Document:

<PAGE>   1

                         COMMON STOCK PURCHASE AGREEMENT

                          DATED AS OF NOVEMBER 29, 2000

                                 BY AND BETWEEN

                          ARONEX PHARMACEUTICALS, INC.

                                       AND

                                ACQUA WELLINGTON
                       NORTH AMERICAN EQUITIES FUND, LTD.

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                                TABLE OF CONTENTS

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                                                                                                         Page

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ARTICLE I          Definitions.............................................................................1

     Section 1.1    Definitions............................................................................1

ARTICLE II         Purchase and Sale of Common Stock.......................................................3

     Section 2.1    Purchase and Sale of Stock.............................................................3
     Section 2.2    The Shares.............................................................................3
     Section 2.3    Purchase Price and Closing.............................................................3

ARTICLE III        Representations and Warranties..........................................................4

     Section 3.1    Representations and Warranties of the Company..........................................4
     Section 3.2    Representations and Warranties of the Purchaser.......................................10

ARTICLE IV         Covenants..............................................................................12

     Section 4.1    Securities Compliance.................................................................12
     Section 4.2    Registration and Listing..............................................................12
     Section 4.3    Registration Statement................................................................12
     Section 4.4    Compliance with Laws..................................................................12
     Section 4.5    Keeping of Records and Books of Account...............................................13
     Section 4.6    Reporting Requirements................................................................13
     Section 4.7    Non-public Information................................................................13
     Section 4.8    Effective Registration Statement......................................................13
     Section 4.9    No Stop Orders........................................................................13
     Section 4.10   Amendments to the Registration Statement..............................................14
     Section 4.11   Prospectus Delivery...................................................................14
     Section 4.12   Other Financing.......................................................................14
     Section 4.13   Notice................................................................................15

ARTICLE V          Conditions to Closing, Draw Downs and Call Options.....................................15

     Section 5.1    Conditions Precedent to the Obligation of the Company to
                       Issue a Draw Down Notice or Grant a Call Option and
                       Sell the Shares....................................................................15
     Section 5.2    Conditions Precedent to the Obligation of the Purchaser to
                       Close..............................................................................16
     Section 5.3    Conditions Precedent to the Obligation of the Purchaser to
                       Accept a Draw Down or Call Option Grant and Purchase
                       the Shares.........................................................................17
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<TABLE>

<S>                <C>                                                                                   <C>
ARTICLE VI         Draw Down Terms; Call Option...........................................................18

     Section 6.1    Draw Down Terms.......................................................................18
     Section 6.2    Purchaser's Call Option...............................................................21

ARTICLE VII        Termination............................................................................21

     Section 7.1    Termination by Mutual Consent.........................................................21
     Section 7.2    Other Termination.....................................................................22
     Section 7.3    Effect of Termination.................................................................22

ARTICLE VIII       Indemnification........................................................................22

     Section 8.1    General Indemnity.....................................................................22
     Section 8.2    Indemnification Procedures............................................................24

ARTICLE IX         Miscellaneous..........................................................................25

     Section 9.1    Fees and Expenses.....................................................................25
     Section 9.2    Specific Enforcement, Consent to Jurisdiction.........................................25
     Section 9.3    Entire Agreement; Amendment...........................................................25
     Section 9.4    Notices...............................................................................26
     Section 9.5    Waivers...............................................................................27
     Section 9.6    Headings..............................................................................27
     Section 9.7    Successors and Assigns................................................................27
     Section 9.8    Governing Law.........................................................................27
     Section 9.9    Survival..............................................................................27
     Section 9.10   Counterparts..........................................................................27
     Section 9.11   Publicity.............................................................................27
     Section 9.12   Severability..........................................................................28
     Section 9.13   Further Assurances....................................................................28
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                         COMMON STOCK PURCHASE AGREEMENT

         This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
November 29, 2000 by and between Aronex Pharmaceuticals, Inc., a Delaware
corporation (the "Company"), and Acqua Wellington North American Equities Fund,
Ltd., a limited liability company organized under the laws of the Commonwealth
of The Bahamas (the "Purchaser").

         The parties hereto agree as follows:

                                    ARTICLE I

                                   Definitions

                  SECTION 1.1  Definitions.

                  (a) "Alternate Market" shall mean the Nasdaq Small Cap Market,
the American Stock Exchange, the New York Stock Exchange or the OTC Bulletin
Board, whichever is at the time the principal trading exchange or market for the
Common Stock.

                  (b) "Call Option" shall have the meaning assigned to such term
in Section 6.2(a) hereof.

                  (c) "Commission" shall mean the Securities and Exchange
Commission.

                  (d) "Commission Documents" shall have the meaning assigned to
such term in Section 3.1(f) hereof.

                  (e) "Commission Filings" means the Company's Form 10-K/A for
the fiscal year ended December 31, 1999, Forms 10-Q for the periods ended March
31, 2000, June 30, 2000 and September 30, 2000, Registration Statement on Form
S-3, No. 333-50020 and Form 8-K, dated April 17, 2000 and all other filings made
by the Company after the date hereof pursuant to the Securities Exchange Act of
1934.

                  (f) "Common Stock" shall have the meaning assigned to such
term in Section 2.1 hereof.

                  (g) "Draw Down" means the exercise by the Company of its right
to request the purchase of shares of Common Stock by the Purchaser.

                  (h) "Draw Down Amount" means the actual amount of a Draw Down
up to $1,500,000 or such other amount mutually agreed upon by the Purchaser and
the Company.

                  (i) "Draw Down Discount Percentage" means (i) 91% if the
Threshold Price is equal to or greater than $3.00 but less than $4.00 and (ii)
93% if the Threshold Price is equal to

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or greater than $4.00 but less than $6.00; provided, however, that for every
$2.00 increase in the Threshold Price above $4.00, the draw down discount
percentage shall be increased 0.25%, incrementally, provided, further, that if
the Threshold Price is equal to or greater than $10.00 the draw down discount
percentage shall be equal to 93.75%.

                  (j) "Draw Down Exercise Date" shall have the meaning assigned
to such term in Section 5.1 hereof.

                  (k) "Draw Down Notice" shall have the meaning assigned to such
term in Section 6.1(i) hereof.

                  (l) "Draw Down Pricing Period" shall mean a period of twenty
(20) consecutive Trading Days following a Draw Down Notice, or such other period
mutually agreed upon by the Purchaser and the Company.

                  (m) "Effective Date" shall mean November 21, 2000, the date
the Registration Statement of the Company covering the Shares being subscribed
for hereby was declared effective.

                  (n) "Investment Period " shall have the meaning assigned to
such term in Section 7.1 hereof.

                  (o) "Material Adverse Effect" shall mean any effect on the
business, results of operations, prospects, assets or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole and/or any condition, circumstance, or situation
that would prohibit or otherwise interfere with the ability of the Company to
enter into and perform any of its obligations under this Agreement or the
Registration Rights Agreement in any material respect.

                  (p) "Material Change in Ownership" shall mean that, as of any
particular measurement date, the officers and directors of the Company and their
affiliates shall beneficially own in the aggregate less than 2% of the
outstanding Common Stock of the Company, except that for purposes of making any
such calculation, Common Stock issued to the Purchaser pursuant to this
Agreement shall not be included in such calculation.

                  (q) "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement, as supplemented
by any prospectus supplement filed with the Commission pursuant to Rule 424(b).

                  (r) "Registration Statement" shall mean the registration
statement on Form S-3, Commission File Number 333-50020 under the Securities
Act, filed with the Commission for the registration of the Shares, as such
Registration Statement may be amended from time to time.

                  (s) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder.

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                  (t) "Settlement Date" shall have the meaning assigned to such
term in Section 6.1(d) hereof.

                  (u) "Shares" shall mean the shares of Common Stock of the
Company that may be purchased hereunder.

                  (v) "Threshold Price" is the lowest price at which the Company
may set in the Draw Down Notice to sell Shares during a Draw Down Pricing Period
(not taking into account the Draw Down Discount Percentage during such Draw Down
Pricing Period).

                  (w) "Trading Day" shall mean a day on which the Common Stock
is traded on the Nasdaq National Market or an Alternate Market.

                  (x) "VWAP" shall mean the daily volume weighted average price
(based on a Trading Day from 9:30 a.m. to 4:00 p.m., eastern time) of the Common
Stock of the Company on the NASDAQ National Market or an Alternate Market as
reported by Bloomberg Financial LP using the AQR function.

                                   ARTICLE II

                        PURCHASE AND SALE OF COMMON STOCK

                  SECTION 2.1 Purchase and Sale of Stock. Subject to the terms
and conditions of this Agreement, the Company shall issue and sell to the
Purchaser and the Purchaser shall purchase from the Company up to $24,000,000 of
the Company's common stock, $0.001 par value per share (the "Common Stock"),
based on Draw Downs, subject to Section 6.1 hereof, of up to $1,500,000 per Draw
Down and Call Options, subject to Section 6.2 hereof, of up to twice the Draw
Down Amount for the applicable Draw Down Pricing Period that the Company may
grant to the Purchaser in the Company's sole discretion.

                  SECTION 2.2 The Shares. The Company has authorized and has
reserved and covenants to continue to reserve, subject to Section 4.4(b) hereof,
free of preemptive rights and other similar contractual rights of stockholders,
a sufficient number of its authorized but unissued shares of its Common Stock to
cover the Shares to be issued in connection with all Draw Downs and Call
Options.

                  SECTION 2.3 Purchase Price and Closing. The Company agrees to
issue and sell to the Purchaser and, in consideration of and in express reliance
upon the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchaser agrees to purchase that number of the Shares to be
issued in connection with each Draw Down and each Call Option exercised by the
Purchaser. The closing of the execution and delivery of this Agreement shall
take place at the offices of Parker Chapin LLP, The Chrysler Building, 405
Lexington Avenue, New York, NY 10174 (the "Closing") at 10:00 a.m., eastern
time, on (i) November 29, 2000, or (ii) such other time and place or on such
date as the Purchaser and the Company may agree upon (the "Closing Date"). Each
party shall deliver all documents, instruments and writings required to be
delivered by such party pursuant to this Agreement at or prior to the Closing.

