current
     Market Price per share of such stock is determined during a period
     following the announcement by the issuer of such stock of (A) a dividend or
     distribution on such stock payable in shares of such stock or securities
     convertible into shares of such stock (other than the Rights), or (B) any
     subdivision, combination or reclassification of such Common Stock, and the
     ex-dividend date for such dividend or distribution, or the record date for
     such subdivision, combination or reclassification shall not have occurred
     prior to the commencement of the requisite 30 Trading Day or 10 Trading Day
     period, as set forth above, then, and in each such case, the Current Market
     Price shall be appropriately adjusted to take into account ex-dividend
     trading. The closing price for each day shall be the last sale price,
     regular way, or, in case no such sale takes place on such day, the average
     of the closing bid and asked prices, regular way, in either case as
     reported in the principal consolidated transaction reporting system with
     respect to securities listed or admitted to trading on the New York Stock
     Exchange or, if the shares of such stock are not listed or admitted to
     trading on the New York Stock Exchange, as reported in the principal
     consolidated transaction reporting system with respect to securities listed
     on the principal national securities exchange on which the shares of such
     stock are listed or admitted to trading or, if the shares of such stock are
     not listed or admitted to trading on any national securities exchange, the
     last quoted price or, if not so quoted, the average of the high bid and low
     asked prices as reported on the Nasdaq, or such other system then in use,
     or if on any such date the shares of such stock are not quoted by any such
     organization, the average of the closing bid and asked prices as furnished
     by a professional market maker making a market in the Common Stock selected
     by the Board of Directors of the Company. If on any such date no market
     maker is making a market in the Common Stock, the fair value of such shares
     on such date as determined in good faith by the Board of Directors of the
     Company shall be used. The term "Trading Day" shall mean a day on which the
     principal national securities exchange or Nasdaq, as the case may be, on
     which the shares of such stock are listed or admitted to trading is open
     for the transaction of business or, if the shares of such stock are not
     listed or admitted to trading on any national securities exchange or
     Nasdaq, a Business Day. If such stock is not publicly held or not so listed
     or traded, "Current Market Price" per share shall mean the fair value per
     share as determined

                                      17
<PAGE>

     in good faith by the Board of Directors of the Company, whose determination
     shall be described in a statement filed with the Rights Agent and shall be
     conclusive for all purposes.

               (ii) For the purpose of any computation hereunder, the Current
     Market Price per share of Preferred Stock shall be determined in the same
     manner as set forth above for the Common Stock in clause ((i)) of this
     Section 11((c)) (other than the last sentence thereof). If the Current
     Market Price per share of Preferred Stock cannot be determined in the
     manner provided above or if the Preferred Stock is not publicly held or
     listed or traded in a manner provided above, the Current Market Price per
     share of Preferred Stock shall be conclusively deemed to be an amount equal
     to 1000 (as such number may be appropriately adjusted for such events as
     stock splits, stock dividends and recapitalizations with respect to the
     Common Stock occurring after the date of this Agreement) multiplied by the
     Current Market Price per share of the Common Stock. If neither the Common
     Stock nor the Preferred Stock is publicly held or so listed or traded,
     Current Market Price per share of the Preferred Stock shall mean the fair
     value per share as determined in good faith by the Board of Directors of
     the Company, whose determination shall be described in a statement filed
     with the Rights Agent and shall be conclusive for all purposes. For all
     purposes of this Agreement, the Current Market Price of one one-thousandth
     (1/1000/th/) of a share of Preferred Stock shall be equal to the Current
     Market Price of one share of Preferred Stock divided by 1000.

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

          (e)  In the event that at any time, as a result of an adjustment made
pursuant to Section 11((a))((ii)) or Section 13, the holder of any Right
thereafter exercised shall become entitled to receive any shares of capita1
stock of the Company other than shares of Preferred Stock, thereafter the number
of such other shares so receivable upon exercise of any Right shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Sections 11((a)), (b), ((c)), ((d)), ((f)), ((g)), ((h)), ((i)) and ((k)), and
the provisions of Sections 7, 9, 10, 13 and 14 with respect to the shares of
Preferred Stock shall apply on like terms to any such other shares.

          (f) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths
(1/1000/ths/) of a share of Preferred Stock

                                      18
<PAGE>

purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.

          (g) Unless the Company shall have exercised its election as provided
in Section 11((h)), upon each adjustment of the Purchase Price as a result of
the calculations made in Section 11((b)) and ((c)), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that number of one one-
thousandths (1/1000/ths/) of a share of Preferred Stock (calculated to the
nearest one-ten-millionth) obtained by (i) multiplying (x) the number of one
one-thousandths (1/1000/ths/) of a share covered by a Right immediately prior to
such adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.

          (h) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for an
adjustment in the number of shares of Preferred Stock purchasable upon the
exercise of a Right.  Each of the Rights outstanding after such adjustment of
the number of Rights shall be exercisable for the number of shares of Preferred
Stock to which a Right related immediately prior to such adjustment.  Each Right
held of record prior to such adjustment of the number of Rights shall become
that number of Rights (calculated to the nearest ten-thousandth) obtained by
dividing the Purchase Price in effect immediately prior to adjustment of the
Purchase Price by the Purchase Price in effect immediately after adjustment of
the Purchase Price.  The Company shall make a public announcement of its
election to adjust the number of Rights, indicating the record date for the
adjustment, and, if known at the time, the amount of the adjustment to be made.
This record date may be the date on which the Purchase Price is adjusted or any
day thereafter, but, if the Right Certificates have been issued, shall be at
least 10 calendar days later than the date of the public announcement.  If Right
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11((h)) the Company shall, as promptly as practicable,
cause to be distributed to holders of record of Right Certificates on such
record date Right Certificates evidencing, subject to Section 14, the additional
Rights to which such holders shall be entitled as a result of such adjustment,
or, at the option of the Company, shall cause to be distributed to such holders
of record in substitution and replacement for the Right Certificates held by
such holders prior to the date of adjustment, and upon surrender thereof, if
required by the Company, new Right Certificates evidencing all the Rights to
which such holders shall be entitled after such adjustment.  Right Certificates
so to be distributed shall be issued, executed and countersigned in the manner
provided for herein (and may bear, at the option of the Company, the adjusted
Purchase Price) and shall be registered in the names of the holders of record of
Right Certificates on the record date specified in the public announcement.

          (i) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-thousandths (1/1000/ths/) of a share of Preferred Stock
issuable upon the exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the Purchase Price per one one-
thousandth (1/1000/th/) share and the number of shares that were expressed in
the initial Right Certificates issued hereunder.

                                      19
<PAGE>

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

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

          (l) The Company covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with any other Person (other than a
Subsidiary of the Company in a transaction that complies with Section 11((m))
hereof), (ii) merge with or into any other Person (other than a Subsidiary of
the Company in a transaction that complies with Section 11((m)) hereof), (iii)
effect a statutory share exchange with any Person (other than a Subsidiary of
the Company in a transaction that complies with Section 11((m)) hereof) or (iv)
sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets, cash flow or earning
power aggregating more than 50% of the assets or earning power of the Company
and its Subsidiaries (taken as a whole) to any other Person or Persons (other
than the Company and/or any of its Subsidiaries in one or more transactions each
of which complies with Section 11((m)) hereof), if (x) at the time of or
immediately after such consolidation, merger, statutory share exchange or sale
there are any rights, warrants or other instruments or securities outstanding or
agreements in effect that would substantially diminish or otherwise eliminate
the benefits intended to be afforded by the Rights or (y) prior to,
simultaneously with or immediately after such consolidation, merger, statutory
share exchange or sale, the shareholders of the Person who constitutes, or would
constitute, the "Principal Party" for purposes of Section 13(a) hereof shall
have received a distribution of Rights previously owned by such Person or any of
its Affiliates and Associates.

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

                                      20
<PAGE>

             (n) Anything in this Agreement to the contrary notwithstanding, in
the event that the Company shall at any time after the Rights Dividend
Declaration Date and prior to the Distribution Date (i) declare a dividend on
the outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding shares of Common Stock, or (iii) combine the
outstanding shares of Common Stock into a smaller number of shares, the number
of Rights associated with each share of Common Stock then outstanding, or issued
or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
following the occurrence of such event.

Section 12.  Certification of Adjusted Purchase Price or Number of Shares.
             -------------------------------------------------------------

             Whenever an adjustment is made as provided in Sections 11 or 13,
the Company shall (a) promptly prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent and with each transfer agent for the
Preferred Stock and Common Stock, a copy of such certificate and (c) if a
Distribution Date has occurred, mail a brief summary thereof to each holder of a
Right Certificate in accordance with Section 26. The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment therein
contained and shall not be obligated or responsible for calculating any
adjustment nor shall it be deemed to have knowledge of any such adjustment
unless and until it shall have received such a certificate.

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

             In the event that on or at any time after a Stock Acquisition Date,
directly or indirectly, (a) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the Company in a
transaction that complies with Section 11(m) hereof), and the Company shall not
be the continuing or surviving corporation of such consolidation or merger, (b)
any Person (other than a Subsidiary of the Company in a transaction that
complies with Section 11(m) hereof) shall consolidate with, merge with or into,
the Company, and the Company shall be the continuing or surviving corporation of
such consolidation or merger and, in connection with such consolidation or
merger, all or part of the outstanding shares of Common Stock shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, (c) the Company shall be a party to a statutory share
exchange with any other Person (other than a Subsidiary of the Company in a
transaction that complies with Section 11(m) hereof) after which the Company is
a Subsidiary of any other Person, or (d) the Company shall sell or otherwise
transfer (or one or more of its Subsidiaries shall sell or otherwise transfer),
in one transaction or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any Person or Persons (other than the

                                      21
<PAGE>

Company or any of its Subsidiaries in one or more transactions each of which
complies with Section 11((m))), then, and in each such case:

                    (A)   proper provision shall be made so that (i) each holder
          of a Right (except as provided in Section 7((e))) shall thereafter
          have the right to receive, upon the exercise thereof at the then
          current Purchase Price in accordance with the terms of this Agreement,
          such number of validly authorized and issued, fully paid, non-
          assessable and freely tradeable shares of common stock of the
          Principal Party (as hereinafter defined), not subject to any liens,
          encumbrances, rights of first refusal or other adverse claims, as
          shall be equal to the result obtained by (1) multiplying the then
          current Purchase Price by the number of one one-thousandths
          (1/1000/ths/) of a share of Preferred Stock for which a Right is
          exercisable immediately prior to the first occurrence of a Section 13
          Event (or, if a Section 11(a)(ii) Event has occurred prior to the
          first occurrence of a Section 13 Event, multiplying the number of such
          one one-thousandths (1/1000/ths/) of a share for which a Right was
          exercisable immediately prior to the first occurrence of a Section
          11(a)(ii) Event by the Purchase Price in effect immediately prior to
          such first occurrence) and dividing that product (which , following
          the first occurrence of a Section 13 Event, shall be referred to as
          the "Purchase Price" for each Right and for all purposes of this
          Agreement) by (2) 50% of the Current Market Price (determined pursuant
          to Section 11((c))((i)) hereof) per share of the Common Stock of such
          Principal Party, on the date of consummation of such Section 13 Event;
          (ii) the Principal Party shall thereafter be liable for, and shall
          assume, by virtue of such Section 13 Event, all the obligations and
          duties of the Company pursuant to this Agreement; (iii) the term
          "Company" shall thereafter be deemed to refer to such Principal Party,
          it being specifically intended that the provisions of Section 11
          hereof shall apply only to such Principal Party following the first
          occurrence of a Section 13 Event; (iv) the Principal Party shall take
          such steps (including, but not limited to, the reservation of a
          sufficient number of shares of its Common Stock) in connection with
          such consummation as may be necessary to assure that the provisions
          hereof shall thereafter be applicable, as nearly as reasonably may be,
          in relation to the shares of its Common Stock thereafter deliverable
          upon the exercise of the Rights; and (v) the provisions of Section
          11((a))((ii)) hereof shall be of no effect following the first
          occurrence of any Section 13 Event.

                    (B)  "Principal Party" shall mean:

                         (1)   in the case of any transaction described in (a),
               (b) or (c) of the first sentence of this Section 13, (i) the
               Person that is the issuer of any securities into which shares of
               Common Stock of the Company are converted in such merger or
               consolidation or exchanged in such statutory share exchange, or,
               if there is more than one such issuer, the issuer the common
               stock of which has the greatest market value or (ii) if no
               securities are so issued, (x) the Person that is the other party
               to the merger or consolidation or statutory share exchange and
               that survives said merger or consolidation or that is the
               acquiring corporation in a statutory

                                      22
<PAGE>

               share exchange or, if there is more than one such Person, the
               Person the common stock of which has the greatest market value or
               (y) if the Person that is the other party to the merger or
               consolidation or statutory share exchange does not survive the
               merger or consolidation or statutory share exchange, the Person
               that does survive the merger or consolidation or statutory share
               exchange (including the Company if it survives);

                         (2)   in the case of any transaction described in
               clause (d) of the first sentence of this Section 13, the Person
               that is the party receiving the greatest portion of the assets or
               earning power transferred pursuant to such transaction or
               transactions, or, if each Person that is a party to such
               transaction or transactions receives the same portion of the
               assets or earning power so transferred or the Person receiving
               the greatest portion of the assets or earning power cannot be
               determined, whichever of such Persons as is the issuer of common
               stock having the greatest market value of shares outstanding;

provided, however, that in any such case, (w) if the common stock of such Person
is not at such time and has not been continuously over the preceding 12-month
period registered under Section 12 of the Exchange Act, and such Person is a
direct or indirect Subsidiary of another corporation the common stock of which
is and has been so registered, "Principal Party" shall refer to such other
corporation, (x) if the common stock of such Person is not and has not been so
registered and such Person is not a direct or indirect Subsidiary of another
corporation the common stock of which is and has been so registered, "Principal
Party" shall refer to the corporation that ultimately controls such Person, (y)
in case such Person is a Subsidiary, directly or indirectly, of more than one
corporation, the common stocks of all of which are and have been so registered,
"Principal Party" shall refer to whichever of such corporations is the issuer of
the common stock having the greatest market value of shares held by the public,
and (z) in case such Person is owned, directly or indirectly, by a joint venture
formed by two or more Persons that are not owned, directly or indirectly, by the
same Person, the rules set forth in (w) - (y) above shall apply to each of the
chains of ownership having an interest in such joint venture as if such party
were a Subsidiary of both or all of such joint venturers and the Principal
Parties in each such chain shall bear the obligations set forth in this Section
13 in the same ratio as their direct or indirect interests in such Person bear
to the total of such interests.

          The Company shall not consummate any such consolidation, merger, sale,
statutory share exchange or transfer unless prior thereto the Company and such
issuer shall have executed and delivered to the Rights Agent a supplemental
agreement making valid provision for the results described in subsections ((A))
and ((B)) above and further providing that, as soon as practicable after the
date of any consolidation, merger, statutory share exchange or sale of assets
mentioned in this Section 13, the Principal Party shall:

                              (i)   prepare and file a registration statement
                    under the 1933 Act, with respect to the Rights and the
                    securities purchasable upon exercise of the Rights on an
                    appropriate form, and will use its best efforts to cause
                    such registration statement to (A) become effective as soon
                    as practicable after such filing and

                                      23
<PAGE>

                    (B) remain effective (with a prospectus at all times meeting
                    the requirements of the 1933 Act) until the Expiration Date;
                    and

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

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

provided, however, that in no case may the Company consummate any such
consolidation, merger, statutory share exchange, sale or transfer if (i) at the
time of or immediately after such transaction there are any rights, warrants or
other instruments or securities outstanding or agreements in effect that would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights  or (ii) prior to, simultaneously with or immediately
after such transaction, the shareholders of the Person who constitutes, or would
constitute, the Principal Party for purposes of Section 13 shall have received a
distribution of Rights previously owned by such Person or any of its Affiliates
and Associates.  The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or statutory share exchanges or sales or
other transfers.  In the event that a Section 13 Event shall occur at any time
after the occurrence of a Section 11(a)(ii) Event, the Rights that have not
theretofore been exercised shall thereafter become exercisable in the manner
described in Section 13(a).

Section 14.  Fractional Rights, and Fractional Shares.
             -----------------------------------------

            (a)   The Company shall not be required to issue fractions of
Rights, except prior to the Distribution Date as provided in Section 11((n))
hereof, or to distribute Right Certificates that evidence fractional Rights. If
the Company shall determine not to issue such fractional Rights, in lieu of such
fractional Rights, there shall be paid to the 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 the purposes of this Section 14((a)), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price
or, in case no such sale takes place on such day, the average of the closing bid
and asked prices, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the Nasdaq National Market or, if the Rights are not listed or
admitted to trading on the Nasdaq National Market, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal

                                      24
<PAGE>

national securities exchange on which the Rights are listed or admitted to
trading or, if the Rights are not listed or admitted to trading on any national
securities exchange, the last quoted price, or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
Nasdaq or such other system then in use or, if on any such date the Rights are
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Rights, selected by the Board of Directors of the Company. If on any such date
no such market maker is making a market in the Rights, the fair value of the
Rights on such date as determined in good faith by the Board of Directors of the
Company shall be used.