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                                  ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

                  SECTION 3.1 Representations and Warranties of the Company. The
Company hereby makes the following representations and warranties to the
Purchaser:

                  (a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of Delaware and has the requisite corporate power to own, lease and operate
its properties and assets and to conduct its business as it is now being
conducted. As of the date hereof, the Company does not have any subsidiaries (as
defined in Section 3.1(g)) except as set forth in the Registration Statement and
in the Company's most recent Form 10-K, as amended, including the accompanying
financial statements (the "Form 10-K"), or in the Company's most recent Form
10-Q (the "Form 10-Q"), or on Schedule 3.1(g) attached hereto. The Company and
each such subsidiary is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary
except for any jurisdiction in which the failure to be so qualified will not
have a Material Adverse Effect.

                  (b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue and sell the Shares in accordance with the terms hereof. The execution,
delivery and performance of this Agreement by the Company and the consummation
by it of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action, and, except as contemplated by
Section 4.4(b), no further consent or authorization of the Company or its Board
of Directors or stockholders is required. This Agreement has been duly executed
and delivered by the Company. This Agreement constitutes, or shall constitute
when executed and delivered, a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.

                  (c) Capitalization. The authorized capital stock of the
Company and the shares thereof issued and outstanding as of the date hereof are
set forth in the Registration Statement or in the Form 10-K. All of the
outstanding shares of the Common Stock have been duly and validly authorized,
and are fully paid and non-assessable. Except as set forth in this Agreement
including Schedule 3.1(c), as of the date hereof no shares of Common Stock are
entitled to preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company. Furthermore,
except as set forth in this Agreement including Schedule 3.1(c), as of the date
hereof there are no contracts, commitments, understandings, or arrangements by
which the Company is or may become bound to issue additional shares of the
capital stock of the Company or options, securities or rights convertible into
shares of capital stock of the Company. Except for customary transfer
restrictions contained in agreements entered into by the Company in order to

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sell restricted securities or as set forth in Schedule 3.1(c), as of the date
hereof, the Company is not a party to any agreement granting registration rights
to any person with respect to any of its equity or debt securities. The Company
is not a party to, and it has no knowledge of, any agreement restricting the
voting or transfer of any shares of the capital stock of the Company. The offer
and sale of all capital stock, convertible securities, rights, warrants, or
options of the Company issued prior to the Closing complied with all applicable
federal and state securities laws, and no stockholder has a right of rescission
or damages with respect thereto which would have a Material Adverse Effect. The
Company has furnished or made available to the Purchaser true and correct copies
of the Company's Certificate of Incorporation and in effect on the date hereof
(the "Charter"), and the Company's Bylaws as in effect on the date hereof (the
"Bylaws").

                  (d) Issuance of Shares. The Shares to be issued under this
Agreement have been duly authorized by all necessary corporate action and, when
paid for and issued in accordance with the terms hereof, the Shares shall be
validly issued and outstanding, fully paid and non-assessable, and the Purchaser
shall be entitled to all rights accorded to a holder of Common Stock.

                  (e) No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated herein do not (i) violate any provision of the
Company's Charter or Bylaws, (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Company is a party, (iii) create or impose a lien, charge or encumbrance on any
property of the Company under any agreement or any commitment to which the
Company is a party or by which the Company is bound or by which any of its
respective properties or assets are bound, or (iv) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Company or any of its subsidiaries or by which any property or asset of
the Company or any of its subsidiaries are bound or affected, except, in all
cases (other than violations pursuant to clauses (i) and (iv) (to the extent of
federal securities law)), for such conflicts, defaults, terminations,
amendments, acceleration, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect. The Company is
not required under federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement, or issue and sell the Shares in
accordance with the terms hereof (other than any filings which may be required
to be made by the Company with the Commission, or the Nasdaq National Market
subsequent to the Closing, and, any registration statement which may be filed
pursuant hereto); provided that, for purpose of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchaser herein.

                  (f) Commission Documents, Financial Statements. The Common
Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and since
May 1, 1999, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the

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Commission pursuant to the reporting requirements of the Exchange Act, including
material filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of
the foregoing including filings incorporated by reference therein being referred
to herein as the "Commission Documents"). The Company has delivered or made
available to the Purchaser true and complete copies of the Commission Documents
filed with the Commission since December 31, 1999 and prior to the Closing Date.
The Company has not provided to the Purchaser any information which, according
to applicable law, rule or regulation, should have been disclosed publicly by
the Company but which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement. The Form 10-K for the year ended
December 31, 1999 complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder and other federal, state and local laws, rules and regulations
applicable to such documents, and the said Form 10-K did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the Commission Documents comply as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements), and fairly present in all material
respects the financial position of the Company and its subsidiaries as of the
dates thereof and the results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).

                  (g) Subsidiaries. The Commission Documents or Schedule 3.1(g)
attached hereto set forth each subsidiary of the Company as of the date hereof,
showing the jurisdiction of its incorporation or organization and showing the
percentage of each person's ownership of the outstanding stock or other
interests of such subsidiary. For the purposes of this Agreement, "subsidiary"
shall mean any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other subsidiaries. Except as set forth in the Commission
Documents or the Commission Filings, none of such subsidiaries is a "significant
subsidiary" as defined in Regulation S-X.

                  (h) No Material Adverse Effect. Since September 30, 2000, the
Company has not experienced or suffered any Material Adverse Effect.

                  (i) No Undisclosed Liabilities. Except as disclosed on the
Commission Documents or the Commission Filings, the Company has no liabilities,
obligations, claims or losses (whether liquidated or unliquidated, secured or
unsecured, absolute, accrued, contingent or otherwise) that would be required to
be disclosed on a balance sheet of the Company or any subsidiary (including the
notes thereto) in conformity with GAAP not disclosed in the Commission
Documents, other than those incurred in the ordinary course of the Company's or
its

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subsidiaries respective businesses since September 30, 2000 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect.

                  (j) No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not been
so publicly announced or disclosed and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect.

                  (k) Indebtedness. Schedule 3.1(k) and the Commission Filings
set forth as of September 30, 2000 all outstanding secured and unsecured
Indebtedness of the Company, or for which the Company or any subsidiary has
commitments. For the purposes of this Agreement, "Indebtedness" shall mean (a)
any liabilities for borrowed money or amounts owed in excess of $100,000 (other
than trade accounts payable and liabilities related to clinical expenses
incurred in the ordinary course of business), (b) all guaranties, endorsements
and other contingent obligations in respect of Indebtedness of others, whether
or not the same are or should be reflected in the Company's balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business; and (c) the present value of any lease payments in excess of $100,000
due under leases required to be capitalized in accordance with GAAP. Neither the
Company or any subsidiary is in default with respect to any Indebtedness.

                  (l) Title to Assets. Each of the Company and its subsidiaries
has good and marketable title to all of its real and personal property reflected
in the Commission Documents, free of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those indicated in the
Commission Documents or the Commission Filings or such that could not reasonably
be expected to cause a Material Adverse Effect. All said leases of the Company
and each of its subsidiaries are valid and subsisting and in full force and
effect in all material respects.

                  (m) Actions Pending. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company which questions the validity of this Agreement or
the transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. There is no action, suit, claim, investigation or proceeding
pending or, to the knowledge of the Company, threatened, against or involving
the Company or any subsidiary, or any of their respective properties or assets
which, if adversely determined, is reasonably likely to result in a Material
Adverse Effect, except as described in the Commission Filings or Commission
Documents.

                  (n) Compliance with Law. The business of the Company has been
and is presently being conducted in accordance with all applicable federal,
state and local governmental laws, rules, regulations and ordinances, except
such that do not cause a Material Adverse Effect. Each of the Company and its
subsidiaries has all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted unless the failure to possess
such franchises, permits, licenses,

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<PAGE>   11

consents and other governmental or regulatory authorizations and approvals,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.

                  (o) Certain Fees. No brokers, finders or financial advisory
fees or commissions will be payable by the Company with respect to the
transactions contemplated by this Agreement.

                  (p) Disclosure. To the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchaser by or on behalf of the Company in
connection with the transactions contemplated by this Agreement contain any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements made herein or therein, in the light of the
circumstances under which they were made herein or therein, not misleading.

                  (q) Operation of Business. The Company or its subsidiaries
owns or has a valid right to use all patents, trademarks, service marks, trade
names, copyrights, licenses and authorizations as set forth in the Commission
Documents or the Commission Filings and all rights with respect to the
foregoing, which are necessary for the conduct of its business as now conducted
without any conflict with the rights of others, except to the extent set forth
in the Commission Documents or the Commission Filings that a Material Adverse
Effect could not reasonably be expected to result from such conflict.

                  (r) Environmental Compliance. Except as disclosed in the
Commission Filings, the Company has obtained all approvals, authorization,
certificates, consents, licenses, orders and permits or other similar
authorizations of all governmental authorities, or from any other person, that
are required under any Environmental Laws except where the failure to do so
would not have a Material Adverse Effect. "Environmental Laws" shall mean all
applicable laws relating to the protection of the environment including, without
limitation, all requirements pertaining to reporting, licensing, permitting,
controlling, investigating or remediating emissions, discharges, releases or
threatened releases of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid or
gaseous in nature, into the air, surface water, groundwater or land, or relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. Except for such instances as would not individually or in the
aggregate have a Material Adverse Effect, to the best of the Company's
knowledge, there are no past or present events, conditions, circumstances,
incidents, actions or omissions relating to or in any way affecting the Company
that violate or could reasonably be expected to violate any Environmental Law
after the Closing or that could reasonably be expected to give rise to any
environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance.

                  (s) Material Agreements. Except as set forth in the Commission
Documents and this Agreement, the Company is not a party to any written or oral
contract, instrument,

                                      -8-
<PAGE>   12

agreement, commitment, obligation, plan or arrangement, a copy of which would be
required to be filed with the Commission as an exhibit to a registration
statement on Form S-3 or applicable form (collectively, "Material Agreements")
if the Company was registering securities under the Securities Act. The Company
has in all material respects performed all the obligations required to be
performed by it to date under the foregoing agreements, has received no notice
of default and, to the best of the Company's knowledge is not in default under
any Material Agreement now in effect, the result of which could reasonably be
expected to cause a Material Adverse Effect.

                  (t) Transactions with Affiliates. Except as disclosed in the
Commission documents or the Commission Filings, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions exceeding $250,000 between (a) the Company, or
any of its customers (excluding agreements related to the purchase or lease of
the Company's products) or suppliers on the one hand, and (b) on the other hand,
any officer, employee, consultant or director of the Company, or any person who
would be covered by Item 404(a) of Regulation S-K or any corporation or other
entity controlled by such officer, employee, consultant, director or person.

                  (u) Securities Act of 1933. The Company has complied in all
material respects with all applicable federal and state securities laws in
connection with the offer, issuance and sale of the Shares hereunder.

                      (i) Each Prospectus included as part of the Registration
Statement as originally filed or as part of any amendment or supplement thereto,
or filed pursuant to Rule 424 under the Securities Act, complied when so filed
in all material respects with the provisions of the Securities Act. The
Commission has not issued any order preventing or suspending the use of any
Prospectus.

                      (ii) The Company meets the requirements for the use of
Form S-3 under the Securities Act. The Registration Statement in the form in
which it became effective and also in such form as it may be when any
post-effective amendment thereto became effective and the Prospectus and any
supplement or amendment thereto when filed with the Commission under Rule 424(b)
under the Securities Act, complied in all material respects with the provisions
of the Securities Act and did not at any such times contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein (in the case of the
Prospectus, in the light of the circumstances under which they made) not
misleading, except that this representation and warranty does not apply to
statements in or omissions from the Registration Statement or the Prospectus
made in reliance upon and in conformity with information relating to the
Purchaser furnished to the Company in writing by or on behalf of the Purchaser
expressly for use therein.

                      (iii) The Company has not distributed and, prior to the
completion of the sale of the Shares to the Purchaser, will not distribute any
offering material in connection with the offering and sale of the Shares other
than the Registration Statement, the Prospectus or other materials, if any,
permitted by the Securities Act.

                  (v) Employees. As of the date hereof, the Company has no
collective bargaining arrangements or agreements covering any of its employees.
Each of the Company

                                      -9-
<PAGE>   13

and its subsidiaries requires its officers, technical employees and certain
consultants to enter into agreements regarding proprietary information and
assignment of inventions, or other similar agreements containing restrictive
covenants. As of the date hereof, since December 31, 1999, no officer,
consultant or key employee of the Company whose termination, either individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect, has terminated or, to the knowledge of the Company, has any present
intention of terminating his or her employment or engagement with the Company.

                  (w) Use of Proceeds. The proceeds from the sale of the Shares
will be used by the Company and its subsidiaries for the purposes set forth in
the Registration Statement.

                  (x) Public Utility Holding Company Act and Investment Company
Act Status. The Company is not a "holding company" or a "public utility company"
as such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.

                  (y) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan (as defined below) by the
Company which is or would have a Material Adverse Effect. The execution and
delivery of this Agreement and the issue and sale of the Shares will not involve
any transaction which is subject to the prohibitions of Section 406 of ERISA or
in connection with which a tax could be imposed pursuant to Section 4975 of the
Internal Revenue Code of 1986, as amended, provided that, if any of the
Purchaser, or any person or entity that owns a beneficial interest in any of the
Purchaser, is an "employee pension benefit plan" (within the meaning of Section
3(2) of ERISA) with respect to which the Company is a "party in interest"
(within the meaning of Section 3(14) of ERISA), the requirements of Sections
407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this Section
3.1(y), the term "Plan" shall mean an "employee pension benefit plan" (as
defined in Section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or by any trade
or business, whether or not incorporated, which, together with the Company, is
under common control, as described in Section 414(b) or (c) of the Code.

                  (z) Acknowledgment Regarding Purchaser's Purchase of Shares.
The Company acknowledges and agrees that the Purchaser is acting solely in the
capacity of arm's length purchaser with respect to this Agreement and the
transactions contemplated hereunder. The Company further acknowledges that the
Purchaser is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to this Agreement and the transactions
contemplated hereunder and any advice given by the Purchaser or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereunder is merely incidental to the Purchaser's purchase of the
Shares.

                                      -10-
<PAGE>   14

                  SECTION 3.2 Representations and Warranties of the Purchaser.
The Purchaser hereby makes the following representations and warranties to the
Company:

                  (a) Organization and Standing of the Purchaser. The Purchaser
is a limited liability company duly organized, validly existing and in good
standing under the laws of the Commonwealth of the Bahamas.

                  (b) Authorization and Power. The Purchaser has the requisite
corporate power and authority to enter into and perform this Agreement and to
purchase the Shares in accordance with the terms hereof. The execution, delivery
and performance of this Agreement by Purchaser and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action, and no further consent or authorization of the Purchaser, its
Board of Directors or stockholders is required. This Agreement constitutes, or
shall constitute when executed and delivered, a valid and binding obligation of
the Purchaser enforceable against the Purchaser in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership, or similar laws relating to, or affecting generally the
enforcement of, creditor's rights and remedies or by other equitable principles
of general application.

                  (c) No Conflicts. The execution, delivery and performance of
this Agreement and the consummation by the Purchaser of the transactions
contemplated hereby and thereby or relating hereto do not and will not (i)
result in a violation of such Purchaser's charter documents or bylaws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of any material agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Purchaser is a party, (iii) create or
impose a lien, charge or encumbrance on any property of the Purchaser under any
agreement or any commitment to which the Purchaser is party or by which the
Purchaser is or by which any of its properties or assets are bound or (iv)
result in a violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to the Purchaser or its
properties, except for such conflicts, defaults and violations as would not,
individually or in the aggregate, prohibit or otherwise interfere with the
ability of the Purchaser to enter into and perform its obligations under this
Agreement in any material respect. The Purchaser is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement or to purchase the Shares in accordance
with the terms hereof, provided that for purposes of the representation made in
this sentence, the Purchaser is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.

                  (d) Information. The Purchaser and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Shares which have been requested by the Purchaser. The Purchaser and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. The Purchaser has sought such accounting, legal and tax advice as it
has considered necessary to make an informed investment decision with respect to
its acquisition of the Shares. Purchaser understands that it (and not the
Company) shall be responsible for its own tax liabilities that may arise as a
result of this investment or the transactions contemplated by this Agreement.

                                      -11-
<PAGE>   15

                  (e) Selling Restriction. The Purchaser has the right to sell
shares of the Common Stock during the Investment Period. The Purchaser
covenants, however, that prior to and during the Investment Period, neither the
Purchaser nor any of its affiliates nor any entity managed by the Purchaser will
ever sell shares of Common Stock of the Company other than what the Purchaser
has accumulated to purchase under the terms of this Agreement in any accounts
directly or indirectly managed by the Purchaser or any affiliate of the
Purchaser or any entity managed by the Purchaser. In addition, on a daily
Trading Day basis, the Purchaser agrees to restrict the volume of sales of
Shares to no more than thirty-five (35%) of the total trading volume of the
Common Stock, as reported on Bloomberg Financial LP using HP Function, for such
Trading Day.

                                   ARTICLE IV

                                    COVENANTS

         The Company covenants with the Purchaser as follows, which covenants
are for the benefit of the Purchaser and its permitted assignees, that during
the term of this Agreement:

                  SECTION 4.1 Securities Compliance. The Company shall notify
the Commission and the Nasdaq National Market or an Alternate Market, if
applicable, in accordance with their rules and regulations, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Shares to the Purchaser.

                  SECTION 4.2 Registration and Listing. The Company will take
all action necessary to cause its Common Stock to continue to be registered
under Sections 12(b) or 12(g) of the Exchange Act, will comply in all respects
with its reporting and filing obligations under the Exchange Act, and will not
take any action or file any document (whether or not permitted by the Securities
Act or the rules promulgated thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under the Exchange Act or Securities Act, except as permitted herein. The
Company will take all action necessary to continue the listing or trading of its
Common Stock and the listing of the Shares purchased by Purchaser hereunder on
the Nasdaq National Market or an Alternate Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Nasdaq National Market or an Alternate Market.

                  SECTION 4.3 Registration Statement. Before the Company shall
issue a Draw Down Notice, the Company shall have caused a sufficient number of
shares of Common Stock to be authorized and registered to cover the Shares to be
issued in connection with this Agreement.

                  SECTION 4.4 Compliance with Laws.

                  (a) The Company shall comply with all applicable laws, rules,
regulations and orders, noncompliance with which could have a Material Adverse
Effect.

                                      -12-
<PAGE>   16

                  (b) The Company will not be obligated to issue and the
Purchaser will not be obligated to purchase any shares of the Common Stock which
would result in the issuance under this Agreement of more than nineteen and
nine-tenths percent (19.9%) of the issued and outstanding shares of the Common
Stock, unless such issuance has been duly approved by the shareholders of the
Company.

                  SECTION 4.5 Keeping of Records and Books of Account. The
Company shall keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied, reflecting
all financial transactions of the Company and its subsidiaries, and in which,
for each fiscal year, all proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other purposes in connection
with its business shall be made.