             (b)   The Company shall not be required to issue fractions of
shares of Preferred Stock (other than fractions that are integral multiples of
the fraction of a share for which a Right is then exercisable) upon exercise of
the Rights or to distribute certificates that evidence fractional shares (other
than fractions that are integra1 multiples of the fraction of a share for which
a Right is exercisable). In lieu of fractional shares that are not integral
multiples of the fraction for which a Right is then exercisable, the Company may
pay to the holders of Right Certificates at the time such Right Certificates are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of a share of Preferred Stock. For purposes of this Section
14, the current market value of a share of Preferred Stock shall be the closing
price of a share of Preferred Stock (as determined pursuant to the second
sentence of Section 11((c))) for the Trading Day immediately prior to the date
of such exercise.

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

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

Section 15.  Rights of Action.
             ----------------

             All rights of action in respect of this Agreement are vested in the
respective holders of the Right Certificates (and prior to the Distribution
Date, the holders of the Common Stock); and any holder of any Right Certificate
(or, prior to the Distribution Date, any holder of the Common Stock), without
the consent of the Rights Agent or of the holder of any other Right Certificate
(or, prior to the Distribution Date, any holder of the Common Stock), may, on
his own behalf and for his own benefit, enforce, and may institute and maintain
any suit, action or proceeding against the Company to enforce, or otherwise act
in respect of, his right to exercise the Rights evidenced by such Right
Certificate in the manner provided in such Right Certificate

                                      25
<PAGE>

and in this Agreement. Without limiting the foregoing or any remedies available
to the holders of Rights, it is specifically acknowledged that the holders of
Rights would not have an adequate remedy at law for any breach of this Agreement
and will be entitled to specific performance of the obligations hereunder, and
injunctive relief against actual or threatened violations of the obligations of
any Person subject to this Agreement.

Section 16.  Agreement of Right Holders.
             --------------------------

             (a)   Every holder of a Right by accepting the same, consents and
agrees with the Company and the Rights Agent and with every other holder of a
Right that:

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

                   (ii)  after the Distribution Date, the Right Certificates are
     transferable only on the registry books of the Rights Agent and then if
     surrendered at the principal stock transfer office of the Rights Agent,
     duly endorsed or accompanied by a proper instrument of transfer and with
     the appropriate forms and certificates fully executed; and

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

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

Section 17.  Right Certificate Holder Not Deemed a Shareholder.
             -------------------------------------------------

             No holder, as such, of any Right Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of Preferred
Stock or any other securities of the Company that may at any time be issuable on
the exercise of the Rights represented thereby, nor shall anything contained
herein or in any Right Certificate be construed to confer upon the holder of any
Right Certificate, as such, any of the rights of a shareholder of the Company or
any

                                      26
<PAGE>

right to vote at the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders (except as provided in Section 25), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by such
Right Certificate shall have been exercised in accordance with the provisions
hereof.

Section 18.  Concerning the Rights Agent.
             ---------------------------

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

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

             (c)   The indemnity provided in this Section 18 shall survive the
expiration of the Rights, the resignation or removal of the Rights Agent and the
termination of this Agreement.

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

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

                                      27
<PAGE>

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 Agreement.

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

Section 20.  Duties of Rights Agent.
             -----------------------

             (a)   The Rights Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and conditions, by all of
which the Company and the holders of Right Certificates by their acceptance
thereof, shall be bound:

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

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

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

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

             (f)   The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any

                                      28
<PAGE>

covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any adjustment required under the provisions of
Sections 11, 13 or 24 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 hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Common Stock or Preferred Stock to
be issued pursuant to this Agreement or any Right Certificate or as to whether
any shares of Common Stock or Preferred Stock will, when so issued, be validly
authorized and issued, fully paid and nonassessable.

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

             (h)   The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board of Directors of the Company, the President, any Vice
President, the Secretary, any Assistant Secretary, the Treasurer or any
Assistant Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer or for any delay in acting while awaiting
instructions. Any application by the Rights Agent for written instructions from
the Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under this Agreement
and the date on or after which such action shall be taken or such omission shall
be effective. The Rights Agent shall not be liable for any action taken by, or
omission of, the 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 the Company
actually receives such application, unless any such officer shall have consented
in writing to an earlier date) unless, prior to taking any such action (or the
effective date in the case of an omission), the Rights Agent shall have received
written instructions in response to such application specifying the action to be
taken or omitted; provided, such proposal is submitted in good faith and is not
inconsistent with any instructions previously received from any officer of the
Company.

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

             (j)   The Rights Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys or agents, and the Rights Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such attorneys
or agents or for any loss to the Company resulting from any

                                      29
<PAGE>

such act, default, neglect or misconduct, provided the Rights Agent was not
grossly negligent in the selection and continued employment thereof.

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

             (l)   If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.

             (m)   The Rights Agent undertakes only the express duties and
obligations imposed on it by this Agreement and no implied duties or obligations
shall be read into this Agreement against the Rights Agent.

             (n)   Anything in this Agreement to the contrary notwithstanding,
in no event shall the Rights Agent be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not limited
to lost profits).

Section 21.  Change of Rights Agent.
             -----------------------

             The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties under this Agreement upon 30 calendar days' notice in
writing mailed to the Company and to each transfer agent of Common Stock and
Preferred Stock by registered or certified mail, and, if such resignation occurs
after the Distribution Date, to the holders of the Right Certificates by first-
class mail.  The Company may remove the Rights Agent or any successor Rights
Agent upon 30 calendar days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of Common
Stock and Preferred Stock by registered or certified mail, and, if such removal
occurs after the Distribution Date, to the holders of the Right Certificates by
first-class mail.  If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent.  If the Company shall fail to make such appointment within a
period of 30 calendar days after giving notice of such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company),
then any holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent.  Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be (a) a legal
business entity organized and doing business under the laws of the United States
or of a state of the United States in good standing, that is authorized under
such laws to exercise corporate trust or stock transfer or shareholders services
powers and that has at the time of its appointment as Rights Agent a combined
capital and surplus of at least $100,000,000 or (b) an affiliate of a legal

                                      30
<PAGE>

business entity described in clause (a) of this sentence.  After appointment,
the successor Rights Agent shall be vested with the same powers, rights, duties
and responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose.  Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of Common Stock and Preferred Stock, and, if such
appointment occurs after the Distribution Date, mail a notice thereof in writing
to the holders of the Right Certificates.  Failure to give any notice provided
for in this Section 21, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Rights Agent or the
appointment of the successor Rights Agent, as the case may be.

Section 22.  Issuance of New Right Certificates.
             -----------------------------------

             Notwithstanding any of the provisions of this Agreement or of the
Rights to the contrary, the Company may, at its option, issue new Right
Certificates evidencing Rights in such form as may be approved by its Board of
Directors of the Company to reflect any adjustment or change in the Purchase
Price per share and in the number or kind or class of shares of stock or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement.  In addition, in connection
with the issuance or sale of shares of Common Stock following the Distribution
Date and prior to the redemption or expiration of the Rights, the Company (a)
shall, with respect to shares of Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement, granted or
awarded as of the Distribution Date, or upon the exercise, conversion or
exchange of securities hereinafter issued by the Company, and (b) may, in any
other case, if deemed necessary or appropriate by the Board of Directors of the
Company, issue Rights Certificates representing the appropriate number of Rights
in connection with such issuance or sale; provided, however, that (i) no such
Rights Certificate shall be issued if, and to the extent that, the Company shall
be advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the Person to whom such
Rights Certificate would be issued, and (ii) no such Rights Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.

Section 23.  Redemption.
             -----------

             The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (i) the Close of Business on the tenth Business Day
following the Stock Acquisition Date (or, if the Stock Acquisition Date shall
have occurred prior to the Record Date, the Close of Business on the tenth
Business Day following the Record Date), and (ii) the Final Expiration Date, and
as provided herein, elect to redeem all but not less than all the then
outstanding Rights at a redemption price of $.01 per Right, as such amount may
be appropriately adjusted to reflect any combination or subdivision of the
outstanding Common Stock, any dividend payable in Common Stock in respect of the
outstanding Common Stock or any other similar transaction occurring after the
date hereof (such redemption price being hereinafter referred to as the

                                      31
<PAGE>

"Redemption Price"). Immediately upon the action of the Board of Directors of
the Company electing to redeem the Rights, evidence of which shall have been
filed with the Rights Agent, without any further action and without any further
notice, the only right of the holders of Rights shall be to receive the
Redemption Price and such holders shall have no right to exercise the Rights.
Promptly after the action of the Board of Directors of the Company ordering the
redemption of the Rights, the Company shall give notice of such redemption to
the holders of the then outstanding Rights by mailing such notice to all such
holders at their last addresses as they appear upon the registry books of the
Rights Agent, or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Stock. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made. Notwithstanding anything contained
in this Agreement to the contrary, the Rights shall not be exercisable after the
first occurrence of a Section 11(a)(ii) Event until the expiration of the
Company's right of redemption hereunder. The Company may, at its option, pay the
Redemption Price in cash, shares of Common Stock (based on the Current Market
Price, as defined in Section 11((c))(i) hereof, of the Common Stock at the time
of redemption) or any other form of consideration deemed appropriate by the
Board of Directors of the Company.

Section 24.  Exchange.
             ---------

             (a)   The Board of Directors of the Company may, at its option, at
any time (including any time after any Person becomes an Acquiring Person),
exchange all or part of the then outstanding and exercisable Rights (which shall
not include Rights that have become void pursuant to the provisions of Section
7((e)) hereof) for Common Stock at an exchange ratio of one share of Common
Stock per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such exchange
ratio being hereinafter referred to as the "Exchange Ratio"). Notwithstanding
the foregoing, the Board of Directors of the Company shall not be empowered to
effect such exchange at any time after any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or any such
Subsidiary, or any entity holding Common Stock for or pursuant to the terms of
any such plan), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the Common Stock then
outstanding.

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

                                      32
<PAGE>

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 than
Rights that have become void pursuant to the provisions of Section 7() hereof)
held by each holder of Rights.

          (c)  In any exchange pursuant to this Section 24, the Company, at its
option, may substitute Preferred Stock (or Equivalent Preferred Stock, as such
term is defined in paragraph ((b)) of Section 11 hereof) for Common Stock
exchangeable for Rights, at the initial rate of one one-thousandth (1/1000/th/)
of a share of Preferred Stock (or Equivalent Preferred Stock) for each share of
Common Stock, as appropriately adjusted to reflect stock splits, stock dividends
and other similar transactions after the date hereof.

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

          (e)  The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates that evidence fractional shares of
Common Stock. In lieu of such fractional shares of Common Stock, there shall be
paid to the holders of the Right Certificates with regard to which such
fractional shares of Common Stock would otherwise be issuable, an amount in cash
equal to the same fraction of the current market value of a whole share of
Common Stock. For the purposes of this subsection ((e)), the current market
value of a whole share of Common Stock shall be the closing price of a share of
Common Stock (as determined pursuant to the second sentence of Section
11((c))((i)) hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.

Section 25.  Notice of Certain Events.
             -------------------------

          (a)  In case the Company, at any time after the Distribution Date,
shall propose to pay any dividend payable in stock of any class to the holders
of Preferred Stock or to make any other distribution to the holders of Preferred
Stock (other than a regular quarterly cash dividend not in excess of 150% of the
rate of the last cash dividend theretofore paid and made in compliance with
Section 13.1-653 of the Virginia Stock Corporation Act), or to offer to the
holders of Preferred Stock rights or warrants to subscribe for or to purchase
any additional shares of Preferred Stock or shares of stock of any class or any
other securities, rights or options, or to effect any reclassification of its
Preferred Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or to effect any consolidation or merger
into or with any other Person (other than a Subsidiary of the Company in a
transaction that complies with Section 11((m)) hereof), or to effect a statutory
share exchange with any Person (other than a Subsidiary of the Company in a
transaction that complies with Section 11((m)) hereof), or to effect any sale or
other transfer (or to permit one or more of its Subsidiaries to effect any sale
or other transfer), in one or a series of related transactions, of more than 50%
of the assets, cash flow or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than a Subsidiary of
the Company in one or more transactions that complies with Section 11((m))
hereof), or to effect the liquidation, dissolution or winding up of the Company,
then, in each such case, the Company shall give to

                                      33
<PAGE>

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

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

Section 26. Notices.
            --------

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

               Insmed Incorporated
               800 East Leigh Street
               Richmond, Virginia 23219
               Phone: (804) 828-6893
               Fax: (804) 827-0520
               Attention: Chief Financial Officer

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

                                      34
<PAGE>

               First Union National Bank
               1525 West W. T. Harris Boulevard
               Building 3C3
               Charlotte, North Carolina 28288-1153
               Attention: Equity Services Group
               Phone: (800) 829-8432
               Fax: (704) 590-7599

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

Section 27.  Supplements and Amendments.
             ---------------------------

             Prior to the Distribution Date and subject to the last sentence of
this Section 27, the Company may, and the Rights Agent shall, if the Company so
directs, supplement or amend any provision of this Agreement without the
approval of any holders of certificates representing shares of Common Stock.
From and after the Distribution Date and subject to the sentence immediately
prior to the penultimate sentence of this Section 27, the Company may, and the
Rights Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Right Certificates in order (i)
to cure any ambiguity, (ii) to correct or supplement any provision contained
herein that may be defective or inconsistent with any other provisions herein,
(iii) to shorten or lengthen any time period hereunder, or (iv) to change or
supplement the provisions hereunder in any manner that the Company 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); provided, that this Agreement may not be
supplemented or amended to lengthen, pursuant to clause (iii) of this sentence,
(A) a time period relating to when the Rights may be redeemed at such time as
the Rights are not then redeemable, or (B) any other time period unless such
lengthening is for the purpose of protecting, enhancing or clarifying the rights
of, and/or the benefits, to the holders of Rights. Upon the delivery of a
certificate from an appropriate officer of the Company that states that the
proposed supplement or amendment is in compliance with the terms of this Section
27, the Rights Agent shall execute such supplement or amendment. Notwithstanding
the foregoing, no supplement or amendment shall be made that changes the
Redemption Price, the Final Expiration Date, the Purchase Price or the number of
shares of Common Stock for which a Right is exercisable; provided, however, that
at any time prior to the Distribution Date, the Board of Directors of the
Company may amend this Agreement to increase the Purchase Price or extend the
Final Expiration Date. 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. Notwithstanding anything herein to the contrary, this Agreement
may not be amended at a time when the Rights are not redeemable, and no
supplement or amendment that changes the rights or duties of the Rights Agent
under this Agreement shall be effective without the consent of the Rights Agent.

                                      35
<PAGE>

Section 28.  Successors.
             -----------

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

Section 29.  Determinations and Actions Taken by the Board of Directors.
             -----------------------------------------------------------

             For all purposes of this Agreement, any calculation of the number
of shares of Common Stock or of any other class of capital stock outstanding at
any particular time, including for purposes of determining the particular
percentage of the outstanding Common Stock of which any Person is the Beneficial
Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i)
(as in effect on the date of this Agreement) of the General Rules and
Regulations under the Exchange Act. The Board of Directors of the Company shall
have the exclusive power and authority to administer this Agreement and to
exercise all rights and powers specifically granted to the Board or to the
Company, or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Agreement, and (ii) make all determinations deemed
necessary or advisable for the administration of this Agreement (including a
determination to redeem or not redeem the Rights or to amend this Agreement).
All such actions, calculations, interpretations and determinations (including,
for purposes of clause (y) below, all omissions with respect to the foregoing)
which are done or made by the Board (or, where specifically provided for herein,
the Continuing Directors) in good faith, shall (x) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights and all
other parties, and (y) not subject the Board of Directors of the Company, or any
of the directors on the Board of Directors of the Company to any liability to
the holders of the Rights.

Section 30.  Benefits of this Agreement.
             ---------------------------

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

Section 31.  Severability.
             -------------

             If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction or other authority to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated; provided, however, that
notwithstanding anything in this Agreement to the contrary, if any such term,
provision, covenant or restriction is held by such court or authority to be
invalid, void or unenforceable and the Board of Directors of the Company
determines in its good faith judgment that severing the

                                      36
<PAGE>

invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the Close of Business on the
tenth Business Day following the date of such determination by the Board of
Directors of the Company. Without limiting the foregoing, if any provision
requiring a specific group of Directors of the Company to act is held to by any
court of competent jurisdiction or other authority to be invalid, void or
unenforceable, such determination shall then be made by the Board of Directors
of the Company in accordance with applicable law and the Company's Articles of
Incorporation, as amended, and Bylaws.

Section 32.  Governing Law.
             --------------

             This Agreement, each Right and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the
Commonwealth of Virginia and for all purposes shall be governed by and construed
in accordance with the laws of such Commonwealth applicable to contracts made
and to be performed entirely within such Commonwealth.