                  SECTION 4.6 Reporting Requirements. Upon written request, the
Company shall furnish or make available the following to the Purchaser so long
as such Purchaser shall be obligated hereunder to purchase Shares:

                  (a) Quarterly Reports filed with the Commission on Form 10-Q
as soon as available, and in any event within forty-five (45) days after the end
of each of the first three fiscal quarters of the Company; and

                  (b) Annual Reports filed with the Commission on Form 10-K as
soon as available, and in any event within ninety (90) days after the end of
each fiscal year of the Company.

                  SECTION 4.7 Non-public Information. Neither the Company nor
any of its officers or agents shall disclose any material non-public information
about the Company to the Purchaser and neither the Purchaser nor any of its
affiliates, officers or agents will solicit any material non-public information
from the Company.

                  SECTION 4.8 Effective Registration Statement. If it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
Company will endeavor to cause the Registration Statement or such post-effective
amendment to become effective as soon as reasonably practicable and will advise
the Purchaser promptly and, if requested by the Purchaser, will confirm such
advice in writing, when it receives notice that the Registration Statement or
such post-effective amendment has become effective.

                  SECTION 4.9 No Stop Orders. The Company will advise the
Purchaser promptly and, if requested by the Purchaser, will confirm such advice
in writing: (i) of its receipt of notice of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prospectus or
for additional information; (ii) of its receipt of notice of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) of its becoming aware of the happening of any event,
which makes any statement of a material fact made in the Registration Statement
or the Prospectus (as then amended or supplemented) untrue or which

                                      -13-
<PAGE>   17

requires the making of any additions to or changes in the Registration Statement
or the Prospectus (as then amended or supplemented) in order to state a material
fact required by the Securities Act or the regulations thereunder to be stated
therein or necessary in order to make the statements therein not misleading, or
of the necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Securities Act or any other law. If at any time
the Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make all reasonable efforts to obtain
the withdrawal of such order at the earliest possible time.

                  SECTION 4.10 Amendments to the Registration Statement. The
Company will not (i) file any amendment to the Registration Statement or make
any amendment or supplement to the Prospectus which relates to the Purchaser,
this Agreement or the transactions contemplated hereby of which the Purchaser
shall not previously have been advised or to which the Purchaser shall
reasonably object after being so advised or (ii) so long as, in the reasonable
opinion of counsel for the Purchaser, a Prospectus is required to be delivered
in connection with any purchase of Shares by the Purchaser, file any
information, documents or reports pursuant to the Exchange Act without
delivering a copy of such information, documents or reports to the Purchaser,
promptly following such filing.

                  SECTION 4.11 Prospectus Delivery. The Company shall file a
prospectus supplement to its Registration Statement one Trading Day prior to
each Settlement Date, and will deliver to the Purchaser, without charge, in such
quantities as reasonably requested by the Purchaser, copies of each form of
Prospectus and prospectus supplement on each Settlement Date. The Company
consents to the use of the Prospectus (and of any amendment or supplement
thereto) in accordance with the provisions of the Securities Act and with the
securities or Blue Sky laws of the jurisdictions in which the Shares may be sold
by the Purchaser, in connection with the offering and sale of the Shares and for
such period of time thereafter as the Prospectus is required by the Securities
Act to be delivered in connection with sales of the Shares. If during such
period of time any event shall occur that in the judgment of the Company or in
the opinion of counsel for the Purchaser is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus to comply with the Securities Act or any other law, the
Company will forthwith prepare and, subject to the provisions of Section 4.10
above, file with the Commission an appropriate supplement or amendment thereto,
and will expeditiously furnish to the Purchaser a reasonable number of copies
thereof.

                  SECTION 4.12 Other Financing. If the Company enters into any
other financing agreement, the primary purpose of which would be to obtain
equity financing for the Company (an "Other Financing"), during a Draw Down
Pricing Period, the Company shall promptly notify the Purchaser of such Other
Financing and the Purchaser shall have the options set forth in Section 6.1(k)
hereof. If the Company enters into the Other Financing between Draw Down Pricing
Periods, the Company shall promptly notify the Purchaser of such Other Financing
and the Purchaser shall have the option, which option shall be exercised no
later than five (5) Trading Days after receipt by the Purchaser of the notice of
the Other Financing, to purchase up to the Draw Down Amount that would be
applicable under this Agreement based on the price per share

                                      -14-
<PAGE>   18

to be paid for the Common Stock in the Other Financing on the same, absolute
terms and conditions contemplated in the Other Financing. If the Purchaser does
not exercise its purchase option in writing before 8:00 p.m. (eastern time) on
the fifth (5th) Trading Day after receipt of such notice, the Company shall not
be obligated to sell shares of the Common Stock to the Purchaser under the terms
of the preceding sentence and the Company shall have the right to close the
Other Financing on the scheduled closing date with a third party, provided that
all of the terms and conditions of such closing are similar in all material
respects to those provided to the Purchaser. As used herein, "Other Financing"
shall not include the Company (i) entering into a loan, credit or lease facility
with a bank or financing institution (including any equity component thereof),
(ii) issuing shares of Common Stock in connection with the Company's current or
future option plans (as the same may be amended from time to time), stock
purchase plans, rights plans, currently outstanding warrants or options,
employment or consulting agreements, or increasing the number of shares
available under any such plans (the primary purpose of which is not to raise
equity), and (iii) issuing shares of Common Stock and/or preferred stock in
connection with the formation and maintenance of strategic partnerships,
alliances or joint ventures, the merger or other consolidation or combination of
the Company with another company or entity in which the Company survives or the
acquisition of products, licenses or other assets (each a "Permitted
Transaction").

                  SECTION 4.13 Notices. The Company shall immediately notify the
Purchaser that (i) a Material Adverse Effect or Material Change in Ownership has
occurred or (ii) the Company has entered into an Other Financing (as defined in
Section 4.12 hereof).

                                   ARTICLE V

               CONDITIONS TO CLOSING, DRAW DOWNS AND CALL OPTIONS

                  SECTION 5.1 Conditions Precedent to the Obligation of the
Company to Issue a Draw Down Notice or Grant a Call Option and Sell the Shares.
The obligation hereunder of the Company to issue a Draw Down Notice or grant a
Call Option and sell the Shares to the Purchaser is subject to the satisfaction
or waiver, at or before each Draw Down or Call Option request (the "Draw Down
Exercise Date"), of each of the conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion.

                  (a) Accuracy of the Purchaser's Representations and
Warranties. The representations and warranties of the Purchaser in this
Agreement shall be true and correct in all material respects as of the date when
made and as of each Draw Down Exercise Date and each Settlement Date as though
made at that time, except for representations and warranties that are expressly
made as of a particular date.

                  (b) Registration Statement. The Company shall have Shares
registered under the Registration Statement which are valued at the time of the
Draw Down Notice or Call Option in an amount equal to or in excess of the dollar
amount value of Shares issuable pursuant to such Draw Down Notice or Call
Option. The Registration Statement registering the offer and sale of the Shares
shall have been declared effective by the Commission and shall have been amended

                                      -15-
<PAGE>   19
or supplemented, as required, to disclose the sale of the Shares prior to each
Settlement Date, as applicable, and there shall be no stop order suspending the
effectiveness of the Registration Statement.

                  (c) Performance by the Purchaser. The Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Purchaser at or prior to each Settlement Date.

                  (d) No Injunction. No statute, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

                  (e) No Suspension, Etc. Trading in the Common Stock shall not
have been suspended by the Commission or the Nasdaq National Market or an
Alternate Market (except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated prior to such
Draw Down Exercise Date and applicable Settlement Date), and, at any time prior
to each Draw Down Exercise Date, trading in securities generally as reported on
the Nasdaq National Market or an Alternate Market shall not have been suspended
or limited, or minimum prices shall not have been established on securities
whose trades are reported by the Nasdaq National Market or an Alternate Market,
nor shall a banking moratorium have been declared either by the United States or
New York State authorities, nor shall there have occurred any material outbreak
or escalation of hostilities or other national or international calamity or
crisis of such magnitude in its effect on, or any material adverse change in any
financial market which, in each case, in the judgment of the Company, makes it
impracticable or inadvisable to issue the Shares.

                  (f) No Proceedings or Litigation. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Company, or any of the officers, directors or affiliates
of the Company seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with such
transactions.

                  SECTION 5.2 Conditions Precedent to the Obligation of the
Purchaser to Close. The obligation hereunder of the Purchaser to enter this
Agreement is subject to the satisfaction or waiver, at or before the Closing, of
each of the conditions set forth below. These conditions are for the Purchaser's
sole benefit and may be waived by the Purchaser at any time in its sole
discretion.

                  (a) Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
Date, as though made at that time, except for representations and warranties
that speak as of a particular date.

                                      -16-
<PAGE>   20

                  (b) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing.

                  (c) Effective Registration Statement. The Registration
Statement registering the offer and sale of the Shares shall have been declared
effective by the Commission and shall have been amended or supplemented, as
required, to disclose the sale of the Shares prior to each Settlement Date, as
applicable, and there shall be no stop order suspending the effectiveness of the
Registration Statement.

                  (d) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.

                  (e) No Proceedings or Litigation. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Company, or any of the officers, directors or affiliates
of the Company seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with such
transactions.

                  (f) Opinion of Counsel, Etc. At the Closing, the Purchaser
shall have received an opinion of counsel to the Company, dated the date of
Closing, in the form of Exhibit A hereto, a secretary's certificate, dated the
date of Closing, in the form of Exhibit B hereto, and such other certificates
and documents as the Purchaser or its counsel shall reasonably require incident
to the Closing.

                  SECTION 5.3 Conditions Precedent to the Obligation of the
Purchaser to Accept a Draw Down or Call Option Grant and Purchase the Shares.
The obligation hereunder of the Purchaser to accept a Draw Down Notice or
exercise a Call Option grant and to acquire and pay for the Shares on the
Settlement Date is subject to the satisfaction or waiver, at or before each Draw
Down Exercise Date and each Settlement Date, as applicable, of each of the
conditions set forth below. The conditions are for the Purchaser's sole benefit
and may be waived by the Purchaser at any time in its sole discretion.

                  (a) Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Draw
Down Exercise Date and Settlement Date, as applicable, as though made at that
time, except for representations and warranties that speak as of a particular
date.

                  (b) Registration Statement. The Company shall have Shares
registered under the Registration Statement which are valued at the time of the
Draw Down Notice or Call Option in an amount equal to or in excess of the dollar
amount value of Shares issuable pursuant to such Draw Down Notice or Call
Option. The Registration Statement registering the offer and sale of

                                      -17-
<PAGE>   21

the Shares shall have been declared effective by the Commission and shall have
been amended or supplemented, as required, to disclose the sale of the Shares
prior to each Draw Down Exercise Date or each Settlement Date, as applicable,
and there shall be no stop order suspending the effectiveness of the
Registration Statement.

                  (c) No Suspension, Etc. Trading in the Common Stock shall not
have been suspended by the Commission or the Nasdaq National Market or an
Alternate Market (except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated prior to each
Draw Down Exercise Date), and, at any time prior to such Draw Down Exercise Date
or such Settlement Date, trading in securities generally as reported by the
Nasdaq National Market or an Alternate Market shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by the Nasdaq National Market or an Alternate Market, nor
shall a banking moratorium have been declared either by the United States or New
York State authorities, nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity or crisis
of such magnitude in its effect on, or any material adverse change in any
financial market which, in each case, in the judgment of the Purchaser, makes it
impracticable or inadvisable to purchase the Shares. The Common Stock shall be
listed on Nasdaq or an Alternate Market.

                  (d) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Draw Down Exercise Date and
the Settlement Date and shall have delivered the Compliance Certificate
substantially in the form attached hereto as Exhibit C.

                  (e) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.

                  (f) No Proceedings or Litigation. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Company, or any of the officers, directors or affiliates
of the Company seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with such
transactions.

                  (g) No Material Adverse Effect; No Material Change in
Ownership. No Material Adverse Effect or Material Change in Ownership shall have
occurred.

                                      -18-
<PAGE>   22

                                   ARTICLE VI

                          DRAW DOWN TERMS; CALL OPTION

                  SECTION 6.1 Draw Down Terms. Subject to the satisfaction of
the conditions set forth in this Agreement, the parties agree as follows:

                  (a) The Company, may, in its sole discretion, issue a Draw
Down Notice with respect to a Draw Down during each Draw Down Pricing Period of
up to (i) $500,000 if the Threshold Price is equal to or greater than $3.00 and
less than $4.00; (ii) $750,000 if the Threshold Price is equal to or greater
than $4.00 and up to an additional $250,000 for every $2.00 increase in the
Threshold Price above $4.00, for a maximum Draw Down Amount during each Draw
Down Pricing Period of up to $1,500,000; provided, that the Company may, in its
sole discretion, issue a Draw Down Notice with respect to any Draw Down Amount
at any Threshold Price or any Draw Down Discount Percentage pursuant to terms
mutually agreed upon by the Purchaser and the Company, which Draw Down the
Purchaser will be obligated to accept. Prior to issuing any Draw Down Notice,
the Company shall have Shares registered under the Registration Statement which
are valued in an amount equal to or in excess of the Draw Down Amount.

                  (b) The number of Shares to be issued in connection with each
Draw Down shall be equal to the sum of the quotients (for each Trading Day of
the Draw Down Pricing Period for which the VWAP equals or exceeds the Threshold
Price) of (x) 1/20th (or such other fraction based on the length of the Draw
Down Pricing Period) of the Draw Down Amount divided by (y) the applicable Draw
Down Discount Percentage multiplied by the VWAP of the Common Stock for such
Trading Day.

                  (c) Only one Draw Down shall be allowed in each Draw Down
Pricing Period. Each Draw Down Pricing Period shall consist of two (2) periods
of ten (10) consecutive Trading Days (each, a "Settlement Period").

                  (d) The number of Shares purchased by the Purchaser with
respect to each Draw Down shall be determined on a daily basis during each Draw
Down Pricing Period and settled on the second Trading Day following the end of
each Settlement Period (the "Settlement Date").

                  (e) There shall be a minimum of five (5) Trading Days between
Draw Downs, unless otherwise mutually agreed upon between the Purchaser and the
Company.

                  (f) There shall be a maximum of twenty-four (24) Draw Downs
during the term of this Agreement.

                  (g) Each Draw Down will expire on the end of the last Trading
Day of each Draw Down Pricing Period.

                  (h) If the VWAP on a given Trading Day is less than the
Threshold Price, then the total amount of the Draw Down for the relevant Draw
Down Pricing Period will be reduced by 1/20th (or such other fraction based on
the length of the Draw Down Pricing Period). At no time shall the Threshold
Price be set below $3.00, unless mutually agreed upon by the Company and the
Purchaser. If trading in the Common Stock is suspended for any reason for more
than three (3) hours in any Trading Day, at the Purchaser's option, the price of
the Common Stock shall be deemed to be below the Threshold Price for that
Trading Day and the Draw Down for the relevant Draw Down Pricing Period shall be
reduced by 1/20th (or such other fraction based on the length of the Draw Down
Pricing Period). Notwithstanding anything

                                      -19-
<PAGE>   23

in the foregoing to the contrary, for each Trading Day during the Draw Down
Pricing Period that the VWAP is less than the Threshold Price or is deemed to be
below the Threshold Price pursuant to the immediately preceding sentence, the
Purchaser may elect in its sole discretion to purchase Shares at a price equal
to the Threshold Price multiplied by the Draw Down Discount Percentage at the
end of such Draw Down Pricing Period. The Purchaser will inform the Company via
facsimile transmission no later than 8:00 p.m. (eastern time) on the last
Trading Day of such Draw Down Pricing Period as to the number of Shares, if any,
the Purchaser chooses to purchase under such circumstances set forth in this
Section 6.1(h).

                  (i) The Company must inform the Purchaser via facsimile
transmission as to the Draw Down Amount the Company wishes to exercise before
commencement of trading on the first Trading Day of the Draw Down Pricing Period
(the "Draw Down Notice"), substantially in the form attached hereto as Exhibit
D. In addition to the Draw Down Amount, the Company shall set the Threshold
Price with each Draw Down Notice and shall designate the first Trading Day of
the Draw Down Pricing Period. Notwithstanding anything in the foregoing to the
contrary, if the Company wishes the date of the Draw Down Notice to be the first
day of the Draw Down Pricing Period, the Draw Down Notice must be delivered to
the Purchaser and receipt of such Draw Down Notice confirmed by the Purchaser
prior to the commencement of trading on the date of such Draw Down Notice.

                  (j) On each Settlement Date, the Company shall deliver the
Shares purchased by the Purchaser to the Purchaser or to The Depositary Trust
Company ("DTC") on the Purchaser's behalf via the Deposit Withdrawal Agent
Commission system ("DWAC"), and upon receipt of the Shares, the Purchaser shall
cause payment therefor to be made to the account designated by the Company by
wire transfer of immediately available funds provided that the Shares are
received no later than 1:00 p.m., eastern time, or next day available funds if
the Shares are received thereafter.

                  (k) If during any Draw Down Pricing Period the Company shall
enter into an Other Financing (other than shares of Common Stock issued under
this Agreement or pursuant to a Permitted Transaction), the Purchaser may in its
sole discretion (i) purchase the Draw Down Amount of shares of Common Stock
and/or exercise Call Options granted during such Draw Down Pricing Period on the
terms at which the Company issued shares of Common Stock in the Other Financing
during such Draw Down Pricing Period, (ii) purchase the Draw Down Amount of
shares of Common Stock and/or exercise Call Options granted during such Draw
Down Pricing Period at the applicable Draw Down Discount Percentage times the
VWAP for such Draw Down Pricing Period, or (iii) elect not to purchase any
Shares during such Draw Down Pricing Period. The Purchaser shall notify the
Company of its election on the Trading Day preceding the Settlement Date.

                  (l) If on the Settlement Date, the Company fails to deliver
the Shares to be purchased by the Purchaser, and such failure continues for ten
(10) Trading Days, the Company shall pay, in cash or restricted shares of Common
Stock, at the option of the Purchaser, as liquidated damages and not as a
penalty to the Purchaser an amount equal to two percent (2%) of the Draw Down
Amount for the initial thirty (30) days and each additional thirty (30) day
period thereafter until such failure has been cured, which shall be pro rated
for such periods less than thirty (30) days (the "Periodic Amount"). Cash
payments to be made pursuant to this clause (1)

                                      -20-
<PAGE>   24

shall be due and payable immediately upon demand in immediately available cash
funds. Certificates evidencing the restricted shares of Common Stock shall be
delivered immediately upon demand. The parties agree that the Periodic Amount
represents a reasonable estimate on the part of the parties, as of the date of
this Agreement, of the amount of damages that may be incurred by the Purchaser
if the Company fails to deliver the Shares on the Settlement Date. If the
Purchaser elects to receive shares of Common Stock instead of cash, the
Purchaser shall have the right to demand registration once within twelve (12)
months of the date of issuance of such shares of Common Stock and piggyback
registration rights if the Company files a separate registration statement.

                  SECTION 6.2 Purchaser's Call Option.

                  (a) During each Draw Down Pricing Period, the Company at its
sole discretion may grant to the Purchaser the right to exercise multiple call
options of up to twice the applicable Draw Down Amount (a "Call Option"). The
amount of the Call Option shall be set forth in the Draw Down Notice. For each
Trading Day during a Draw Down Pricing Period, the Purchaser may exercise a Call
Option by providing notice to the Company of the exercise of a Call Option (the
"Call Option Notice"), substantially in the form attached hereto as Exhibit E.