Section 33.  Counterparts.
             -------------

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

Section 34.  Descriptive Headings.
             ---------------------

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

                                      37
<PAGE>

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

                              INSMED INCORPORATED

                              By:   /s/Geoffrey Allan, Ph.D.
                                    ------------------------------------------
                                    Geoffrey Allan, Ph.D.
                                    Chairman of the Board of Directors,
                                    President and Chief Executive Officer

                              FIRST UNION NATIONAL BANK

                              By:   /s/ James M. Clark
                                    ------------------------------------------
                                    Name: James M. Clark
                                    Title: Vice President-Equity Services Group

                                      38
<PAGE>

                                                                       Exhibit A
                                                                       ---------

                                    FORM OF
              AMENDMENT TO ARTICLES OF INCORPORATION, AS AMENDED
                   TO CREATE A NEW SERIES OF PREFERRED STOCK
                                 DESIGNATED AS
                 SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
                                      of
                              INSMED INCORPORATED

      Pursuant to Section 13.1-639 of the Virginia Stock Corporation Act
      ------------------------------------------------------------------

                                      I.

The name of the corporation is Insmed Incorporated (the "Company").

                                      II.

Pursuant to Section 13.1-639 of the Virginia Stock Corporation Act and the
authority conferred upon the Board of Directors by the Articles of Incorporation
of the Company, as amended, the Articles of Incorporation are hereby amended to
create a new series of shares of Preferred Stock, designated as "Series A Junior
Participating Preferred Stock" by adding the following additional paragraph
after the last paragraph of that Article III:

9.   Series A Junior Participating Preferred Stock

     (a)  Designation and Amount. The shares of such series shall be designated
          ----------------------
as "Series A Junior Participating Preferred Stock" and the number of shares
constituting such series shall be five hundred thousand (500,000).

     (b)  Dividends and Distributions.
          ---------------------------

               1.  Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Series A Junior Participating Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of January, April, July and October in each
year (each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Junior Participating
Preferred Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $1.00 or (b) subject to the provision for adjustment
hereinafter set forth, 1000 times the aggregate per share amount of all cash
dividends, and 1000 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by

                                      A-1
<PAGE>

reclassification or otherwise), declared on the Common Stock, par value $.01 per
share, of the Company (the "Common Stock") since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series A Junior Participating Preferred Stock. In the event the Company
shall at any time after May 16, 2001 (the "Rights Declaration Date"), (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the amount to
which holders of shares of Series A Junior Participating Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

          2.   The Company shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock immediately after it declares a
dividend or distribution on the Common Stock (other than a dividend payable in
shares of Common Stock); provided that, in the event no dividend or distribution
                         --------
shall have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1.00 per share on the Series A Junior Participating
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.

          3.   Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Junior Participating Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a share-
by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.

     (c)  Voting Rights. The holders of shares of Series A Junior Participating
          -------------
Preferred Stock shall have the following voting rights:

          1.   Subject to the provision for adjustment hereinafter set forth,
each share of Series A Junior Participating Preferred Stock shall entitle the
holder thereof to 1000 votes on all

                                      A-2
<PAGE>

matters submitted to a vote of the shareholders of the Company. In the event the
Company shall at any time after the Rights Declaration Date (A) declare any
dividend on Common Stock payable in shares of Common Stock, (B) subdivide the
outstanding Common Stock or (C) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the number of votes per share
to which holders of shares of Series A Junior Participating Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.

          2.   Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of shareholders of the Company.

               (A) If at any time dividends on any Series A Junior Participating
          Preferred Stock shall be in arrears in an amount equal to six
          quarterly dividends thereon, the occurrence of such contingency shall
          mark the beginning of a period (herein called a "Default Period") that
          shall extend until such time when all accrued and unpaid dividends for
          all previous quarterly dividend periods and for the current quarterly
          dividend period on all shares of Series A Junior Participating
          Preferred Stock then outstanding shall have been declared and paid or
          set apart for payment. During each Default Period, all holders of
          Preferred Stock (including holders of the Series A Junior
          Participating Preferred Stock) with dividends in arrears in an amount
          equal to six quarterly dividends thereon, voting as a class,
          irrespective of series, shall have the right to elect two directors.

               (B) During any Default Period, such voting right of the holders
          of Series A Junior Participating Preferred Stock may be exercised
          initially at a special meeting called pursuant to Paragraph (c)2.(C)
                                                            -----------------
          or at any annual meeting of shareholders, and thereafter at annual
          meetings of shareholders, provided that neither such voting right nor
                                    --------
          the right of the holders of any other series of Preferred Stock, if
          any, to increase, in certain cases, the authorized number of directors
          shall be exercised unless the holders of ten percent in number of
          shares of Preferred Stock outstanding shall be present in person or by
          proxy. The absence of a quorum of the holders of Common Stock shall
          not affect the exercise by the holders of Preferred Stock of such
          voting right. At any meeting at which the holders of Preferred Stock
          shall exercise such voting right initially during an existing Default
          Period, they shall have the right, voting as a class, to elect
          directors to fill such vacancies, if any, in the Board of Directors as
          may then exist up to two directors or, if such right is exercised at
          an annual meeting, to elect two directors. If the number that may be
          so elected at any special meeting does not amount to the required
          number, the holders of the Preferred Stock shall have the right to
          make such increase in the number of directors as shall be necessary to
          permit the election by them of the required number. After the holders
          of the Preferred Stock shall have exercised their right to elect
          directors in any Default Period and during the continuance of such
          period, the number of directors shall not be increased or decreased
          except by vote of the holders of Preferred Stock as

                                      A-3
<PAGE>

          herein provided or pursuant to the rights of any equity securities
          ranking senior to or pari passu with the Series A Junior Participating
          Preferred Stock.

               (C) Unless the holders of Preferred Stock shall, during an
          existing Default Period, have previously exercised their right to
          elect directors, the Board of Directors may order, or any shareholder
          or shareholders owning in the aggregate not less than ten percent of
          the total number of shares of Preferred Stock outstanding,
          irrespective of series, may request, the calling of a special meeting
          of the holders of Preferred Stock, which meeting shall thereupon be
          called by the President, a Vice President or the Secretary of the
          Company. Notice of such meeting and of any annual meeting at which
          holders of Preferred Stock are entitled to vote pursuant to this
          Paragraph (c)2.(C) shall be given to each holder of record of
          -----------------
          Preferred Stock by mailing a copy of such notice to him at his last
          address as the same appears on the books of the Company. Such meeting
          shall be called for a time not earlier than 20 days and not later than
          60 days after such order or request or in default of the calling of
          such meeting within 60 days after such order or request, such meeting
          may be called on similar notice by any shareholder or shareholders
          owning in the aggregate not less than ten percent of the total number
          of shares of Preferred Stock outstanding. Notwithstanding the
          provisions of this Paragraph (c)2.(C), no such special meeting shall
                             -----------------
          be called during the period within 60 days immediately preceding the
          date fixed for the next annual meeting of the shareholders.

               (D) In any Default Period, the holders of Common Stock, and other
          classes of stock of the Company if applicable, shall continue to be
          entitled to elect the whole number of directors until the holders of
          Preferred Stock shall have exercised their right to elect two
          directors voting as a class, after the exercise of which right (x) the
          directors so elected by the holders of Preferred Stock shall continue
          in office until their successors shall have been elected by such
          holders or until the expiration of the Default Period, and (y) any
          vacancy in the Board of Directors may (except as provided in Paragraph
                                                                       ---------
          (c)2.(C) above) be filled by vote of a majority of the remaining
          -------
          directors theretofore elected by the holders of the class of stock
          that elected the director whose office shall have become vacant.
          References in this Paragraph (c) to directors elected by the holders
                             -------------
          of a particular class of stock shall include directors elected by such
          directors to fill vacancies as provided in clause (y) of the foregoing
          sentence.

               (E) Immediately upon the expiration of a Default Period, (I) the
          right of the holders of Preferred Stock as a class to elect directors
          shall cease, (II) the term of any directors elected by the holders of
          Preferred Stock as a class shall terminate and (III) the number of
          directors shall be such number as may be provided for in the Articles
          of Incorporation, as amended or Amended and Restated Bylaws
          irrespective of any increase made pursuant to the provisions of
          Paragraph (c)2.(A) (such number being subject, however, to change
          -----------------
          thereafter in any manner provided by law or in the Articles of
          Incorporation, as amended or Amended and Restated Bylaws). Any
          vacancies in the Board of Directors

                                      A-4
<PAGE>

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

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

     (d)  Certain Restrictions.
          --------------------

          1.   Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Paragraph (b) above are in arrears, thereafter and until all accrued and unpaid
------------
dividends and distributions, whether or not declared, on shares of Series A
Junior Participating Preferred Stock outstanding shall have been paid in full,
the Company shall not:

               (A) declare or pay dividends on, make any other distributions on,
          or redeem or purchase or otherwise acquire for consideration any
          shares of stock ranking junior (either as to dividends or upon
          liquidation, dissolution or winding up) to the Series A Junior
          Participating Preferred Stock;

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

               (C) redeem or purchase or otherwise acquire for consideration
          shares of any stock ranking on a parity (either as to dividends or
          upon liquidation, dissolution or winding up) with the Series A Junior
          Participating Preferred Stock, provided that the Company may at any
                                         --------
          time redeem, purchase or otherwise acquire shares of any such parity
          stock in exchange for shares of any stock of the Company ranking
          junior (either as to dividends or upon dissolution, liquidation or
          winding up) to the Series A Junior Participating Preferred Stock; or

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

                                      A-5
<PAGE>

          2.   The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under Paragraph (d)1., purchase or otherwise
                                        ---------------
acquire such shares at such time and in such manner.

     (e)  Reacquired Shares. Any shares of Series A Junior Participating
          -----------------
Preferred Stock purchased or otherwise acquired by the Company in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions and restrictions on issuance
set forth herein.

     (f)  Liquidation, Dissolution or Winding Up.
          --------------------------------------

          1.   Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Company, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Series A Junior Participating
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Series A Liquidation Preference"). Following
the payment of the full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series A
Junior Participating Preferred Stock unless, prior thereto, the holders of
shares of Common Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (A) the Series A
Liquidation Preference by (B) 1000 (as appropriately adjusted as set forth in
subparagraph 3. below to reflect such events as stock splits, stock dividends
---------------
and recapitalizations with respect to the Common Stock) (such number in clause
(ii), the "Adjustment Number"). Following the payment of the full amount of the
Series A Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series A Junior Participating Preferred Stock and Common
Stock, respectively, holders of Series A Junior Participating Preferred Stock
and holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to one with respect to such Preferred Stock and Common
Stock, on a per share basis, respectively.

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

          3.   In the event the Company shall at any time after the Rights
Declaration Date (A) declare any dividend on Common Stock payable in shares of
Common Stock, (B)

                                      A-6
<PAGE>

subdivide the outstanding Common Stock or (C) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the Adjustment
Number in effect immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

     (g)  Consolidation, Merger, etc. In case the Company shall enter into any
          ---------------------------
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case the shares of Series A Junior
Participating Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Company shall at any time after the Rights Declaration Date (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the Outstanding Common
Stock into a smaller number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change of shares
of Series A Junior Participating Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

     (h)  No Redemption. The shares of Series A Junior Participating Preferred
          -------------
Stock shall not be redeemable.

     (i)  Ranking. The Series A Junior Participating Preferred Stock shall rank
          -------
junior to all other series of the Company's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.

     (j)  Amendment. At any time when any shares of Series A Junior
          ---------
Participating Preferred Stock are outstanding, the Articles of Incorporation of
the Company, as amended, and as amended hereby, shall not be amended in any
manner that would materially alter or change the powers, preferences or special
rights of the Series A Junior Participating Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of a majority or more of
the then outstanding shares of Series A Junior Participating Preferred Stock,
voting separately as a class.

     (k)  Fractional Shares. Series A Junior Participating Preferred Stock may
          -----------------
be issued in fractions of a share which shall entitle the holder, in proportion
to such holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series A Junior Participating Preferred Stock.

                                      IV.

                                      A-7

<PAGE>

The foregoing amendment was duly adopted by the Company's Board of Directors on
May 16, 2001. No shareholder action was required.

                              INSMED INCORPORATED

Dated: May 16, 2001           By:  _____________________________________
                                   Geoffrey Allan, Ph.D.
                                   Chairman of the Board, President and Chief
                                   Executive Officer

                                      A-8
<PAGE>

                                                                       Exhibit B
                                                                       ---------

                          [Form of Right Certificate]
                          ---------------------------

Certificate No. R-                                             __________ Rights

                NOT EXERCISABLE AFTER MAY 16, 2011, UNLESS EXTENDED PRIOR
                THERETO BY THE BOARD OF DIRECTORS OR EARLIER IF REDEEMED OR
                EXCHANGED BY THE COMPANY. THE COMPANY, AT ITS OPTION, MAY REDEEM
                THE RIGHTS EVIDENCED BY THIS CERTIFICATE AT A REDEMPTION PRICE
                OF $.01 PER RIGHT OR EXCHANGE THE RIGHTS FOR SHARES OF COMMON
                STOCK ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER
                CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING
                PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY
                SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE
                RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
                BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING
                PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS
                SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY,
                THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY
                BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION
                7((e)) OF SUCH AGREEMENT.]/1/

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

                                      B-1
<PAGE>

                               RIGHT CERTIFICATE
                               -----------------

                              INSMED INCORPORATED
                              -------------------

          This certifies that ________________________________ , or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of May 16, 2001 (the "Rights
Agreement"), between Insmed Incorporated, a Virginia corporation (the
"Company"), and First Union National Bank, a national banking association (the
"Rights Agent"), to purchase from the Company, at any time prior to 5:00 P.M.
(Richmond, Virginia time) on May 16, 2011 (unless such time is extended prior
thereto by the Board of Directors) at the principal stock transfer office of the
Rights Agent, or its successor as Rights Agent, one one-thousandth (1/1000/th/)
of a fully paid and nonassessable share of the Series A Junior Participating
Preferred Stock of the Company ("Preferred Stock"), at a purchase price of $35
per one one-thousandth (1/1000/th/) of a share (the "Purchase Price") upon
presentation and surrender of this Right Certificate with the Form of Election
to Purchase and related Certificate duly executed. The number of Rights
evidenced by this Right Certificate (and the number of shares that may be
purchased upon exercise thereof) set forth above, and the Purchase Price per one
one-thousandth (1/1000/th/) of a share set forth above, are the number and
Purchase Price as of May 16, 2001, based on the shares of Preferred Stock of the
Company as constituted at such date. The Company reserves the right to require
prior to the occurrence of a Triggering Event (as such term is defined in the
Rights Agreement) that a number of Rights be exercised so that only whole shares
of Preferred Stock will be issued. All capitalized terms not defined herein
shall have the meaning set forth in the Rights Agreement

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

          As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Preferred Stock or other securities that may be purchased
upon the exercise of the Rights evidenced by this Right Certificate are subject
to modification and adjustment upon the happening of certain events, including
Triggering Events.

          This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific

                                      B-2
<PAGE>

circumstances set forth in the Rights Agreement. Copies of the Rights Agreement
are on file at the above-mentioned office of the Rights Agent and at the
principal office of the Company.

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

          Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $.01 per Right at any time prior to the earlier of (i) the
Close of Business on the tenth Business Day following the Stock Acquisition Date
(or, if the Stock Acquisition Date shall have occurred prior to the Record Date,
the Close of Business on the tenth Business Day following the Record Date), and
(ii) the Final Expiration Date (as such terms are defined in the Rights
Agreement). In addition, under certain circumstances, the Rights may be
exchanged, in whole or in part, for shares of the Common Stock, or for one one-
thousandth (1/1000/th/) of a share of Preferred Stock or of a share of a class
of series of preferred stock of the Company having equivalent rights,
preferences and privileges, per Right (subject to adjustment). Immediately upon
the action of the Board of Directors of the Company authorizing any such
exchange, and without any further action or any notice, the Rights (other than
Rights that are not subject to such exchange) will terminate and the Rights will
only enable holders to receive the shares issuable upon such exchange.

          No fractional shares of Preferred Stock (other than fractions that are
integral multiples of the fraction of a share for which a Right is then
exercisable) will be issued upon the exercise of any Right or Rights evidenced
hereby, but in lieu thereof a cash payment shall be made, as provided in the
Rights Agreement.

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

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

                                      B-3
<PAGE>

          WITNESS the facsimile signature of the proper officers of the Company.

          Dated as of __________ __, 2001.

Attest:                                      INSMED INCORPORATED

By:____________________________              By: _______________________________
     W. McIlwaine Thompson, Jr                    Geoffrey Allan; Ph.D.
     Secretary                                    Chairman of the Board,
                                                  President and Chief Executive
                                                  Officer

Countersigned:

FIRST UNION NATIONAL BANK

By:  ____________________________
     Name:
     Title:

                                      B-4
<PAGE>

                  [Form of Reverse Side of Right Certificate]

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

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

          FOR VALUE RECEIVED __________________________________ hereby sells,
assigns and transfers unto ____________________________________________

                 (Please print name and address of transferee)

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

Dated:  ___________, ____           ___________________________________
                                    Signature

Signature Guaranteed:

                                      B-5
<PAGE>

                                  Certificate
                                  -----------

          The undersigned hereby certifies by checking the appropriate boxes
that:

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

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

Dated: ___________, ____            _________________________________
                                    Signature

Signature Guaranteed:

                                    NOTICE
                                    ------

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

                                      B-6
<PAGE>

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

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

To: INSMED INCORPORATED

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

Please insert social security
or other identifying number

____________________________________________________________________________
                        (Please print name and address)

____________________________________________________________________________

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

Please insert social security
or other identifying number

____________________________________________________________________________
                        (Please print name and address)

____________________________________________________________________________

Dated:  _________, ____             ____________________________
                                    Signature

Signature Guaranteed:

                                      B-7
<PAGE>

                                  Certificate
                                  -----------

          The undersigned hereby certifies by checking the appropriate boxes
that:

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

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

Dated:  __________________          ________________________________
                                    Signature

Signature Guaranteed:

                                    NOTICE
                                    ------

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

                                      B-8
<PAGE>

                                                                       Exhibit C
                                                                       ---------

                 SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK
                 ---------------------------------------------

     On May 16, 2001 (the "Rights Authorization Date"), the Board of Directors
of Insmed Incorporated, a corporation organized under the laws of the
Commonwealth of Virginia (the "Company"), approved a Rights Agreement, dated as
of and to be effective as of May 16, 2001 (the "Rights Agreement"), between the
Company and First Union National Bank, as Rights Agent, having the principal
terms summarized below.  In accordance with the Rights Agreement, the Board also
declared a dividend distribution of one right ("Right") for each outstanding
share of common stock of the Company (the "Common Stock") to shareholders of
record at the close of business on June 1, 2001 (the "Record Date").

     Each Right entitles the holder to purchase from the Company one one-
thousandth (1/1000/th/) of a share of a series of the Company's preferred stock
designated as Series A Junior Participating Preferred Stock ("Preferred Stock")
at a price of $35 per one one-thousandth (1/1000/th/) of a share, subject to
adjustment (the "Purchase Price").  Each one one-thousandth of a share of
Preferred Stock is structured to be the equivalent of one share of Common Stock
of the Company ("Common Stock").  Shareholders will receive one Right per share
of Common Stock held of record at the close of business on the Record Date.

     Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights Certificates will
be distributed.  Subject to certain exceptions specified in the Rights
Agreement, the Rights will separate from the Common Stock and a distribution of
the Rights Certificates will occur ("Distribution Date") upon the earlier of (i)
the Close of Business on the tenth Business Day following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired, or obtained the right to acquire,  beneficial ownership
of 15% or more of the outstanding shares of Common Stock (the "Stock Acquisition
Date"), other than as a result of repurchases of stock by the Company or through
inadvertance by certain institutional shareholders or (ii) the Close of Business
on the tenth Business Day (or such later date as the Board shall determine)
following the commencement of a tender offer or exchange offer that would result
in a person or group becoming an Acquiring Person.  Until the Distribution Date,
(i) the Rights will be evidenced by the Common Stock certificates and will be
transferred with and only with such Common Stock certificates, (ii) new Common
Stock certificates issued after the Record Date will contain a legend
incorporating the Rights Agreement by reference and (iii) the surrender for
transfer of any certificates for Common Stock outstanding will also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate.  Pursuant to the Rights Agreement, the Company reserves the right
to require prior to the occurrence of a Triggering Event (as defined below)
that, upon any exercise of Rights, a number of Rights be exercised so that only
whole shares of Preferred Stock will be issued.

     The Rights are not exercisable until the Distribution Date and will expire
at 5:00 P.M. (Richmond, Virginia time) on May 16, 2011 (the "Expiration Date"),
unless such date is extended or the Rights are earlier redeemed or exchanged by
the Company as described below.

                                      C-1
<PAGE>

     As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Right
Certificates alone will represent the Rights.  Except as otherwise determined by
the Board of Directors of the Company or as provided in the Rights Agreement,
only shares of Common Stock issued prior to the Distribution Date will be issued
with Rights.

     In the event that a Person becomes an Acquiring Person, each holder of a
Right will thereafter have the right to receive, upon exercise, Common Stock
(or, in certain circumstances, cash, property or other securities of the
Company) having a value equal to two times the purchase price of the Right.
Notwithstanding any of the foregoing, following the occurrence of the event set
forth in this paragraph, all Rights that are, or (under certain circumstances
specified in the Rights Agreement) were, beneficially owned by any Acquiring
Person will be null and void.  However, Rights are not exercisable following the
occurrence of the event set forth above until such time as the Rights are no
longer redeemable by the Company as set forth below.

     For example, at an exercise price of $35 per Right, each Right not owned by
an Acquiring Person (or by certain related parties) following an event set forth
in the preceding paragraph would entitle its holder to purchase $70 worth of
Common Stock (or other consideration, as noted above) for $35.  Assuming that
the Common Stock had a per share value of $10 at such time, the holder of each
valid Right would be entitled to purchase seven shares of Common Stock for an
aggregate of $35.

     In the event that, on or at any time after a Stock Acquisition Date, the
Company (i) engages in a merger, statutory share exchange, or other business
combination transaction (in which the Company is not the surviving corporation,
(ii) the Company engages in a merger, statutory share exchange, or other
business combination transaction in which the Company is the surviving
corporation and any shares of the Company's Common Stock are changed into or
exchanged for other securities or assets or (iii) 50% or more of the assets,
cash flow or earning power of the Company and its subsidiaries (taken as a
whole) are sold or transferred, each holder of a Right (except as noted below)
shall thereafter have the right to receive, upon the exercise thereof at the
then current purchase price of the Right, that number of shares of common stock
of the acquiring company which at the time of such transaction would have a
market value (determined as provided in the Rights Agreement) of two times the
purchase price of the Right.  The events set forth in this paragraph and in the
second preceding paragraph are referred to as the "Triggering Events."

     Upon the occurrence of a Triggering Event that entitles Rights holders to
purchase securities or assets of the Company, Rights that are or were owned by
the Acquiring Person, or any affiliate or associate of such Acquiring Person, on
or after such Acquiring Person's Stock Acquisition Date shall be null and void
and shall not thereafter be exercised by any person (including subsequent
transferees).  Upon the occurrence of a Triggering Event that entitles Rights
holders to purchase common stock of a third party, or upon the authorization of
an Exchange (as defined below), Rights that are or were owned by any Acquiring
Person or any affiliate or associate of any Acquiring Person on or after such
Acquiring Person's Stock Acquisition Date shall be null and void and shall not
thereafter be exercised by any person (including subsequent transferees).

                                      C-2
<PAGE>

     The Purchase Price payable, and the number of shares of Preferred Stock,
Common Stock or other securities or property issuable upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution.

     At any time (including a time after any person becomes an Acquiring
Person), the Company may exchange all or part of the Rights (except as set forth
below) for shares of Common Stock (an "Exchange") at an exchange ratio of one
share per Right, as appropriately adjusted to reflect any stock split or similar
transaction.

     At any time prior to the earlier of (i) ten days following the Stock
Acquisition Date, and (ii) the Expiration Date, or said later date as the Board
may set, the Company may redeem the Rights in whole, but not in part, at a price
of $.01 per Right (the "Redemption Price"). Immediately upon the action of the
Board ordering redemption of the Rights, the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.

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

     Other than certain provisions relating to the principal economic terms of
the Rights, any of the provisions of the Rights Agreement may be amended by the
Board prior to the Distribution Date.  After the Distribution Date, the
provisions of the Rights Agreement may be amended by the Board in order to cure
any ambiguity, to make certain other changes that do not adversely affect the
interests of holders of Rights (excluding the interests of any Acquiring
Person), or to shorten or lengthen any time period under the Rights Agreement;
provided, however, no amendment to adjust the time period governing redemption
may be made at such time as the Rights are not redeemable.

     A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
May __, 2001 and a Current Report on Form 8-K dated May __, 2001.  A copy of the
Rights Agreement is available free of charge from the Company.  This summary
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement, which is hereby incorporated
herein by reference.

                                      C-3================================================================================

                                RIGHTS AGREEMENT

                                     between

                            THE STEAK n SHAKE COMPANY

                                       and

                      COMPUTERSHARE INVESTOR SERVICES, LLC

                                 as Rights Agent

                            Dated as of May 16, 2001

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

<PAGE>

                                      INDEX
                                      -----

                                                                            Page
                                                                            ----

Section 1   Certain Definitions................................................1
Section 2   Appointment of Rights Agent........................................4
Section 3   Issuance of Right Certificates.....................................4
Section 4   Form of Right Certificates.........................................6
Section 5   Countersignature and Registration..................................6
Section 6   Transfer, Split Up, Combination and Exchange of
            Right Certificates; Mutilated, Destroyed, Lost or
            Stolen Right Certificates..........................................6
Section 7   Exercise of Rights; Purchase Price; Expiration Date of Rights......7
Section 8   Cancellation and Destruction of Right Certificates.................8
Section 9   Availability of Capital Stock......................................8
Section 10  Date of Ownership..................................................9
Section 11  Adjustment of Purchase Price, Number of Stock or
            Number of Rights..................................................10
Section 12  Certificate of Adjusted Purchase Price or
            Number of Stock...................................................16
Section 13  Consolidation, Merger or Sale or Transfer
            of Assets or Earning Power........................................16
Section 14  Fractional Rights and Fractional Stock............................17
Section 15  Rights of Action..................................................18
Section 16  Agreement of Right Holders........................................18
Section 17  Right Certificate Holder Not Deemed a Shareholder.................19
Section 18  Concerning the Rights Agent.......................................19
Section 19  Merger or Consolidation or Change of Name of Rights Agent.........20
Section 20  Duties of Rights Agent............................................20
Section 21  Change of Rights Agent............................................22
Section 22  Issuance of New Right Certificates................................23
Section 23  Redemption........................................................23
Section 24  Exchange..........................................................24
Section 25  Notice of Certain Events..........................................25
Section 26  Supplements and Amendments........................................26
Section 27  Successors........................................................27
Section 28  Benefits of this Agreement........................................27
Section 29  Severability......................................................27
Section 30  Governing Law.....................................................27
Section 31  Counterparts......................................................27
Section 32  Descriptive Headings..............................................27

                                       i

<PAGE>

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

     This  Agreement is made and entered  into as of May 16,  2001,  between The
Steak n Shake Company, an Indiana corporation (the "Company"), and Computershare
Investor  Services,  LLC, a Delaware  limited  liability  company,  (the "Rights
Agent").

                                    RECITALS
                                    --------

     The Board of  Directors  of the  Company  has  authorized  and  declared  a
dividend of one stock  purchase right (a "Right") for each share of Common Stock
(as hereinafter  defined) of the Company outstanding as of the Close of Business
on May 31, 2001 (the "Record Date"). Each Right represents the right to purchase
one one-hundredth  (1/100) of a share of Series A Preferred Stock of the Company
(a "Preferred Stock Unit"),  upon the terms and subject to the conditions herein
set forth.  The Board of  Directors  of the Company has further  authorized  and
directed  the  issuance of one Right 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 and the Final  Expiration Date (as such
terms are  hereinafter  defined).  The  Rights  Agent has  agreed to accept  its
appointment as such, and to carry out the duties imposed on it hereunder.

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

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

     (a)  "Acquiring  Person" shall mean any Person (as such term is hereinafter
defined) who or which,  together with all  Affiliates  and  Associates  (as such
terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as
such term is  hereinafter  defined)  of 15% or more of the  Common  Stock of the
Company then outstanding,  but shall not include the Company, any Subsidiary (as
such term is hereinafter  defined) of the Company,  any employee benefit plan of
the Company or any Subsidiary of the Company, or any entity holding Common Stock
for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no
Person shall become an  "Acquiring  Person" as the result of an  acquisition  of
Common Stock by the Company that, by reducing the number of shares  outstanding,
increases the proportionate  number of shares  beneficially owned by such Person
to 15% or more of the Common  Stock of the Company then  outstanding;  provided,
however,  that if a Person shall become the  Beneficial  Owner of 15% or more of
the Common Stock of the Company then outstanding by reason of share purchases by
the Company and shall,  after such share  purchases by the  Company,  become the
Beneficial Owner of any additional Common Stock of the Company, then such Person
shall be deemed to be an "Acquiring Person".

     (b) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such  terms in Rule  12b-2 of the  General  Rules and  Regulations  under the
Exchange Act (as such term is hereinafter defined).

<PAGE>

     (c) A Person shall be deemed the "Beneficial  Owner" of and shall be deemed
to "Beneficially Own" any securities:

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

         (ii)  that such Person or any of such Person's Affiliates or Associates
               has (A) the right to acquire  (whether such right is  exercisable
               immediately  or only after the  passage of time)  pursuant to any
               agreement,  arrangement  or  understanding  (other than customary
               agreements  with  and  between  underwriters  and  selling  group
               members  with   respect  to  a  bona  fide  public   offering  of
               securities),  or upon the exercise of conversion rights, exchange
               rights, rights (other than these 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
               purchase or  exchange;  or (B) the right to vote  pursuant to any
               agreement, arrangement or understanding; provided however, that a
               --------  ------- Person shall not be deemed the Beneficial Owner
               of,  or to  Beneficially  Own,  any  security  if the  agreement,
               arrangement  or  understanding  to vote such  security (1) arises
               solely from a revocable  proxy or consent given to such Person in
               response to a public proxy or consent  solicitation made pursuant
               to, and in accordance  with, the applicable rules and regulations
               promulgated  under  the  Exchange  Act and (2) is not  also  then
               reportable  on  Schedule  13D  under  the  Exchange  Act  (or any
               comparable or successor report); or

         (iii) that are  Beneficially  Owned,  directly  or  indirectly,  by any
               other  Person  with  which  such  Person or any of such  Person's
               Affiliates  or  Associates  has  any  agreement,  arrangement  or
               understanding  (other than customary  agreements with and between
               underwriters  and selling  group  members  with respect to a bona
               fide public offering of securities) for the purpose of acquiring,
               holding, voting (except to the extent contemplated by the proviso
               to Section  1(c)(ii)(B))  or disposing of any  securities  of the
               Company.

     Notwithstanding  anything in this definition of Beneficial Ownership to the
contrary,  the phrase "then outstanding," when used with reference to a Person's
Beneficial Ownership of securities of the Company, shall mean the number of such
securities  then  issued  and  outstanding  together  with  the  number  of such
securities not then actually  issued and  outstanding  that such Person would be
deemed to Beneficially Own hereunder.

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

                                       2
<PAGE>

     (e) "Close of  Business"  on any given  date shall mean 5:00 P.M.,  Eastern
Standard  Time,  on such  date;  provided,  however,  that if such date is not a
Business  Day it shall  mean  5:00  P.M.,  Eastern  Standard  Time,  on the next
succeeding Business Day.

     (f) "Common  Stock" when used with  reference to the Company shall mean the
shares of the Company  designated in its Articles of Incorporation,  as amended,
as "Common  Stock".  "Common Stock" when used with reference to any Person other
than the Company shall mean the capital stock or other equity  interest with the
greatest  voting  power of such  other  Person  or,  if such  other  Person is a
Subsidiary of another Person, the Person or Persons that ultimately control such
first-mentioned Person.

     (g) "Company" shall have the meaning set forth in the preamble hereof.

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

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

     (j) "Exchange  Date" shall mean the time at which such Rights are exchanged
as provided in Section 24 hereof.

     (k)  "Exchange  Ratio"  shall have the meaning  set forth in Section  24(a)
hereof.

     (l) "Final  Expiration  Date"  shall mean the Close of  Business on May 16,
2011.

     (m) "Person" shall mean any individual,  firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.

     (n) "Preferred Stock Unit" shall mean one one-hundredth  (1/100) of a share
of the Series A Preferred Stock of the Company.

     (o)  "Preferred  Stock" shall mean the shares of the Company  designated in
the Articles of Incorporation of the Company, as amended, as "Series A Preferred
Stock".

     (p) "Purchase  Price" shall  initially be $40.00 for each  Preferred  Stock
Unit  purchasable  pursuant to the exercise of a Right,  and shall be subject to
adjustment  from time to time as  provided in Section 11 and 13 hereof and shall
be payable in lawful money of the United  States of America in  accordance  with
Section 7(c).

     (q) "Record Date" shall have the meaning set forth in the second  paragraph
hereof.

     (r) "Redemption  Date" shall mean the time at which the Rights are redeemed
as provided in Section 23 hereof.

                                       3
<PAGE>

     (s)  "Redemption  Price"  shall  have the  meaning  set forth in Section 23
hereof.

     (t)  "Right"  shall  have the  meaning  set forth in the  second  paragraph
hereof.

     (u) "Right  Certificate"  shall have the meaning set forth in Section  3(a)
hereof.

     (v) "Rights Agent" shall have the meaning set forth in the preamble hereof.

     (w) "Rights  Agreement"  shall have the  meaning set forth in Section  3(c)
hereof.

     (x)  "Security"  shall have the meaning set forth in Section  11(d) hereof.

     (y)  "Shares  Acquisition  Date"  shall  mean  the  first  date  of  public
announcement by the Company or an Acquiring  Person that an Acquiring Person has
become such or such  earlier  date as a majority of the  Directors  shall become
aware of the existence of an Acquiring Person.

     (z)  "Subsidiary"  of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or other
equity interest is owned, directly or indirectly, by such Person.

     (aa)  "Trading  Day" shall  have the  meaning  set forth in  Section  11(d)
hereof.

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

     Section 3. Issuance of Right Certificates.