                  (b) The number of shares of Common Stock to be issued in
connection with each Call Option shall equal the quotient of (i) the amount of
the Call Option exercised and (ii) the product of the applicable Draw Down
Discount Percentage and the greater of (A) the VWAP for the Common Stock on the
day the Purchaser issues its Call Option Notice and (B) the Threshold Price.

                  (c) Each Call Option exercised shall be settled on the
applicable Settlement Date.

                  (d) The Threshold Price designated by the Company in its Draw
Down Notice shall apply to each Call Option.

                  (e) For each Call Option that the Purchaser exercises pursuant
to this Section 6.2, the Purchaser must issue via facsimile a Call Option Notice
to the Company no later than 8:00 p.m. (eastern time) on the day such Call
Option is exercised. If the Purchaser does not exercise a Call Option by 8:00
p.m. (eastern time) on the last day of the applicable Draw Down Pricing Period,
the Purchaser's Call Options with respect to that Draw Down Pricing Period shall
terminate.

                                  ARTICLE VII

                                   TERMINATION

                  SECTION 7.1 Termination by Mutual Consent. The term of this
Agreement shall be the earlier of (i) twenty-eight (28) months from the date of
execution of this Agreement (the "Investment Period"), (ii) the date that all of
the shares of Common Stock registered under the Registration Statement have been
issued and sold and (iii) the date that the Purchaser has purchased in the
aggregate $24,000,000 of shares of the Common Stock pursuant to all Draw

                                      -21-
<PAGE>   25

Downs issued and Call Options granted and exercised. This Agreement may be
terminated at any time by mutual consent of the parties.

                  SECTION 7.2 Other Termination. The Company shall inform the
Purchaser, and the Purchaser shall have the right to terminate this Agreement
within the subsequent thirty (30) days (the "Event Period"), if (x) the Company
enters into an Other Financing (other than a Permitted Transaction) without the
prior consent of the Purchaser, which consent will not be unreasonably delayed,
conditioned or withheld, which provides for (i) the issuance of Common Stock or
securities convertible, exercisable or exchangeable into Common Stock at a
discount to the then current market price of the Common Stock, except for such
issuance in a public underwritten offering, (ii) a mechanism for the reset of
the purchase price of the Common Stock to below the then current market price of
the Common Stock, or (iii) the issuance of Common Stock with warrants, which
have an exercise price such that together with the price of the Common Stock
would result in the issuance of shares of Common Stock at a per share price
below the then current market price of the Common Stock, or (y) an event
resulting in a Material Adverse Effect or Material Change in Ownership has
occurred. The Purchaser may terminate this Agreement upon one (1) day's notice
during the Event Period.

                  SECTION 7.3 Effect of Termination. In the event of termination
by the Company or the Purchaser, written notice thereof shall forthwith be given
to the other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 7.1 or 7.2 herein, this Agreement shall become
void and of no further force and effect, except as provided in Section 9.9
hereof. Nothing in this Section 7.3 shall be deemed to release the Company or
the Purchaser from any liability for any breach under this Agreement, or to
impair the rights of the Company and the Purchaser to compel specific
performance by the other party of its obligations under this Agreement.

                                  ARTICLE VIII

                                 INDEMNIFICATION

                  SECTION 8.1 General Indemnity.

                  (a) Indemnification by the Company. The Company will indemnify
and hold harmless the Purchaser, each of its directors, fund managers and
officers, and each person, if any, who controls the Purchaser within the meaning
of Section 15 of the Securities Act or Section 20(a) of the Exchange Act from
and against any losses, claims, damages, liabilities and expenses (including
reasonable costs of defense and investigation and all reasonable attorneys'
fees) to which the Purchaser, each of its directors, fund managers and officers,
and each person, if any, who controls the Purchaser may become subject, under
the Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities and expenses (or actions in respect thereof) arise out of or are
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained, or incorporated by reference, in the Registration Statement
relating to Common Stock being sold to the Purchaser (including any prospectus
supplement filed in connection with the transactions contemplated hereunder (the
"Prospectus Supplement") which are a part of it), or

                                      -22-
<PAGE>   26

any amendment or supplement to it, or (ii) the omission or alleged omission to
state in that Registration Statement or any document incorporated by reference
in the Registration Statement, a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
Company shall not be liable under this Section 8.1(a) to the extent that a court
of competent jurisdiction shall have determined by a final judgment (with no
appeals available) that such loss, claim, damage, liability or action resulted
directly from any such acts or failures to act, undertaken or omitted to be
taken by the Purchaser or such person through its bad faith or willful
misconduct; provided, however, that the foregoing indemnity shall not apply to
any loss, claim, damage, liability or expense to the extent, but only to the
extent, arising out of or based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by the Purchaser
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto); and provided, further,
that with respect to the Prospectus, the foregoing indemnity shall not inure to
the benefit of the Purchaser or any such person from whom the person asserting
any loss, claim, damage, liability or expense purchased Common Stock, if copies
of the Prospectus were timely delivered to the Purchaser pursuant hereto and a
copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of the Purchaser or any such person to such person, if required by
law so to have been delivered, at or prior to the written confirmation of the
sale of the Common Stock to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expense.

         The Company will reimburse the Purchaser and each such controlling
person promptly upon demand for any legal or other costs or expenses reasonably
incurred by the Purchaser or any controlling person in investigating, defending
against, or preparing to defend against any such claim, action, suit or
proceeding, except that the Company will not be liable to the extent a claim or
action which results in a loss, claim, damage, liability or expense arises out
of, or is based upon, an untrue statement, alleged untrue statement, omission or
alleged omission, included in any Registration Statement, Prospectus or
Prospectus Supplement or any amendment or supplement thereto in reliance upon,
and in conformity with, written information furnished by the Purchaser to the
Company for inclusion in the Registration Statement, Prospectus or Prospectus
Supplement.

                  (b) Indemnification by the Purchaser. The Purchaser will
indemnify and hold harmless the Company, each of its directors and officers, and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20(a) of the Exchange Act from and against any
expenses (including reasonable costs of defense and investigation and all
attorneys' fees) to which the Company and each director, officer and person, if
any, who controls the Company may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages, liabilities and expenses (or
actions in respect thereof) arise out of or are based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any Prospectus or Prospectus Supplement or any
amendment or supplement to it or (ii) the omission or alleged omission to state
in the Registration Statement or any Prospectus or Prospectus Supplement or any
amendment or supplement to it a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the extent, but only
to the extent, the untrue statement, alleged untrue

                                      -23-
<PAGE>   27

statement, omission or alleged omission was made in reliance upon, and in
conformity with, written information furnished by the Purchaser to the Company
for inclusion in the Registration Statement, the Prospectus or Prospectus
Supplement or an amendment or supplement thereto, and the Purchaser will
reimburse the Company and each such director, officer or controlling person
promptly upon demand for any legal or other costs or expenses reasonably
incurred by the Company or the other person in investigating, defending against,
or preparing to defend against any such claim, action, suit or proceeding.

                  SECTION 8.2 Indemnification Procedures. Promptly after a
person receives notice of a claim or the commencement of an action for which the
person intends to seek indemnification under paragraph (a) or (b) of Section
8.1, the person will notify the indemnifying party in writing of the claim or
commencement of the action, suit or proceeding, but failure to notify the
indemnifying party will not relieve the indemnifying party from liability under
paragraph (a) or (b) of Section 8.1, except to the extent it has been materially
prejudiced by the failure to give notice. The indemnifying party will be
entitled to participate in the defense of any claim, action, suit or proceeding
as to which indemnification is being sought, and if the indemnifying party
acknowledges in writing the obligation to indemnify the party against whom the
claim or action is brought, the indemnifying party may (but will not be required
to) assume the defense against the claim, action, suit or proceeding with
counsel satisfactory to it. After an indemnifying party notifies an indemnified
party that the indemnifying party wishes to assume the defense of a claim,
action, suit or proceeding the indemnifying party will not be liable for any
legal or other expenses incurred by the indemnified party in connection with the
defense against the claim, action, suit or proceeding except that if, in the
opinion of counsel to the indemnifying party, one or more of the indemnified
parties should be separately represented in connection with a claim, action,
suit or proceeding the indemnifying party will pay the reasonable fees and
expenses of one separate counsel for the indemnified parties. Each indemnified
party, as a condition to receiving indemnification as provided in Paragraph (a)
or (b) or Section 8.1, will cooperate in all reasonable respects with the
indemnifying party in the defense of any action or claim as to which
indemnification is sought. No indemnifying party will be liable for any
settlement of any action effected without its prior written consent. No
indemnifying party will, without the prior written consent of the indemnified
party, effect any settlement of a pending or threatened action with respect to
which an indemnified party is, or is informed that it may be, made a party and
for which it would be entitled to indemnification, unless the settlement
includes an unconditional release of the indemnified party from all liability
and claims which are the subject matter of the pending or threatened action.

         If for any reason the indemnification provided for in this Agreement is
not available to, or is not sufficient to hold harmless, an indemnified party in
respect of any loss or liability referred to in paragraph (a) or (b) of Section
8.1, each indemnifying party will, in lieu of indemnifying the indemnified
party, contribute to the amount paid or payable by the indemnified party as a
result of the loss or liability, (i) in the proportion which is appropriate to
reflect the relative benefits received by the indemnifying party on the one hand
and by the indemnified party on the other from the sale of stock which is the
subject of the claim, action, suit or proceeding which resulted in the loss or
liability or (ii) if that allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits of the
sale of stock, but also the relative fault of the indemnifying party and the
indemnified party with respect to the

                                      -24-
<PAGE>   28

statements or omissions which are the subject of the claim, action, suit or
proceeding that resulted in the loss or liability, as well as any other relevant
equitable considerations.