     (a)  Until  the  earlier  of (a) the tenth  business  day after the  Shares
Acquisition  Date or (b) the tenth  business  day (or such  later date as may be
determined by action of the Board of Directors  prior to such time as any person
becomes an Acquiring  Person) after the date of the  commencement  by any Person
(other than the Company,  any  Subsidiary of the Company,  any employee  benefit
plan of the Company or of any  Subsidiary  of the Company or any entity  holding
Common  Stock for or pursuant to the terms of any such plan) of, or of the first
public announcement of the intention of any Person (other than the Company,  any
Subsidiary  of the Company,  any employee  benefit plan of the Company or of any
Subsidiary of the Company or any entity  holding Common Stock for or pursuant to
the  terms of any such  plan)  to  commence,  a tender  or  exchange  offer  the
consummation of which would result in any person  becoming the Beneficial  Owner
of Common Stock  aggregating 30% or more of the then  outstanding  Common Stock,
including  any such date which is after the date of this  Agreement and prior to
the issuance of the Rights (the  earlier of such dates being herein  referred to
as  the  "Distribution   Date"),  (i)  the  Rights  will  be  evidenced  by  the
certificates  for Common Stock  registered  in the names of the holders  thereof
(which  certificates  shall also be deemed to be Right  Certificates) and not by
separate  Right  Certificates,  and (ii)  the  Rights  Certificates  will not be
transferable  except as a part of the transfer of certificates for Common Stock,
and until the  Distribution  Date (or the earlier of the Redemption  Date or the

                                       4
<PAGE>

Final Expiration Date), the surrender for transfer of any certificate for Common
Stock  outstanding on the Record Date,  with or without a copy of the Summary of
Rights  attached  thereto,  shall also  constitute  the  transfer  of the Rights
associated  with the Common Stock  represented  thereby.  As soon as practicable
after the  Distribution  Date, the Company will prepare and execute,  the Rights
Agent will  countersign,  and the Company will send or cause to be sent (and the
Rights Agent will, if requested, send) by first-class,  insured, postage-prepaid
mail,  to each record  holder of Common Stock as of the Close of Business on the
Distribution  Date,  at the address of such  holder  shown on the records of the
Company,  a separate Right  Certificate,  in substantially the form of Exhibit A
hereto (a "Right  Certificate"),  evidencing  one Right for each share of Common
Stock so held.  Following the Close of Business on the  Distribution  Date,  the
Rights will be evidenced solely by such Right Certificates.

     (b) The Company will make available,  as promptly as practicable  following
the  Record  Date,  a  Summary  of  Rights  to  Purchase   Preferred  Stock,  in
substantially the form of Exhibit B hereto, to any holder of Rights from time to
time prior to the Expiration Date upon the request of the holders.

     (c) Certificates for Common Stock issued after the Record Date but prior to
the  earliest  of the  Distribution  Date,  the  Redemption  Date  or the  Final
Expiration  Date  (whether  as an  original  issuance  of  Common  Stock or as a
transfer or  re-registration  of outstanding  Common Stock) shall have impressed
on, 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 A RIGHTS AGREEMENT  BETWEEN THE STEAK n
     SHAKE COMPANY AND COMPUTERSHARE  INVESTOR  SERVICES,  LLC, DATED AS OF
     MAY 16, 2001 (THE "RIGHTS  AGREEMENT"),  THE TERMS OF WHICH ARE HEREBY
     INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE
     PRINCIPAL  EXECUTIVE  OFFICES  OF THE  STEAK  n SHAKE  COMPANY.  UNDER
     CERTAIN  CIRCUMSTANCES,  AS SET FORTH IN THE  RIGHTS  AGREEMENT,  SUCH
     RIGHTS WILL BE EVIDENCED BY SEPARATE  CERTIFICATES  AND WILL NO LONGER
     BE EVIDENCED BY THIS CERTIFICATE.  THE STEAK n SHAKE COMPANY WILL MAIL
     TO THE  HOLDER  OF THIS  CERTIFICATE  A COPY OF THE  RIGHTS  AGREEMENT
     WITHOUT  CHARGE  AFTER  RECEIPT  OF A  WRITTEN  REQUEST  THEREFOR.  AS
     DESCRIBED  IN THE RIGHTS  AGREEMENT,  RIGHTS  ISSUED TO ANY PERSON WHO
     BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) SHALL
     BECOME NULL AND VOID.

                                       5
<PAGE>

     (d) In the event that the Company  purchases  or acquires  any Common Stock
after the Record Date but prior to the Distribution  Date, any Rights associated
with such Common Stock shall be deemed cancelled and retired so that the Company
shall not be entitled to exercise  any Rights  associated  with the Common Stock
that are no longer outstanding.

     Section  4. Form of Right  Certificates.  The Right  Certificates  (and the
forms of  election  to purchase  shares and of  assignment  to be printed on the
reverse  thereof)  shall be  substantially  the same as Exhibit A hereto and may
have such marks of identification or designation and such legends,  summaries or
endorsements  printed thereon as the Company may deem appropriate and as are not
inconsistent  with the  provisions of this  Agreement,  or as may be required to
comply with any  applicable  law or with any rule or  regulation  made  pursuant
thereto or with any rule or regulation of the National Association of Securities
Dealers, Inc. or any stock exchange on which the Rights may from time to time be
listed or quoted, or to conform to usage.  Subject to the provisions of Sections
11, 13, and 22 hereof,  the Right Certificates shall entitle the holders thereof
to purchase  such number of Preferred  Stock Units as shall be set forth therein
at the price per Preferred Stock Unit set forth therein (the "Purchase  Price"),
but the amount and type of  securities  purchasable  upon the  exercise  of each
Right and the Purchase  Price thereof shall be subject to adjustment as provided
herein.

     Section 5. Countersignature and Registration.

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

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

                                       6
<PAGE>

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

     (a) Subject to the  provisions of Section 14 hereof,  at any time after the
Close of  Business  on the  Distribution  Date,  and at or prior to the Close of
Business on the earlier of the Redemption Date or the Final Expiration Date, any
Right  Certificate  or  Right   Certificates   (other  than  Right  Certificates
representing  Rights that have become void pursuant to Section  11(a)(ii) hereof
or that have been exchanged  pursuant to Section 24 hereof) may be  transferred,
split  up,  combined  or  exchanged  for  another  Right  Certificate  or  Right
Certificates  entitling  the  registered  holder to  purchase  a like  number of
Preferred  Stock  Units (or other  securities,  as the case may be) as the Right
Certificate or Right  Certificates by the surrender of the Right  Certificate or
Right  Certificates  to be  transferred,  split up, combined or exchanged at the
office of the Rights Agent  designated  for such  purpose,  duly  endorsed  with
signature guaranteed as provided for in the form of Right Certificate,  and with
the  Certificate  as to beneficial  ownership  duly  executed by the  registered
holder.  Thereupon the Rights Agent shall  countersign and deliver to the Person
entitled thereto a Right Certificate or Right Certificates,  as the case may be,
as so requested.  The Company may require  payment of a sum  sufficient to cover
any tax or  governmental  charge  that may be  imposed  in  connection  with any
transfer, split up, combination or exchange of Right Certificates.

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

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

     (a) The registered  holder of any Right Certificate may exercise the Rights
evidenced  thereby (except as otherwise  provided herein) in whole or in part at
any time after the  Distribution  Date upon surrender of the Right  Certificate,
with the form of election to purchase on the reverse side thereof duly executed,
to the  Rights  Agent at the  office of the  Rights  Agent  designated  for such
purpose,  together with payment of the Purchase Price for each  Preferred  Stock
Unit (or  other  securities,  as the case may be) as to  which  the  Rights  are
exercised, at or prior to the earliest of (a) the Final Expiration Date, (b) the
Redemption Date, or (c) the Exchange Date.

     (b) The Purchase Price for each Preferred Stock Unit (or other  securities,
as the case may be)  pursuant  to the  exercise of a Right  shall  initially  be
$40.00, shall be subject to adjustment from time to time as provided in Sections
11 and 13 hereof and shall be payable  in lawful  money of the United  States of
America in accordance with Section 7(c) below.

     (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 shares to be  purchased  and an amount equal to any
applicable  transfer  tax  required  to be paid  by the  holder  of  such  Right
Certificate in accordance  with Section 9 hereof by certified  check,  cashier's

                                       7
<PAGE>

check or money order payable to the order of the Company, the Rights Agent shall
thereupon  promptly (a) (i) requisition from any transfer agent of the Preferred
Stock  certificates  for the total  number of  shares of  Preferred  Stock to be
purchased (and the Company hereby  irrevocably  authorizes its transfer agent to
comply  with  all  such  requests),  or  (ii)  requisition  from  the  Company's
depositary agent, if any, depositary receipts representing such number of shares
of Preferred Stock as are to be purchased,  in which case  certificates  for the
Preferred Stock  represented by such receipts shall be deposited by the transfer
agent with the  depositary  agent (and the Company hereby directs its depositary
agent to comply with such request),  (b) when appropriate,  requisition from the
Company the amount of cash to be paid in lieu of issuance of  fractional  shares
in  accordance  with  Section  14 hereof,  (c)  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 (d) 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
less than all the Rights evidenced thereby,  a new Right Certificate  evidencing
Rights  equivalent to the Rights  remaining  unexercised  shall be issued by the
Rights Agent to the registered  holder of such Right  Certificate or to his duly
authorized assigns, subject to the provisions of Section 14 hereof.

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

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

                                       8
<PAGE>

     Section 9. Availability of Capital Stock.

     (a) The Company  covenants and agrees that it will cause to be reserved and
kept  available  out of its  authorized  and  unissued  Preferred  Stock  or any
authorized and issued Preferred Stock held in its treasury, the number of shares
of Preferred Stock that will be sufficient to permit the exercise in full of all
outstanding  Rights  in  accordance  with  Section  7, and may,  if the Board of
Directors deems advisable,  so reserve and keep available a sufficient number of
shares of Common Stock (and/or other securities) which may be required to permit
the  exercise  in full of the Rights  pursuant  to this  Agreement.  The Company
covenants  and agrees that it will take all such action as may be  necessary  to
ensure that all securities  delivered upon exercise of Rights shall, at the time
of delivery of the certificates  for such securities  (subject to payment of the
Purchase  Price),  be duly and validly  authorized and issued and fully paid and
nonassessable.

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

     (c) The Company  covenants and agrees that it will (i) prepare and file, as
soon as practicable after the Distribution Date, a registration  statement under
the Securities Act of 1933, as amended (the "Securities Act"), on an appropriate
form with respect to the securities  issuable upon exercise of the Rights,  (ii)
use its best efforts to cause the registration  statement to become effective as
soon as  practicable  after filing,  and (iii) use its best efforts to cause the
registration  statement  to remain  effective  (with a  prospectus  at all times
meeting the  requirements  of the Securities  Act and the rules and  regulations
thereunder)  until the  earlier  of the  exercise  of all of the  Rights and the
Expiration  Date. The Company will also take all actions required to comply with
the state  securities  laws  applicable  to the Rights and  Preferred  Stock (or
Common Stock and/or other securities, as the case may be) issuable upon exercise
of the Rights. The Company may temporarily  suspend, for a period of time not to
exceed 90 days,  the  exercisability  of the Rights in order to prepare and file
the registration statement. Upon any such suspension,  the Company shall issue a
public   announcement   and  notice  to  the  Rights  Agent   stating  that  the
exercisability  of the Rights has been  temporarily  suspended,  and the Company
shall  issue a public  announcement  and  notice to the  Rights  Agent  when the
suspension  is no  longer  in  effect.  Notwithstanding  any  provision  of this
Agreement  to  the  contrary,  the  Rights  shall  not  be  exercisable  in  any
jurisdiction in which any requisite  registration or qualification  has not been
obtained or any requisite notice of exemption has not been filed.

                                       9
<PAGE>

     Section 10. Date of  Ownership.  Each person in whose name any  certificate
for Preferred Stock (or Common Stock and/or other securities as the case may be)
is issued upon the  exercise of Rights  shall for all purposes be deemed to have
become the holder of record of the Preferred Stock (or Common Stock and/or other
securities  as the case may be)  represented  thereby  on, and such  certificate
shall be dated, the date upon which the Right Certificate evidencing such Rights
was duly  surrendered  and  payment of the  Purchase  Price (and any  applicable
transfer taxes) was made;  provided however,  that if the date of such surrender
and payment is a date upon which the  Preferred  Stock (or Common  Stock  and/or
other  securities as the case may be) transfer  books of the Company are closed,
such person shall be deemed to have become the record holder of such  succeeding
Business  Day on which  the  Preferred  Stock  (or  Common  Stock  and/or  other
securities as the case may be) transfer books of the Company are open.  Prior to
the exercise of the Rights evidenced thereby,  the holder of a Right Certificate
shall not be  entitled to any rights of a holder of  Preferred  Stock (or Common
Stock and/or other  securities as the case may be) for which the Rights shall be
exercisable,  including,  without  limitation,  the  right to vote,  to  receive
dividends or other distributions or to exercise any preemptive rights, and shall
not be entitled to receive any notice of any proceedings of the Company,  except
as provided herein.

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

     (a)  (i) In the event the Company  shall at any time after the date of this
     Agreement  (1)  declare  a  dividend  on the  Preferred  Stock  payable  in
     Preferred Stock, (2) subdivide the outstanding Preferred Stock, (3) combine
     the outstanding Preferred Stock into a smaller number of Preferred Stock or
     (4) issue any  securities  in a  reclassification  of the  Preferred  Stock
     (including any such  reclassification in connection with a consolidation or
     merger in which the Company is the  continuing  or surviving  corporation),
     the  Purchase  Price  in  effect  at the time of the  record  date for such
     dividend  or of the  effective  date of such  subdivision,  combination  or
     reclassification,  and the  number  and kind of  shares  of  capital  stock
     issuable on such date, shall be proportionately adjusted so that the holder
     of any Right  exercised  after such time shall be  entitled  to receive the
     aggregate  number and kind of shares of capital  stock that,  if such Right
     had been  exercised  immediately  prior to such date and at a time when the
     Preferred  Stock transfer books of the Company were open, such holder would
     have owned upon such  exercise  and been  entitled  to receive by virtue of
     such   dividend,   subdivision,   combination  or   reclassification.   The
     adjustments  provided for in this Section 11(a) shall be made  successively
     whenever  such a  dividend  is  declared  or paid  or  such a  subdivision,
     combination or consolidation is effected.

                                       10
<PAGE>

          (ii) In the event (1) any Person alone or together with its Affiliates
     and Associates shall become an Acquiring Person, or (2) during such time as
     there  is an  Acquiring  Person,  there  shall be any  reclassification  of
     securities  (including  any reverse  stock  split) or  recapitalization  or
     reorganization of the Company which has the effect,  directly or indirectly
     of increasing by more than 1% the  proportionate  share of the  outstanding
     shares of any  class of  equity  securities  of the  Company  or any of its
     Subsidiaries beneficially owned by any Acquiring Person or any Affiliate or
     Associate thereof, each holder of a Right shall, for a period of sixty (60)
     days after the later of the  occurrence  of any such event or the effective
     date of the registration  statement referred to in Section 9 hereof, have a
     right  to  receive,  upon  exercise  thereof  at a price  equal to the then
     current  Purchase Price in accordance with the terms of this Agreement such
     number of shares of Preferred  Stock (or, in the  discretion  of the Board,
     Common  Stock) as shall equal the result  obtained by (x)  multiplying  the
     then  current  Purchase  Price by the number of  Preferred  Stock Units for
     which a Right is then  exercisable  and (y) dividing that product by 50% of
     the then  current per share  market  price of the  Company's  Common  Stock
     (determined  pursuant  to Section  11(d)  hereof)  on the date such  Person
     became an Acquiring Person.  In the event that any Person shall,  become an
     Acquiring  Person and the Rights  shall then be  outstanding,  the  Company
     shall not take any action  which would  eliminate  or diminish the benefits
     intended to be afforded by the Rights.

     From and after the  occurrence  of the earlier of the events  described  in
     clauses  (i) and  (ii)  above,  any  Rights  that are or were  acquired  or
     beneficially  owned by such Acquiring Person (or any Associate or Affiliate
     of such Acquiring Person) shall be void and any holder of such Rights shall
     thereafter  have no right to exercise  such Rights  under any  provision of
     this Agreement.  No Right Certificate shall be issued pursuant to Section 3
     that  represents  Rights  Beneficially  Owned by an Acquiring  Person whose
     Rights would be void pursuant to the preceding sentence or any Associate or
     Affiliate  thereof;  no Right  Certificate shall be issued at any time upon
     the  transfer of any Rights to an  Acquiring  Person  whose Rights would be
     void  pursuant to the  preceding  sentence or any  Associate  or  Affiliate
     thereof or to any nominee of such Acquiring Person, Associate or Affiliate;
     and any Right Certificate  delivered to the Rights Agent for transfer to an
     Acquiring  Person  whose  Rights  would be void  pursuant to the  preceding
     sentence or any Associate or Affiliate thereof shall be cancelled.

     If any event described in clauses (i) and (ii) above shall occur,  then the
     Company shall as soon as  practicable  thereafter  give to each holder of a
     Right  Certificate,  in accordance with Section 26 hereof,  a notice of the
     occurrence  of such event,  which notice shall  describe such event and the
     consequences  of such  event to holders  of Rights  under  this  Section 11
     (a)(ii).