                                   ARTICLE IX

                                  MISCELLANEOUS

                  SECTION 9.1 Fees and Expenses. Each party shall bear its own
fees and expenses related to the transactions contemplated by this Agreement;
provided, that the Company shall pay, at the Closing, all reasonable attorneys
fees and expenses (exclusive of disbursements and out-of-pocket expenses)
incurred by the Purchaser of up to $50,000 in connection with the preparation,
negotiation, execution and delivery of this Agreement. In addition, the Company
shall pay all reasonable fees and expenses incurred by the Purchaser in
connection with any amendments, modifications or waivers of this Agreement or
incurred in connection with the enforcement of this Agreement, including,
without limitation, all reasonable attorneys' fees and expenses.

                  SECTION 9.2 Specific Enforcement, Consent to Jurisdiction.

                  (a) The Company and the Purchaser acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.

                  (b) Each of the Company and the Purchaser (i) hereby
irrevocably submits to the jurisdiction of the United States District Court and
other courts of the United States sitting in the State of New York for the
purposes of any suit, action or proceeding arising out of or relating to this
Agreement and (ii) hereby waives, and agrees not to assert in any such suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and the Purchaser consents to process being served
in any such suit, action or proceeding by mailing a copy thereof to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section shall affect or limit any right to serve
process in any other manner permitted by law.

                  SECTION 9.3 Entire Agreement; Amendment. This Agreement
contains the entire understanding of the parties with respect to the matters
covered hereby and, except as specifically set forth herein, neither the Company
nor the Purchaser makes any representations, warranty, covenant or undertaking
with respect to such matters. No provision of this Agreement may be waived or
amended other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought.

                                      -25-
<PAGE>   29

                  SECTION 9.4 Notices. Any notice, demand, request, waiver or
other communication required or permitted to be given hereunder shall be in
writing and shall be effective (a) upon hand delivery, by telecopy or facsimile
at the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such communications
shall be:

If to the Company:                      Aronex Pharmaceuticals, Inc.
                                        8707 Technology Forest Place
                                        The Woodlands, Texas 77381
                                        Tel. No.:  (281) 367-1666
                                        Fax No.:  (281) 367-1676
                                        Attention: Geoffrey Cox, Ph.D., CEO

With copies to:                         Andrews & Kurth L.L.P.
                                        2170 Buckthorne Place, Suite 150
                                        The Woodlands, Texas 77380
                                        Tel. No.:  (713) 220-4312
                                        Fax No.:  (713) 238-7282
                                        Attention: Jeffrey R. Harder

If to the Purchaser:                    Acqua Wellington North American
                                          Equities Fund, Ltd.
                                        c/o Fortis Fund Services (Bahamas) Ltd.
                                        Montague Sterling Centre
                                        East Bay Street, P. O. Box SS-6238
                                        Nassau, Bahamas
                                        Tel. No:  (242) 394-2700
                                        Fax No.:  (242) 394-9667
                                        Attention:  Anthony L.M. Inder Rieden

With copies to:                         Parker Chapin LLP
                                        The Chrysler Building
                                        405 Lexington Avenue
                                        New York, NY  10174
                                        Tel. No:  (212) 704-6000
                                        Fax No:  (212)704-6288
                                        Attention:  Christopher S. Auguste

         Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other party hereto.

                                      -26-
<PAGE>   30

                  SECTION 9.5 Waivers. No waiver by either party of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.

                  SECTION 9.6 Headings. The article, section and subsection
headings in this Agreement are for convenience only and shall not constitute a
part of this Agreement for any other purpose and shall not be deemed to limit or
affect any of the provisions hereof.

                  SECTION 9.7 Successors and Assigns. The Purchaser may not
assign this Agreement to any person without the prior consent of the Company,
which consent will not be unreasonably withheld. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
The parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and each Purchaser to
be affected by the amendment. After Closing, the assignment by a party to this
Agreement of any rights hereunder shall not affect the obligations of such party
under this Agreement.

                  SECTION 9.8 Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions.

                  SECTION 9.9 Survival. The representations and warranties of
the Company and the Purchaser contained in Article III and the covenants
contained in Article IV shall survive the execution and delivery hereof and the
Closing until the termination of this Agreement, and the agreements and
covenants set forth in Article VIII of this Agreement shall survive the
execution and delivery hereof and the Closing hereunder.

                  SECTION 9.10 Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same instrument and shall become effective when counterparts have been
signed by each party and delivered to the other parties hereto, it being
understood that all parties need not sign the same counterpart. In the event any
signature is delivered by facsimile transmission, the party using such means of
delivery shall cause four additional executed signature pages to be physically
delivered to the other parties within five days of the execution and delivery
hereof.

                  SECTION 9.11 Publicity. The Company shall not issue any press
release or otherwise make any public statement or announcement with respect to
this Agreement or the transactions contemplated hereby or the existence of this
Agreement without the prior written consent of the Purchaser, provided, however,
that in the event the Company is required by law or regulation to issue a press
release or otherwise make a public statement or announcement with respect to
this Agreement or the transaction contemplated hereby prior to or after the
Closing, the Company shall consult with the Purchaser on the form and substance
of such press release or other disclosure.

                                      -27-
<PAGE>   31

                  SECTION 9.12 Severability. The provisions of this Agreement
are severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement, and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.

                  SECTION 9.13 Further Assurances. From and after the date of
this Agreement, upon the request of the Purchaser or the Company, each of the
Company and the Purchaser shall execute and deliver such instrument, documents
and other writings as may be reasonably necessary or desirable to confirm and
carry out and to effectuate fully the intent and purposes of this Agreement.

                                  [END OF PAGE]

                                      -28-
<PAGE>   32

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

                                 ARONEX PHARMACEUTICALS, INC.

                                 By: /s/ Geoffrey F. Cox, Ph.D.
                                    --------------------------
                                    Name:   Geoffrey F. Cox, Ph.D.
                                    Title:  Chairman of the Board and Chief
                                            Executive Officer

                                 ACQUA WELLINGTON NORTH
                                 AMERICAN EQUITIES FUND, LTD.

                                 By: /s/ Anthony L.M. Inder Rieden
                                    ------------------------------
                                    Name:   Anthony L.M. Inder Rieden
                                    Title:  Director

<PAGE>   33

         All Exhibits and Schedules to this Agreement have been omitted from
this filing.<PAGE>

                                                                     EXHIBIT 4.2

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

                                    Form of

                                  GARMIN LTD.

                                      and

                                UMB Bank, N.A.,

                                  Rights Agent

                                RIGHTS AGREEMENT

                                  Dated as of

                             _______________, 2000

================================================================================
<PAGE>

                          GARMIN LTD. RIGHTS AGREEMENT
                               Table of Contents
<TABLE>
<S>           <C>                                                                                                  <C>
Section 1.    Certain Definitions................................................................................   1
Section 2.    Appointment of a Rights Agent......................................................................   4
Section 3.    Certificates and Transfer of Rights................................................................   4
Section 4.    Form of Rights Certificates........................................................................   7
Section 5.    Countersignature and Registration..................................................................   8
Section 6.    Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or
              Stolen Rights Certificates.........................................................................   8
Section 7.    Exercise of Rights; Purchase Price; Expiration Date of Rights......................................   9
Section 8.    Cancellation and Destruction of Rights Certificates................................................  11
Section 9.    Reservation and Availability of Capital Shares.....................................................  11
Section 10.   Preferred Share Record Date........................................................................  13
Section 11.   Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights........................  13
Section 12.   Certificate of Adjusted Purchase Price or Number of Shares.........................................  20
Section 13.   Consolidation, Merger or Sale or Transfer of Assets or Earning Power...............................  21
Section 14.   Fractional Rights and Fractional Shares............................................................  23
Section 15.   Rights of Action...................................................................................  24
Section 16.   Agreement of Right Holders.........................................................................  24
Section 17.   Rights Certificate Holder Not Deemed a Shareholder.................................................  25
Section 18.   Concerning the Rights Agent........................................................................  25
Section 19.   Merger or Consolidation or Change of Name of Rights Agent..........................................  26
Section 20.   Duties of Rights Agent.............................................................................  27
Section 21.   Change of Rights Agent.............................................................................  29
Section 22.   Issuance of New Rights Certificates................................................................  30
Section 23.   Redemption and Termination.........................................................................  30
Section 24.   Notice of Certain Events...........................................................................  31
Section 25.   Notices............................................................................................  32
Section 26.   Supplements and Amendments.........................................................................  33
Section 27.   Successors.........................................................................................  33
Section 28.   Determination and Actions by the Board of Directors, etc...........................................  33
Section 29.   Benefits of this Agreement.........................................................................  34
Section 30.   Severability.......................................................................................  34
Section 31.   Governing Law......................................................................................  34
Section 32.   Counterparts.......................................................................................  35
Section 33.   Descriptive Headings...............................................................................  35
Exhibit A     Form of Resolutions of the Board of Directors
Exhibit B     Form of Rights Certificate
              Form of Assignment
              Certificate
              Notice
              Form of Election to Purchase
              Certificate
              Notice
Exhibit C     Summary of Rights to Purchase Preferred Shares
</TABLE>

                                       i
<PAGE>

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

     This Agreement, dated as of _______, 2000, between GARMIN LTD., a Cayman
Islands company (the "Company"), and UMB Bank, N.A., a national banking
                      -------
association organized and existing under the laws of the United States of
America, as rights agent (the "Rights Agent").
                               ------------

                              W I T N E S S E T H

     WHEREAS, the Board of Directors of the Company has authorized and declared
a dividend of one Right (as defined herein) for each outstanding common share
(as defined herein), of the Company at the close of business on _______________
(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 hereof) in
                                                          ----------
respect of each Common Share of the Company issued between the Record Date and
the earlier of the Distribution Date, the Expiration Date or the Final
Expiration Date (as such terms are hereinafter defined), each Right initially
representing the right to purchase, under certain circumstances, 1/1,000ths of a
Preferred Share (as defined herein), 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, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the Company and the Rights Agent hereby agree as
follows.