          (iii) If the  Board of  Directors  elects  to  issue  Common  Stock as
     provided  in the  foregoing  subparagraph  (ii),  and if there shall not be
     sufficient  Common  Stock  issued but not  outstanding  or  authorized  but
     unissued to permit the  exercise in full of the Rights in  accordance  with
     the  foregoing  subparagraph  (ii),  then the  Company  shall take all such
     action as may be necessary to authorize  additional  shares of Common Stock
     for  issuance  upon  exercise  of the  Rights,  including  the calling of a
     meeting of shareholders.  If the Company shall, after good faith effort, be
     unable  to take all such  action  as may be  necessary  to  authorize  such
     additional shares of Common Stock, the Company shall  substitute,  for each
     share of Common Stock that would  otherwise be issuable  upon exercise of a
     Right,  a  number  of  shares  of  Preferred  Stock  (or  a  security  with
     substantially  similar rights,  privileges,  preferences,  voting power and
     economic  rights)  such  that the  current  per share  market  price of one
     Preferred  Stock Unit (or such other  security) is equal to the current per
     share  market price of one share of Common Stock as of the date of issuance
     of such Preferred Stock (or other security).

                                       11
<PAGE>

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

     (c) If the Company shall fix a record date for the making of a distribution
to all holders of the Preferred Stock (including any such  distribution  made in
connection with a consolidation or merger in which the Company is the continuing
or surviving  corporation)  of evidences of indebtedness or assets (other than a
regular  quarterly  cash dividend or a dividend  payable in Preferred  Stock) or
subscription  rights or warrants  (excluding  those referred to in Section 11(b)
hereof),  the  Purchase  Price to be in effect  after such  record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction,  the numerator of which shall be the then current per
share market  price of the  Preferred  Stock on such record date,  less the fair
market  value (as  determined  in good  faith by the Board of  Directors  of the
Company,  whose  determination  shall be described in a statement filed with the
Rights Agent) of the portion of the assets or evidences of indebtedness so to be
distributed or of such subscription  rights or warrants  applicable to one share
of Preferred  Stock and the denominator of which shall be such current per share
market price of the Preferred Stock. Such adjustments shall be made successively
whenever such a record date is fixed; and in the event that such distribution is
not so made, the Purchase Price shall again be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.

                                       12
<PAGE>

     (d)  (i) For the purpose of any  computation  hereunder,  the  "current per
     share market price" of any security (a "Security")  for the purpose of this
     Section 11(d)(i) on any date shall be deemed to be the average of the daily
     closing  prices per share of such Security for the 30  consecutive  Trading
     Days (as such term is hereinafter  defined) immediately prior to such date;
     provided,  however,  that in the event that the  current  per share  market
     price  of  the  Security  is  determined  during  a  period  following  the
     announcement  by  the  issuer  of  such  Security  of  (1)  a  dividend  or
     distribution  on such  Security  payable  in  shares  of such  Security  or
     securities   convertible   into  such  shares,   or  (2)  any  subdivision,
     combination  or  reclassification  of  such  Security,  and  prior  to  the
     expiration of 30 Trading Days after the ex-dividend  date for such dividend
     or  distribution  or the record date for such  subdivision,  combination or
     reclassification, then, and in each such case, the current per share market
     price shall be  appropriately  adjusted to reflect the current market price
     per share equivalent of such Security. The closing price for each day shall
     be the last sale price,  regular  way, or, in case no such sale takes place
     on such day, the average of the closing bid and asked prices,  regular way,
     in  either  case as  reported  in the  principal  consolidated  transaction
     reporting  system with respect to securities  listed or admitted to trading
     on the New York  Stock  Exchange  or,  if the  Security  is not  listed  or
     admitted  to trading on the New York Stock  Exchange,  as  reported  in the
     principal  consolidated   transaction  reporting  system  with  respect  to
     securities listed on the principal  national  securities  exchange on which
     the  Security is listed or  admitted to trading or, if the  Security is not
     listed or admitted to trading on any national securities exchange, the last
     quoted  price or, if not so  quoted,  the  average  of the high bid and low
     asked prices in the  over-the-counter  market,  as reported by the National
     Association  of  Securities  Dealers,   Inc.  Automated  Quotations  System
     ("Nasdaq")  or such other  system then in use,  or, if on any such date the
     Security is not quoted by any such organization, the average of the closing
     bid and asked prices as furnished by a  professional  market maker making a
     market in the  Security  selected by the Board of Directors of the Company.
     The term  "Trading  Day" shall mean a day on which the  principal  national
     securities  exchange on which the Security is listed or admitted to trading
     is open for the  transaction  of business or, if the Security is not listed
     or admitted to trading on any national securities exchange, a Business Day.

          (ii) For the purpose of any  computation  hereunder,  the "current per
     share  market  price"  of  the  Preferred  Stock  shall  be  determined  in
     accordance with the method set forth in Section 11(d)(i).  If the Preferred
     Stock is not publicly  traded,  the "current per share market price" of the
     Preferred  Stock shall be  conclusively  deemed to be the current per share
     market price of the Common Stock as determined pursuant to Section 11(d)(i)
     (appropriately  adjusted  to reflect  any stock  split,  stock  dividend or
     similar  transaction  occurring  after the date hereof),  multiplied by one
     hundred.  If neither the Common Stock nor the Preferred  Stock are publicly
     held or so listed or traded,  "current per share  market  price" shall mean
     the fair  value  per  share as  determined  in good  faith by the  Board of
     Directors  of the  Company,  whose  determination  shall be  described in a
     statement filed with the Rights Agent.

     (e) No  adjustment  in the  Purchase  Price shall be  required  unless such
adjustment  would require an increase or decrease of at least 1% in the Purchase
Price;  provided,  however,  that any adjustments that by reason of this Section
11(e) are not  required  to be made  shall be  carried  forward  and taken  into
account in any subsequent  adjustment.  All  calculations  under this Section 11
shall be made to the nearest cent or to the nearest one  hundredth of a share of
Preferred Stock or one  one-hundredth of any other share or security as the case
may be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required  by this  Section  11 shall be made no later  than the  earlier  of (a)
twelve months from the date of the transaction which requires such adjustment or
(b) the date of the expiration of the right to exercise any Rights.

                                       13
<PAGE>

     (f) If, as a result of an adjustment made pursuant to Section 11(a) hereof,
the holder of any Right  thereafter  exercised  shall become entitled to receive
any securities of the Company other than Preferred Stock,  thereafter the number
of such other  securities  so  receivable  upon  exercise  of any Right shall be
subject  to  adjustment  from  time to time in a manner  and on terms as  nearly
equivalent as practicable to the provisions  with respect to the Preferred Stock
contained in Sections  11(a) through  11(c),  inclusive,  and the  provisions of
Sections 7, 9, 10 and 13 with respect to the Preferred Stock shall apply on like
terms to any such other securities.

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

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

     (i) The  Company  may elect on or after the date of any  adjustment  of the
Purchase  Price  to  adjust  the  number  of  Rights,  in  substitution  for any
adjustment  in the  number of shares of  Preferred  Stock  purchasable  upon the
exercise of a Right. Each of the Rights outstanding after such adjustment of the
number of Rights  shall be  exercisable  for the  number of shares of  Preferred
Stock for which a Right was exercisable  immediately  prior to such  adjustment.
Each Right held of record prior to such adjustment of the number of Rights shall
become that number of Rights  obtained by dividing the Purchase  Price in effect
immediately  prior to adjustment of the Purchase  Price by the Purchase Price in
effect  immediately  after  adjustment of the Purchase Price.  The Company shall
make a public  announcement  of its  election  to adjust  the  number of Rights,
indicating  the record date for the  adjustment,  and, if known at the time, the
amount of the  adjustment to be made.  This record date may be the date on which
the  Purchase  Price  is  adjusted  or any day  thereafter,  but,  if the  Right
Certificates have been issued,  shall be at least 10 days later than the date of
the public  announcement.  If Right  Certificates  have been  issued,  upon each
adjustment of the number of Rights  pursuant to this Section 11(i),  the Company
shall, as promptly as practicable,  cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing, subject
to Section 14  hereof,  the  additional  Rights to which such  holders  shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause  to  be  distributed  to  such  holders  of  record  in  substitution  and
replacement for the Right Certificates held by such holders prior to the date of
adjustment,  and upon surrender thereof,  if required by the Company,  new Right
Certificates  evidencing  all the Rights to which such holders shall be entitled
after such adjustment.  Right Certificates so to be distributed shall be issued,
executed  and  countersigned  in the  manner  provided  for  herein and shall be
registered  in the names of the holders of record of Right  Certificates  on the
record date specified in the public announcement.

     (j)  Irrespective  of any adjustment or change in the Purchase Price or the
number of shares of Preferred  Stock  issuable  upon the exercise of the Rights,
the Right Certificates theretofore and thereafter issued may continue to express
the Purchase  Price and the number of Preferred  Stock Units that were expressed
in the initial Right Certificates issued hereunder.

                                       14
<PAGE>

     (k) Before  taking any action that would cause an  adjustment  reducing the
Purchase Price of the Preferred Stock issuable upon exercise of the Rights,  the
Company shall take any corporate action that may, in the opinion of its counsel,
be necessary in order that the Company may validly and legally  issue fully paid
and nonassessable shares of Preferred Stock at such adjusted Purchase Price.

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

     (m)  Anything  in this  Section  11 to the  contrary  notwithstanding,  the
Company  shall be entitled to make such  reductions  in the Purchase  Price,  in
addition to those adjustments  expressly  required by this Section 11, as and to
the extent that it, in its sole  discretion,  shall determine to be advisable in
order that any (i)  consolidation  or subdivision of the Preferred  Stock,  (ii)
issuance  wholly for cash of any Preferred Stock at less than the current market
price,  (iii) issuance wholly for cash of Preferred Stock or securities which by
their terms are convertible  into or exchangeable  for Preferred  Stock, or (iv)
dividends on Preferred  Stock payable in Preferred  Stock or issuance of rights,
options or warrants referred to hereinabove in Section 11, hereafter made by the
Company  to  holders  of its  Preferred  Stock  shall  not be  taxable  to  such
stockholders.

     (n)  Anything in this  Agreement to the  contrary  notwithstanding,  in the
event that at any time after the date of this Rights  Agreement and prior to the
Distribution  Date the  Company  shall (i)  declare or pay any  dividend  on the
Common  Stock  payable in shares of Common  Stock or (ii) effect a  subdivision,
combination  or  consolidation  of the  Common  Stock  (by  reclassification  or
otherwise than by payment of dividends in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in any such case (A) the number
of shares of Preferred Stock  purchasable  after such event upon proper exercise
of each  Right  shall be  determined  by  multiplying  the  number  of shares of
Preferred  Stock so purchasable  immediately  prior to such event by a fraction,
the  numerator  of which is the  number of shares  of Common  Stock  outstanding
immediately  before  such  event and the  denominator  of which is the number of
shares of Common Stock  outstanding  immediately  after such event, and (B) each
share of Common Stock outstanding immediately after such event shall have issued
with  respect  to it that  number of  Rights  that  each  share of Common  Stock
outstanding  immediately  prior to such event had issued with respect to it. The
adjustments  provided for in the preceding  sentence shall be made  successively
whenever such a dividend is declared or paid or such a subdivision,  combination
or consolidation is effected.

                                       15
<PAGE>

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

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

     (a) In the event, directly or indirectly, (i) the Company shall consolidate
with,  or merge  with  and  into,  any  other  Person,  (ii)  any  Person  shall
consolidate with the Company, or merge with and into the Company and the Company
shall  be the  continuing  or  surviving  corporation  of such  merger  and,  in
connection  with such  merger,  all or part of the Common Stock shall be changed
into or exchanged for securities of any other Person (or the Company) or cash or
any other  property,  or (iii) the Company shall sell or otherwise  transfer (or
one or more of its  Subsidiaries  shall sell or otherwise  transfer),  in one or
more transactions, assets or earning power aggregating 50% or more of the assets
or earning power of the Company and its  Subsidiaries  (taken as a whole) to any
other  person  other  than  the  Company  or one  or  more  of its  wholly-owned
Subsidiaries,  then, and in each such case,  proper  provision  shall be made so
that (1) each holder of a Right  (except as  otherwise  provided  herein)  shall
thereafter have the right to receive, upon the exercise thereof at a price equal
to the then current  Purchase Price  multiplied by the number of Preferred Stock
Units for which a Right is then  exercisable,  in  accordance  with the terms of
this Agreement and in lieu of shares of Preferred  Stock,  such number of shares
of freely tradeable Common Stock of such other Person  (including the Company as
successor thereto or as the surviving corporation), free and clear of any liens,
rights of call or first refusal,  encumbrances or other adverse claims, as shall
equal the result obtained by (A) multiplying the then current  Purchase Price by
the number of Preferred  Stock Units for which a Right is then  exercisable  and
dividing  that  product by (B) 50% of the then current per share market price of
the Common  Stock of such other  Person  (determined  pursuant to Section  11(d)
hereof)  on the date of  consummation  of such  consolidation,  merger,  sale or
transfer;  (2) the issuer of such Common Stock shall  thereafter  be liable for,
and shall assume, by virtue of such consolidation, merger, sale or transfer, all
the  obligations and duties of the Company  pursuant to this Agreement;  (3) the
term "Company" shall thereafter be deemed to refer to such issuer;  and (4) such
issuer shall take such steps (including,  but not limited to, the reservation of
a sufficient  number of shares of its Common Stock in accordance  with Section 9
hereof) in connection with such  consummation as may be necessary to ensure that
the provisions  hereof shall  thereafter be applicable,  as nearly as reasonably
may be, in relation to the Common Stock thereafter deliverable upon the exercise
of the Rights.

     (b) The Company shall not consummate any such  consolidation,  merger, sale
or transfer unless prior thereto the Company and such issuer shall have executed
and  delivered to the Rights Agent a  supplemental  agreement  providing for the
terms set forth in Section 13(a) hereof and further  providing  that, as soon as
practicable  after the date of any  consolidation,  merger,  sale or transfer of
assets mentioned in Section 13(a) hereof, such issuer at its own expense shall:

                                       16
<PAGE>

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

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

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

     (c) The Company shall not enter into any  transaction  of the kind referred
to in this Section 13 if at the time of such  transaction  there are any rights,
warrants,   instruments   or  securities   outstanding   or  any  agreements  or
arrangements  that, as a result of the consummation of such  transaction,  would
eliminate or substantially  diminish the benefits intended to be afforded by the
Rights.  The provisions of this Section 13 shall  similarly  apply to successive
mergers or consolidations or sales or other transfers.

     Section 14. Fractional Rights and Fractional Shares.

     (a) The Company  shall not be required to issue  fractions  of Rights or to
distribute Right Certificates which evidence  fractional Rights. In lieu of such
fractional  Rights,  there shall be paid 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 the purposes of this  Section  14(a),  the current
market  value of a whole Right shall be the closing  price of the Rights for the
Trading Day immediately  prior to the date on which such fractional Rights would
have been  otherwise  issuable.  The closing price for any day shall be the last
sale price,  regular  way,  or, in case no such sale takes place on such day the
average of the  closing  bid and asked  prices,  regular  way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities  listed or admitted to trading on the New York Stock  Exchange or,
if the  Rights  are not  listed or  admitted  to  trading  on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national  securities exchange
on which the Rights are listed or  admitted to trading or, if the Rights are not
listed or  admitted to trading on any  national  securities  exchange,  the last
quoted  price or, if not so  quoted,  the  average of the high bid and low asked
prices in the  over-the-counter  market,  as  reported  by Nasdaq or such  other
system then in use or, if on any such date the Rights are not quoted by any such
organization,  the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the  Company.  If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.

                                       17
<PAGE>

     (b) The  Company  shall not be  required  to issue  fractions  of shares of
Preferred  Stock  (other  than  fractions  that are  integral  multiples  of one
one-hundredth  of a share of Preferred  Stock) upon exercise of the Rights or to
distribute  certificates which evidence  fractional  Preferred Stock (other than
fractions  that  are  integral  multiples  of one  one-hundredth  of a share  of
Preferred Stock).  Fractions of a share of Preferred Stock in integral multiples
of one  one-hundredth  of a share of Preferred Stock may, at the election of the
Company,  be  evidenced  by  depositary  receipts,  pursuant  to an  appropriate
agreement  between the Company and a depositary  selected by it;  provided  that
such agreement shall provide that the holders of such depositary  receipts shall
have all the rights,  privileges  and  preferences to which they are entitled as
Beneficial  Owners  of  the  Preferred  Stock  represented  by  such  depositary
receipts.  In lieu of fractional shares of Preferred Stock that are not integral
multiples of one  one-hundredth of a share of Preferred Stock, the Company shall
pay to the registered  holders of Right Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one share of Preferred  Stock.  For the purposes of this
Section 14(b),  the current market value of a share of Preferred  Stock shall be
the closing price of the Preferred  Stock (as determined  pursuant to the second
sentence of Section  11(d)(ii)  hereof) for the Trading Day immediately prior to
the date of such exercise.

     (c) The holder of a Right by the acceptance of the Right  expressly  waives
such holder's  right to receive any fractional  Rights or any fractional  shares
upon exercise of a Right except as expressly provided above.

     Section  15.  Rights of  Action.  All  rights of action in  respect of this
Agreement,  except the rights of action given to the Rights Agent under  Section
18  hereof,  are  vested  in the  respective  registered  holders  of the  Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock);  and any registered holder of any Right Certificate (or, prior to
the Distribution  Date, of the Common Stock),  without the consent of the Rights
Agent  or of the  holder  of any  other  Right  Certificate  (or,  prior  to the
Distribution Date, of the Common Stock),  may, in his own behalf and for his own
benefit, enforce, and may institute and maintain, any suit, action or proceeding
against  the Company to enforce,  or  otherwise  act in respect of, his right to
exercise the Rights  evidenced by such Right  Certificate in the manner provided
in such Right Certificate and in this Agreement.  Without limiting the foregoing
or  any  remedies  available  to  the  holders  of  Rights,  it is  specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the  obligations  under,  and  injunctive  relief  against  actual or threatened
violations of the obligations of any Person subject to, this Agreement.

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

                                       18
<PAGE>

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

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

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

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

     Section 18.  Concerning the Rights Agent.  The Company agrees to pay to the
Rights Agent reasonable  compensation for all services  rendered by it hereunder
and, from time to time, on demand of the Rights Agent,  its reasonable  expenses
and counsel  fees and other  disbursements  incurred in the  administration  and
execution  of this  Agreement  and the exercise  and  performance  of its duties
hereunder.  The  Company  also  agrees to  indemnify  the  Rights  Agent and its
Affiliates for, and to hold them harmless against,  any damage loss,  liability,
cost or  expense,  incurred  without  gross  negligence,  bad  faith or  willful
misconduct on the part of the Rights Agent or its Affiliates,  for anything done
or  omitted  by the  Rights  Agent  or its  Affiliates  in  connection  with the
acceptance  and  administration  of this  Agreement,  including  the  costs  and
expenses of defending against any demand or claim of liability in the premises.

     The Rights Agent shall be protected and shall incur no liability for, or in
respect of any action taken,  suffered or omitted by it in connection  with, its
administration  of this  Agreement  in reliance  upon any Right  Certificate  or
certificate for the Preferred  Stock or Common Stock or for other  securities of
the  Company,   instrument  of  assignment  or  transfer,   power  of  attorney,
endorsement,   affidavit,  letter,  notice,  direction,   consent,  certificate,
statement,  or other  paper or  document  believed by it to be genuine and to be
signed, executed and, where necessary,  verified or acknowledged,  by the proper
person or  persons,  or  otherwise  upon the  advice of  counsel as set forth in
Section 20 hereof.

                                      19
<PAGE>

     Section 19. Merger or  Consolidation or Change of Name of Rights Agent. Any
corporation  into which the Rights  Agent or any  successor  Rights Agent may be
merged or with which it may be consolidated,  or any corporation  resulting from
any merger or  consolidation  to which the Rights Agent or any successor  Rights
Agent shall be a party, or any  corporation  succeeding to the stock transfer or
corporate  trust  business of the Rights Agent or any  successor  Rights  Agent,
shall be the  successor  to the Rights  Agent under this  Agreement  without the
execution  or filing of any paper or any  further  act on the part of any of the
parties hereto, provided that such corporation would be eligible for appointment
as a successor  Rights Agent under the provisions of Section 21 hereof.  In case
at the time such  successor  Rights Agent shall succeed to the agency created by
this Agreement any of the Right  Certificates  shall have been countersigned but
not delivered, any such successor Rights Agent may adopt the countersignature of
the   predecessor   Rights  Agent  and  deliver  such  Right   Certificates   so
countersigned;  and 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
Agreement.

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

     Section 20. Duties of Rights Agent.  The Rights Agent undertakes the duties
and  obligations  imposed  by  this  Agreement  upon  the  following  terms  and
conditions,  by all of which the Company and the holders of Right  Certificates,
by their acceptance thereof, shall be bound:

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

     (b)  Whenever in the  performance  of its duties under this  Agreement  the
Rights Agent shall deem it  necessary  or  desirable  that any fact or matter be
proved or  established  by the Company  prior to taking or suffering  any action
hereunder,  such fact or matter  (unless  other  evidence in respect  thereof be
herein  specifically  prescribed)  may be deemed to be  conclusively  proved and
established by a certificate signed by any one of the Chairman of the Board, the
President, any Vice President, the Treasurer or the Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full  authorization
to the Rights  Agent for any action  taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.

                                       20
<PAGE>

     (c) The Rights Agent shall be liable hereunder to the Company and any other
Person only for its own gross negligence, bad faith or willful misconduct. In no
event  shall the  Rights  Agent be liable for  special,  indirect,  punitive  or
consequential  loss or damage of any kind whatsoever  (including but not limited
to lost profits).

     (d) The  Rights  Agent  shall not be liable  for or by reason of any of the
statements  of fact or  recitals  contained  in this  Agreement  or in the Right
Certificates (except 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 the Company only.

     (e) The Rights  Agent shall not be under any  responsibility  in respect of
the validity of this Agreement or the execution and delivery  hereof (except the
due  execution  hereof by the Rights  Agent) or in respect  of the  validity  or
execution of any Right Certificate (except its  countersignature  thereof);  nor
shall it be  responsible  for any  breach  by the  Company  of any  covenant  or
condition contained in this Agreement or in any Right Certificate;  nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section  11(a)(ii) hereof) or any adjustment in
the terms of the  Rights  (including  the  manner,  method  or  amount  thereof)
provided  for in  Section  3,  11,  13,  23 or 24,  or the  ascertaining  of the
existence of facts that would require any such change or adjustment (except with
respect to the exercise of Rights evidenced by Right  Certificates  after actual
notice  that such change or  adjustment  is  required);  nor shall it by any act
hereunder  be  deemed  to  make  any   representation  or  warranty  as  to  the
authorization  or  reservation  of any  Preferred  Stock,  Common Stock or other
securities to be issued  pursuant to this Agreement or any Right  Certificate or
as to whether any Preferred  Stock,  Common Stock or other securities will, when
issued, be validly authorized and issued, fully paid and non-assessable.

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

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

     (h) Any application by the Rights Agent for written  instructions  from the
Company may, at the option of the Rights Agent,  set forth in writing any action
proposed to be taken or omitted by the Rights Agent under this Rights  Agreement
and the date on and/or after which such action  shall be taken or such  omission
shall be  effective.  The Rights  Agent shall not be liable for any action taken
by, or omission of, the 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 such officer
of the Company actually receives such application, unless any such officer shall
have  consented in writing to an earlier date) unless,  prior to taking any such
action (or the  effective  date in the case of an  omission),  the Rights  Agent
shall  have  received  written  instructions  in  response  to such  application
specifying the action to be taken or omitted.

                                       21
<PAGE>

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

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

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

     Section  21.  Change of Rights  Agent.  The Rights  Agent or any  successor
Rights Agent may resign and be discharged  from its duties under this  Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Preferred  Stock and Common Stock by registered or certified mail, and to
the  holders of the Right  Certificates  by  first-class  mail.  The Company may
remove the Rights  Agent or any  successor  Rights  Agent upon 30 days notice in
writing,  mailed to the Rights Agent or successor  Rights Agent, as the case may
be,  and to each  transfer  agent of the  Preferred  Stock and  Common  Stock by
registered or certified  mail, and to the holders of the Right  Certificates  by
first-class  mail.  If the  Rights  Agent  shall  resign or be  removed or shall
otherwise become  incapable of acting,  the Company shall appoint a successor to
the Rights Agent.  If the Company shall fail to make such  appointment  within a
period  of 30 days  after  giving  notice of such  removal  or after it has been
notified  in writing of such  resignation  or  incapacity  by the  resigning  or
incapacitated  Rights Agent or by the holder of a Right  Certificate (who shall,
with such notice,  submit his Right  Certificate for inspection by the Company),
then the registered  holder of any Right  Certificate  may apply to any court of
competent  jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent,  whether appointed by the Company or by such a court, shall be (i)
an entity  organized and doing  business  under the laws of the United States or
the  State of  Indiana  (or of any other  state of the  United  States)  validly
existing  and  that  is  authorized  to act as  Rights  Agent  hereunder.  After
appointment,  the  successor  Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent  without  further  act or deed;  but the  predecessor  Rights  Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance,  conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment   the  Company  shall  file  notice  thereof  in  writing  with  the
predecessor  Rights  Agent  and  each  transfer  agent  of the  Common  Stock or
Preferred Stock, and mail a notice thereof in writing to the registered  holders
of the Right  Certificates.  Failure  to give any  notice  provided  for in this
Section 21,  however,  or any defect  therein,  shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be.

                                       22
<PAGE>

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

     Section 23. Redemption.

     (a) The Board of Directors  of the Company may, at its option,  at any time
prior to the tenth  business day after any Person  becomes an Acquiring  Person,
redeem all but not less than all of the then outstanding  Rights at a redemption
price of $.001 per Right,  appropriately  adjusted to reflect  any stock  split,
stock  dividend or similar  transaction  occurring  after the date hereof  (such
redemption  price  being  hereinafter  referred to as the  "Redemption  Price");
provided,  however,  that  during  the time  period in which the  Rights  may be
redeemed, the Board of Directors of the Company may extend the time during which
the Rights may be redeemed for a time period as may be  determined  by the Board
of  Directors.  Notwithstanding  anything  contained  in this  Agreement  to the
contrary,  the Rights shall not be exercisable after the first occurrence of the
event  described in Section  11(a)(ii) until such time as the Company's right of
redemption  hereunder has expired.  The redemption of the Rights by the Board of
Directors of the Company may be made  effective at such time,  on such basis and
with such  conditions  as the Board of  Directors  of the  Company,  in its sole
discretion,  may  establish.  The Company may, at is option,  pay the Redemption
Price in cash,  Common Stock  (based on the current  market price at the time of
redemption) or any other form of consideration  deemed  appropriate by the Board
of Directors.

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

                                       23
<PAGE>

     (c)  Immediately  upon the action of the Board of  Directors of the Company
ordering  the  redemption  of the Rights,  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 ten days after the action of the Board of Directors  ordering the
redemption of the Rights,  the Company  shall give notice of such  redemption to
the holders of the then  outstanding  Rights by mailing  such notice to all such
holders at their last  addresses as they appear upon the  registry  books of the
Rights Agent or, prior to the  Distribution  Date, on the registry  books of the
transfer  agent for the Common  Stock.  Any notice which is mailed in the manner
herein  provided shall be deemed given,  whether or not the holder  receives the
notice.  Each  such  notice of  redemption  will  state the  method by which the
payment of the Redemption Price will be made. Neither the Company nor any of its
Affiliates or Associates may redeem, acquire or purchase for value any Rights at
any time in any manner  other than that  specifically  set forth in this Section
23, and other than in connection  with the purchase of Common Stock prior to the
Distribution Date.

    Section 24. Exchange.

     (a) The Board of Directors  of the Company may, at its option,  at any time
after any person becomes an Acquiring  Person,  exchange all or part of the then
outstanding  and  exercisable  Rights (which shall not include  Rights that have
become void pursuant to the provisions of Section  11(a)(ii)  hereof) for Common
Stock at an exchange ratio of one share of Common Stock per Right, appropriately
adjusted  to reflect any stock  split,  stock  dividend  or similar  transaction
involving  either the Preferred  Stock or the Common Stock  occurring  after the
date hereof (such exchange ratio being hereinafter  referred to as the "Exchange
Ratio").  Notwithstanding  the  foregoing,  the Board of Directors  shall not be
empowered to effect such  exchange at any time after any Person  (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or any such  Subsidiary,  or any entity  holding Common Stock for or pursuant to
the terms of any such plan), together with all Affiliates and Associates of such
person,  becomes the Beneficial  Owner of more than 50% of the Common Stock then
outstanding.

     (b)  Immediately  upon the action of the Board of  Directors of the Company
ordering  the exchange of any Rights  pursuant to Section  24(a) and without any
further  action and without any notice,  the right to exercise such Rights shall
terminate  and the only right  thereafter of a holder of such Rights shall be to
receive that number of shares of Common Stock equal to the number of such Rights
held by such holder multiplied by the Exchange Ratio. The Company shall promptly
give public notice of any such exchange;  provided, however, that the failure to
give,  or any defect in,  such  notice  shall not  affect the  validity  of such
exchange.  The Company  promptly shall mail a notice of any such exchange to all
of the  holders of such Rights at their last  addresses  as they appear upon the
registry  books of the Rights  Agent.  Any notice  which is mailed in the manner
herein  provided shall be deemed given,  whether or not the holder  receives the
notice. Each such notice of exchange will state the method by which the exchange
of Common  Stock for Rights  will be  effected  and, in the event of any partial
exchange,  the number of Rights that will be  exchanged.  Any  partial  exchange
shall be  effected  pro rata based on the number of Rights  (other  than  Rights
which have become void pursuant to the provisions of Section  11(a)(ii)  hereof)
held by each holder of Rights.

                                       24
<PAGE>

     (c) In any  exchange  pursuant  to this  Section  24, the  Company,  at its
option, may substitute  Preferred Stock (or equivalent preferred shares, as such
term is defined in Section  11(b)  hereof)  for some or all of the Common  Stock
exchangeable  for Rights,  at the initial rate of one  Preferred  Stock Unit (or
equivalent  preferred  shares) for each share of Common Stock, as  appropriately
adjusted to reflect  adjustments  in the voting  rights of the  Preferred  Stock
pursuant to the terms thereof,  so that shares of Preferred  Stock  delivered in
lieu of each  share of Common  Stock  shall have the same  voting  rights as one
share of Common Stock.

     (d) The  Company  shall not be required  to issue  fractions  of a share of
Common Stock or Preferred  Stock or to distribute  certificates  which  evidence
fractional shares of Common Stock or Preferred Stock. In lieu of such fractional
shares  of  Common  Stock or  Preferred  Stock,  the  Company  shall  pay to the
registered  holders  of  the  Right  Certificates  with  regard  to  which  such
fractional  share of Common Stock or Preferred Stock would otherwise be issuable
an amount in cash equal to the same  fraction of the current  market  value of a
whole share of Common Stock or Preferred Stock. For the purposes of this Section
24(d),  the current  market  value of a whole share of Common Stock or Preferred
Stock Unit shall be the closing price of a share of Common Stock (as  determined
pursuant to the second sentence of Section  11(d)(i) hereof) for the Trading Day
immediately prior to the date of exchange pursuant to this Section 24.

     Section 25. Notice of Certain Events. (a) In case the Company shall propose
(i) to pay any  dividend  payable  in shares of any class to the  holders of its
Preferred  Stock  or to  make  any  other  distribution  to the  holders  of its
Preferred Stock (other than a regular quarterly cash dividend), (ii) to offer to
the holders of its  Preferred  Stock rights or warrants to  subscribe  for or to
purchase  any  additional  Preferred  Stock or  shares of any class or any other
securities,  rights or  options,  (iii) to effect  any  reclassification  of its
Preferred Stock (other than a reclassification involving only the subdivision of
outstanding Preferred Stock), (iv) to effect any consolidation or merger into or
with,  or to effect any sale or other  transfer (or to permit one or more of its
Subsidiaries to effect any sale or other transfer), in one or more transactions,
of 50% or  more  of  the  assets  or  earning  power  of  the  Company  and  its
Subsidiaries  (taken  as a whole)  to,  any  other  Person,  (v) to  effect  the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any  dividend  on the  Common  Stock  payable  in  Common  Stock or to  effect a
subdivision,   combination   or   consolidation   of  the   Common   Stock   (by
reclassification  or otherwise  than by payment of  dividends in Common  Stock),
then,  in each such  case,  the  Company  shall  give to each  holder of a Right
Certificate,  in  accordance  with Section 26 hereof,  a notice of such proposed
action,  which  shall  specify  the record  date for the  purposes of such stock
dividend,  or  distribution  of rights or  warrants,  or the date on which  such
reclassification,    consolidation,   merger,   sale,   transfer,   liquidation,
dissolution,  or  winding  up is to take  place  and the  date of  participation
therein by the holders of the Preferred  Stock, if any such date is to be fixed,
and such  notice  shall be so given in the case of any action  covered by clause
(i) or (ii)  above at least 10 days  prior to the  record  date for  determining
holders of the Preferred  Stock for purposes of such action,  and in the case of
any such other action,  at least 10 days prior to the date of the taking of such
proposed  action or the date of  participation  therein  by the  holders  of the
Common Stock, whichever shall be the earlier.

                                       25
<PAGE>

     (b) In case the event set forth in Section  11(a)(ii)  hereof  shall occur,
then (i) the Company shall as soon as practicable thereafter give to each holder
of a Right  Certificate,  in accordance with Section 26 hereof,  a notice of the
occurrence  of such  event,  which  notice  shall  describe  such  event and the
consequences of such event to holders of Rights under Section  11(a)(ii)  hereof
and (ii) all references in the foregoing  Section 25(a) to Preferred Stock shall
be deemed  thereafter to refer also, if appropriate,  to Common Stock and/or, if
appropriate, other securities of the Company.

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

                  The Steak n Shake Company
                  500 Century Building
                  36 Pennsylvania Street
                  Indianapolis, IN  46204
                  Attention:  Corporate Secretary

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

                  Computershare Investor Services, LLC
                  2 North LaSalle Street
                  3rd Floor
                  Chicago, Illinois 60602
                  Attn:  Gerry Lane
                  with a copy to:  Keith Bradley

Notices  or  demands  authorized  by this  Agreement  to be given or made by the
Company or the  Rights  Agent to the  holder of any Right  Certificate  shall be
sufficiently  given  or  made  if sent by  first-class  mail,  postage  prepaid,
addressed  to such holder at the address of such holder as shown on the registry
books of the Company.

     Section 27.  Supplements and Amendments.  The Company may from time to time
supplement or amend this Agreement  without the approval of any holders of Right
Certificates  in order to cure any  ambiguity,  to  correct  or  supplement  any
provision contained herein which may be defective or inconsistent with any other
provisions  herein,  or to make any other  provisions with respect to the Rights
which the Company may deem necessary or desirable,  including but not limited to
extending  the Final  Expiration  Date,  any such  supplement or amendment to be
evidenced  by a writing  signed by the Company and the Rights  Agent;  provided,
however,  that this  Agreement  shall not be amended in any manner  which  would
adversely affect the interests of the holders of Rights.

                                       26
<PAGE>

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

     Section 29. Benefits of this Agreement.  Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
registered  holders of the Right  Certificates  (and,  prior to the Distribution
Date, the Common Stock) any legal or equitable right, remedy or claim under this
Agreement and this Agreement shall be for the sole and exclusive  benefit of the
Company,  the Rights Agent and the registered  holders of the Right Certificates
(and, prior to the Distribution Date, the Common Stock).

     Section 30. Severability.  If any term, provision,  covenant or restriction
of this  Agreement  is  held  by a court  of  competent  jurisdiction  or  other
authority  to be invalid,  void or  unenforceable,  the  remainder of the terms,
provisions,  covenants and  restrictions  of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.

     Section  31.  Governing  Law.  This  Agreement,  each  Right and each Right
Certificate  issued  hereunder  shall be deemed to be a contract  made under the
laws of the State of  Indiana  and for all  purposes  shall be  governed  by and
construed in accordance  with the laws of such State  applicable to contracts to
be made and performed  entirely within such State and with the Indiana  Business
Corporation Law.

     Section 32.  Counterparts.  This  Agreement  may be executed in one or more
counterparts with the same effect as if each party had signed the same document;
that all counterparts  shall be construed  together and shall constitute one and
the same document;  and that facsimile  transmissions of the executed version of
this Agreement or any  counterpart  thereof shall have the same force and effect
as the original.

     Section  33.  Descriptive  Headings.  Descriptive  headings  of the several
Sections of this  Agreement  are  inserted  for  convenience  only and shall not
control or affect the meaning or construction of any of the provisions hereof.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       27
<PAGE>

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

                                         THE STEAK n SHAKE COMPANY

                                         By /s/ Alan B. Gilman
                                            ------------------------------------
                                             Alan B. Gilman, President

Attest:

By: /s/ Mary E. Ham
    --------------------------------
    Mary E. Ham, Secretary

                                         Computershare Investor Services, LLC

                                         By: /s/ Bruce R. Hartney
                                             -----------------------------------

                                         Name: Bruce R. Hartney
                                               ---------------------------------

                                         Title: Relationship Manager
                                                --------------------------------

Attest:

By: /s/ Michael Millikan
    --------------------------------

Name: Michael Millikan
      -------------------------------

Title:
       ------------------------------

                                       28
<PAGE>

                                    Exhibit A
                                    ---------

                            Form of Right Certificate

Certificate No. R-                                              _________ Rights

          NOT EXERCISABLE AFTER MAY 16, 2001 OR EARLIER IF REDEMPTION OR
          EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.001
          PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
          AGREEMENT.

                                Right Certificate

                            THE STEAK n SHAKE COMPANY

     This certifies that  __________________________,  or registered assigns, is
the  registered  owner of the  number  Rights  set  forth  above,  each of which
entitles the owner thereof,  subject to the terms,  provisions and conditions of
the  Rights  Agreement,  dated as of May 16,  2001,  (the  "Rights  Agreement"),
between The Steak n Shake Company, an Indiana  corporation (the "Company"),  and
Computershare  Investor Services, LLC (the "Rights Agent"), to purchase from the
Company at any time after the Distribution  Date (as such term is defined in the
Rights Agreement) and prior to 5:00 P.M., Eastern Standard Time, on May 16, 2011
at the office of the Rights Agent designated for such purpose,  or at the office
of its  successor  as  Rights  Agent,  one  one-hundredth  of a fully  paid  and
non-assessable  share of  Preferred  Stock (a  "Preferred  Stock  Unit")  of the
Company,  at a purchase price of $40.00 per Preferred  Stock Unit (the "Purchase
Price"), upon presentation and surrender of this Right Certificate with the Form
of Election to Purchase duly  executed.  The number of Rights  evidenced by this
Right  Certificate  (and the  number of shares of  Preferred  Stock  that may be
purchased  upon  exercise  hereof) set forth above,  and the Purchase  Price set
forth above,  are the number and Purchase Price as of May 31, 2001, based on the
Preferred  Stock Units as  constituted  at such date.  As provided in the Rights
Agreement,  the Purchase Price and the number of shares of Preferred Stock which
may be  purchased  upon the  exercise  of the  Rights  evidenced  by this  Right
Certificate  are subject to  modification  and adjustment  upon the happening of
certain events.

     This Right  Certificate  is subject  to all of the  terms,  provisions  and
conditions of the Rights Agreement,  which terms,  provisions and conditions are
hereby  incorporated  herein by  reference  and made a part  hereof and to which
Rights Agreement  reference is hereby made for a full description of the rights,
limitations  of rights and  obligations  of the  Company  and the holders of the
Right Certificates.  Copies of the Rights Agreement are on file at the principal
executive offices of the Company and the  above-mentioned  offices of the Rights
Agent.

                                      A-1
<PAGE>

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

     Subject to the provisions of the Rights Agreement,  the Rights evidenced by
this  Certificate  (i) may be redeemed by the Company at a  redemption  price of
$.001 per Right or (ii) may be exchanged  in whole or in part for the  Company's
Common Stock.

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

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

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

                                      A-2
<PAGE>

     WITNESS the  facsimile  signature  of the proper  officers of the  Company.
Dated as of ___________________.

ATTEST:                             THE STEAK n SHAKE COMPANY

                                    By:
                                        ----------------------------------------

------------------------------------
Countersigned:

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

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

                                      A-3
<PAGE>

                    Form of Reverse Side of Right Certificate

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

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

     FOR VALUE RECEIVED __________________________________________ hereby sells,
assigns and transfers unto _____________________________________________________
                              (Please print name and address of transferee)

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

Dated:__________________, 20___

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

Signature Guaranteed:

     Signatures  must be  guaranteed  by a member firm of a registered  national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.

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

     The undersigned  hereby  certifies that the Rights  evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).

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

                                      A-4
<PAGE>

             Form of Reverse Side of Right Certificate --- continued

                          FORM OF ELECTION TO PURCHASE

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

To THE STEAK n SHAKE COMPANY:

     The  undersigned  hereby  irrevocably  elects  to  exercise  ______  Rights
represented by this Right  Certificate to purchase the Preferred  Stock,  Common
Stock or such other  securities  issuable  upon the  exercise of such Rights and
requests that certificates for such Preferred Stock,  Common Stock or such other
securities be issued in the name of:

Please insert social security
or other identifying number:

                         (Please print name and address)

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

Please insert social security
or other identifying number:

                         (Please print name and address)

Dated: _________________, 20____

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

Signature Guaranteed:

     Signatures  must be  guaranteed  by a member firm of a registered  national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.

                                      A-5
<PAGE>

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

     The undersigned  hereby  certifies that the Rights  evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).

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

                                     NOTICE
                                     ------

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

     In the event the certification set forth above in the Form of Assignment or
the Form of  Election to  Purchase,  as the case may be, is not  completed,  the
Company  and the  Rights  Agent  will deem the  beneficial  owner of the  Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or
Associate  thereof (as defined in the Rights  Agreement) and such  Assignment or
Election to Purchase will not be honored.

                                      A-6

<PAGE>
                                                                       Exhibit B

                          SUMMARY OF RIGHTS TO PURCHASE
                                 PREFERRED STOCK

     On May 16, 2001,  the Board of Directors of The Steak n Shake  Company (the
"Company") adopted a Shareholder Rights Plan (the "Rights Plan") effective as of
May 16,  2001.  The  purposes of the Rights Plan are to deter  certain  coercive
takeover tactics and enable the Board of Directors to represent  effectively the
interests of shareholders and other  constituencies  of the Company in the event
of a takeover  attempt.  The Rights  Plan does not deter  negotiated  mergers or
business  combinations that the Board of Directors  determines to be in the best
interest of the Company and its shareholders.

     To implement the Rights Plan the Board of Directors  declared a dividend of
one preferred  share  purchase  right (a "Right") for each share of  outstanding
Common  Stock of the Company (the  "Common  Stock").  The dividend is payable to
shareholders of record on May 31, 2001 (the "Record Date").  Each Right entitles
the registered  holder to purchase from the Company one one-hundredth of a share
of Preferred Stock (a "Preferred Stock Unit") at a price of $40.00 per Preferred
Stock Unit (the "Purchase  Price"),  subject to adjustment.  The description and
terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement")
between the Company and Computershare  Investor  Services,  LLC, as Rights Agent
(the "Rights Agent").

Rights Attach to Common Stock Initially

     Initially and until a  Distribution  Date (as defined  below)  occurs,  the
Rights  are  attached  to all  shares of Common  Stock  and no  separate  Rights
certificates will be issued. During this initial period,

     o    the Rights are not exercisable;

     o    the  Rights  are  transferred  with  the  Common  Stock  and  are  not
          transferable separately from the Common Stock;

     o    new Common Stock certificates or book entry shares issued will contain
          a notation incorporating the Rights Agreement by reference; and

     o    the  transfer of any shares of Common Stock will also  constitute  the
          transfer of the Rights associated with those shares.

Distribution of Rights

     Separate  certificates  evidencing  the Rights will be mailed to holders of
record  of the  Common  Stock  in the  event a  "Distribution  Date"  occurs.  A
Distribution  Date  occurs on the earlier of the  following  two events (or such
later date as may be determined by the Board of Directors):

                                      B-1
<PAGE>

     o    10  business  days  following a public  announcement  that a person or
          group of affiliated or associated persons (an "Acquiring Person") have
          acquired beneficial ownership of 15% or more of the outstanding Common
          Stock; or

     o    10 business days (or such later date as may be determined by action of
          the Board of  Directors  prior to such time as any  Person  becomes an
          Acquiring  Person) after the  commencement  of, or  announcement of an
          intention to make, a tender offer or exchange  offer the  consummation
          of which would result in the beneficial ownership by a person or group
          of 30% or more of the outstanding Common Stock.

     Acquisitions  by the  following  persons  will  not  result  in the  person
becoming an Acquiring Person: the Company, any subsidiary or an employee benefit
plan of the Company.

     After a Distribution  Date, the Rights would be tradeable  separately  from
the Common Stock.  After the Distribution  Date and after the Company's right to
redeem (as described below) has expired,  the Rights would be exercisable in two
different ways depending on the circumstances as set forth below.

Right to Purchase Company Stock

     After a  Distribution  Date and after the  Company's  redemption  right has
expired,  each holder of a Right (except those held by the Acquiring  Person and
its affiliates and associates) would have the right to purchase,  upon exercise,
that number of shares of Preferred Stock (or, in certain  circumstances,  shares
of Common Stock or other similar  securities of the Company in lieu of Preferred
Stock) having a market value of two times the exercise  price of the Right (such
right being called the "Subscription  Right").  The Subscription  Right would be
exercisable  for a 60-day  period  after the  effective  date of a  registration
statement  under the Securities Act of 1933, as amended,  covering the Preferred
Stock (or Common Stock or other securities).

Right to Purchase Acquiring Person Stock

     Alternatively,  if the Company is  acquired  in a merger or other  business
combination  transaction  or 50% or more of its  consolidated  assets or earning
power are  sold,  each  holder  of a Right  could  then  purchase  shares of the
acquiring  company  having a market value of two times the exercise price of the
Right  (such  right being  called the  "Merger  Right").  Each holder of a Right
(other than an Acquiring  Person) will continue to have the Merger Right whether
or not such holder exercises the Subscription Right.

                                      B-2
<PAGE>

Exchange of Company Stock for Rights

     At any time after the  acquisition  by a person or group of  affiliated  or
associated  persons of  beneficial  ownership of 15% or more of the  outstanding
Common Stock or the announcement of a tender or exchange offer that could result
in the  beneficial  ownership  by a  Person  or  group  of 30%  or  more  of the
outstanding  Common Stock,  and prior to the acquisition by such Person or group
of more than 50% of the outstanding  Common Stock, the Board of Directors of the
Company may  exchange  the Rights  (other  than  Rights  owned by such person or
group,  which will have become void),  in whole or in part, at an exchange ratio
of one share of Common Stock per Right (subject to adjustment).

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

Adjustment of Shares

     The Purchase Price payable,  and the number of shares of Preferred Stock or
other securities issuable, upon exercise of the Rights are subject to adjustment
from time to time to prevent  dilution (i) in the event of a stock  dividend on,
or a subdivision,  combination or reclassification of, the Preferred Stock, (ii)
upon the grant to holders of the Preferred  Stock of certain  rights or warrants
to  subscribe  for  or  purchase  Preferred  Stock  at a  price,  or  securities
convertible  into Preferred  Stock with a conversion  price,  less than the then
current market price of the Preferred  Stock or (iii) upon the  distribution  to
holders of the Preferred Stock of evidences of indebtedness or assets (excluding
regular  periodic cash  dividends  paid out of earnings or retained  earnings or
dividends  payable on  Preferred  Stock) or of  subscription  rights or warrants
(other than those referred to above).

     The Purchase Price payable,  and the number of shares of Preferred Stock or
other  securities  issuable,  upon  exercise  of the Rights are also  subject to
adjustment  in the event of a split of the Common  Stock,  or a dividend  on the
Common  Stock  payable  in Common  Stock,  or  subdivisions,  consolidations  or
combinations  of the Common  Stock  occurring,  in any such  case,  prior to the
Distribution Date.

                                      B-3
<PAGE>

Redemption

     At any time  prior to the  close of  business  on the  tenth  business  day
following  the  acquisition  by a person or group of  affiliated  or  associated
persons of beneficial  ownership of 15% or more of the outstanding  Common Stock
or the  announcement  of a tender or  exchange  offer that  could  result in the
beneficial  ownership  by a Person  or  group of 30% or more of the  outstanding
Common Stock and subject to extension of the  redemption  period by the Board of
Directors, the Board of Directors of the Company may redeem the Rights in whole,
but not in part,  at a price of $.001 per Right (the  "Redemption  Price").  The
redemption  of the Rights may be made  effective at such time, on such basis and
with  such  conditions  as the Board of  Directors  in its sole  discretion  may
establish.  Additionally  the Company may,  following the time that a person has
become an Acquiring Person, redeem the then outstanding Rights in whole, but not
in part,  at the  Redemption  Price  provided  that  such  redemption  is (i) in
connection with a merger or other business combination  transaction or series of
transactions  involving  the  Company in which all  holders of Common  Stock are
treated  alike but not  involving an  Acquiring  Person or any person who was an
Acquiring  Person or (ii)  following an event giving rise to, and the expiration
of the  exercise  period for,  the  Subscription  Right if and for as long as no
person  beneficially  owns securities  representing 15% or more of the Company's
outstanding  Common Stock.  Immediately  upon any redemption of the Rights,  the
right to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the Redemption Price.

Expiration of Rights

     The  Rights  will  expire on May 16,  2011  unless the  expiration  date is
extended by amendment  as  described  below or unless the Rights are redeemed or
exchanged by the Company as described above.

Amendments

     As long as the  Rights  are  redeemable,  the  terms of the  Rights  may be
amended by the Board of  Directors  of the  Company  without  the consent of the
holders of the Rights,  except that no such  amendment may adversely  affect the
interests of the holders of the Rights.

Miscellaneous

     The number of  outstanding  Rights  and the  number of shares of  Preferred
Stock  issuable  upon  exercise  of each Right are subject to  adjustment  under
certain circumstances.

     Because of the nature of the dividend, liquidation and voting rights of the
Preferred  Stock,  the  value  of the  shares  of  Preferred  Stock  that may be
purchased upon exercise of each Right should  approximate the value of one share
of Common Stock.

     Until a Right is  exercised,  the  holder  thereof,  as such,  will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends.

     A copy of the  Rights  Agreement  has been filed  with the  Securities  and
Exchange Commission as an Exhibit to a Current Report on Form 8-K. A copy of the
Rights  Agreement is  available  free of charge from the Company upon request to
the Corporate Secretary of the Company.

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

                                      B-4

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