SECTION 1.  Certain Definitions.

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

     (a)  "Acquiring Person" shall mean any Person who, together with all
           ----------------
Affiliates or Associates of such Person, shall be the Beneficial Owner of a
Substantial Block, whether or not such Person continues to be 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 of the Company or of
any Subsidiary of the Company, or any Person organized, appointed or established
by the Company or by any Subsidiary of the Company for or pursuant to the terms
of any such plan; (iv) Min H. Kao; (v) Gary L. Burrell; or (vi) a Person who,
together with all Affiliates and Associates of such Person, would become an
Acquiring Person solely as a result of a reduction of the number of Common
Shares of the Company outstanding, including repurchases of outstanding Common
Shares of the Company by the Company, which reduction increases the percentage
of outstanding Common Shares of the Company beneficially owned by such Person
until such Person, Affiliate or Associate shall thereafter become the Beneficial
Owner of any additional Common Shares.

     (b)  "Adjusted Number of Shares" shall have the meaning given the term in
           -------------------------
Section 11(a)(iii) of this Agreement.
------------------

     (c)  "Adjusted Purchase Price" shall have the meaning given the term in
           -----------------------
Section 11(a)(iii) of this Agreement.
------------------

                                       1
<PAGE>

     (d)  "Affiliate" and "Associate" shall have the respective meanings
           ---------       ---------
ascribed to such terms in Rule 12b-2 of the Exchange Act as in effect on the
date hereof.

     (e)  A Person shall be deemed the "Beneficial Owner" of and shall be
                                         ----------------
deemed to "beneficially own" any securities that:
           ----------------

          (i)    Such Person, or any of such Person's Affiliates or Associates,
     beneficially owns, directly or indirectly (as determined pursuant to Rule
     13d-3 of the Exchange Act);

          (ii)   Such Person or any of such Person's Affiliates or Associates,
     directly or indirectly, 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, conversion or exchange of 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 such Person or any such Person's
     Affiliates or Associates until such tendered securities are accepted for
     purchase or exchange and securities issuable upon the exercise of the
     Rights at any time prior to the occurrence of a Triggering Event); or (B)
     the right to vote or dispose of pursuant to any agreement, arrangement or
     understanding (whether or not in writing) provided, however, that a Person
                                               --------  -------
     shall not be deemed the Beneficial Owner or to beneficially own, any
     security under this clause (B) if the agreement, arrangement or
     understanding to vote such security (1) arises solely from a revocable
     proxy or consent given in response to a public proxy or consent
     solicitation made pursuant to, and in accordance with, the Exchange Act and
     (2) is not also then reportable on Schedule 13D under the Exchange Act (or
     any comparable or successor report); or

          (iii)  Are beneficially owned, directly or indirectly, by any other
     Person with which such former Person or any of such Person's Affiliates or
     Associates has any agreement, arrangement or understanding (whether or not
     in writing) for the purpose of acquiring, holding, voting (except pursuant
     to a revocable proxy as described in clause (B) of subparagraph (ii) of
     this paragraph (e)) or disposing of any securities of the Company;

provided, however, 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 until the
expiration of forty days after the date of such acquisition.

     (f)  "Capital Share Equivalents" shall have the meaning given the term in
           -------------------------
Section 11(a)(iii) of this Agreement.
------------------

     (g)  "Business Day" shall mean any day other than a Saturday, Sunday, or a
           ------------
day on which banking institutions in the States of New York or Missouri are
authorized or obligated by law or executive order to close.

                                       2
<PAGE>

     (h)  "Close of Business" on any given date shall mean 5:00 p.m., New York,
           -----------------
New York time, on such date, provided, however, if such date is not a Business
                             --------  -------
Day it shall mean 5:00 p.m. on the next succeeding Business Day.

     (i)  "Common Share" when used with reference to the Company shall mean the
           ------------
Common Share, $0.01 par value, of the Company as adjusted from time to time.
"Common Share" when used with reference to any Person other than the Company
shall mean the capital shares with the greatest voting power of such Person or
the equity securities or other equity interest having power to control or direct
the management of such Person.

     (j)  "Current Market Price" of the Common Shares shall have the meaning
           --------------------
given the term in Section 11(d)(i) of this Agreement.
                  ----------------

     (k)  "Current Market Price" of the Preferred Shares shall have the meaning
           --------------------
given the term in Section 11(d)(ii) of this Agreement.
                  -----------------

     (l)  "Distribution Date" shall have the meaning given the term in Section
           -----------------                                           -------
3(a) of this Agreement.
----

     (m)  "Exchange Act" shall mean the Securities Exchange Act of 1934, as
           ------------
amended, or any successor thereto, and the rules and regulations promulgated
thereunder, all as the same shall be amended from time to time.

     (n)  "Expiration Date" shall have the meaning given the term in
           ---------------
Section 7(a) of this Agreement.
------------

     (o)  "Final Expiration Date" shall have the meaning given the term in
           ---------------------
Section 7(a) of this Agreement.
------------

     (p)  "Permitted Offer" shall mean a tender offer or exchange offer that is
           ---------------
for all outstanding Common Shares of the Company at a price and on terms
determined to be adequate prior to the purchase of shares under such tender
offer or exchange offer, by at least 70% of the members of the Board of
Directors of the Company, taking into account all factors that such directors
deem relevant including, without limitation, prices that could reasonably be
achieved if the Company or its assets were sold on an orderly basis designed to
realize maximum value and otherwise in the best interests of the Company and its
shareholders (other than the Person or any Affiliate or Associate thereof for
whose benefit the offer is being made).

     (q)  "Person" shall mean any individual, firm, company, corporation,
           ------
limited liability company, partnership, joint venture, association, trust or
other entity.

     (r)  "Preferred Shares" shall mean the Series A Preferred Shares, par value
           ----------------
$1.00 per share, of the Company having substantially the rights, powers and
preferences set forth in the Resolutions of the Board of Directors attached
hereto as Exhibit A, and, to the extent that there are not a sufficient number
          ---------
of Series A Preferred Shares authorized to permit the full exercise of the
Rights, any other series of Preferred Shares of the Company designated for such
purpose containing terms substantially similar to the terms of the Series A
Preferred Shares.

                                       3
<PAGE>

     (s)  "Principal Party" shall have the meaning given the term in Section
           ---------------                                           -------
13(b) of this Agreement.
-----

     (t)  "Proration Factor" shall have the meaning given the term in Section
           ----------------                                           -------
11(a)(iii) of this Agreement.
----------

     (u)  "Rights Certificates" shall have the meaning given the term in Section
           -------------------                                           -------
3 of this Agreement.
-

     (v)  "Share Acquisition Date" shall mean the close of business on the tenth
           ----------------------
calendar day after the first date of public announcement (which, for purposes of
this definition, shall include, without limitation, a report filed pursuant to
Section 13(d) of the Exchange Act) by the Company or an Acquiring Person that an
Acquiring Person has become such.

     (w)  "Securities Act" shall mean the Securities Act of 1933, as amended, or
           --------------
any successor thereto, and the rules, regulations, and forms promulgated
thereunder, all as the same shall be amended from time to time.

     (x)  A "Subsidiary" of any Person shall mean any Person of whom a majority
             ----------
of the voting power of the voting equity securities or voting interests is owned
or, directly or indirectly, by such former Person, or any Person which is
otherwise controlled, directly or indirectly, by such former Person.

     (y)  "Substantial Block" shall mean a number of the Common Shares of the
           -----------------
Company that equals or exceeds 15 percent of the number of the Common Shares of
the Company then outstanding.

     (z)  "Trading Days" shall have the meaning given the term in Section
           ------------                                           -------
11(d)(i) of this Agreement.
--------

     (aa)  "Triggering Event" shall mean any event described in
            ----------------
Section 11(a)(ii) or Section 13(a) of this Agreement.
-----------------    -------------

SECTION 2.  Appointment of a 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 Shares of
the Company) 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.  Certificates and Transfer of Rights.

     (a) Common Shares Outstanding on the Record Date.  Until the earlier of
(unless extended by the Board of Directors of the Company) (i) the Share
Acquisition Date or (ii) the close of business on the tenth calendar 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 of, or first public announcement of the intent of any Person (other

                                       4
<PAGE>

than the Company, any Subsidiary of the Company, any employee benefit plan of
the Company or any Person organized, appointed or established by the Company or
any Subsidiary of the Company for or pursuant to the terms of any such plan) to
commence (which intention to commence remains in effect for five business days
after such announcement) a tender or exchange offer if, upon consummation
thereof, such Person would be an Acquiring Person (including any such date that
is after the date of this Agreement and prior to the issuance of the Rights)
(the earlier of the dates in subsections (i) and (ii) hereof being herein
referred to as the "Distribution Date"), the Rights will be evidenced (subject
                    -----------------
to the provisions of paragraph (b) of this Section 3) by the certificates for
                                           ---------
Common Shares of the Company (which certificates of such Common Shares of the
Company shall be deemed also to be Rights Certificates), and not by separate
Rights Certificates, and the right to receive Rights Certificates will be
transferable only in connection with the transfer of such Common Shares
(including a transfer to the Company). With respect to certificates for the
Common Shares of the Company outstanding as of the Record Date, until the
Distribution Date, the Rights will be evidenced by such certificates for the
Common Shares of the Company with or without a Summary of Rights attached
thereto and the registered holders of the Common Shares of the Company shall
also be the registered holders of the associated Rights.  Until the earlier of
the Distribution Date or the Expiration Date, the surrender or transfer
(including a transfer to the Company) of any of the certificates for the Common
Shares of the Company outstanding on the Record Date shall also constitute the
transfer of the Rights associated with the Common Shares of the Company
represented by such certificate.  The Company will include with its next
mailing, by third-class, postage prepaid mail, of its quarterly report to
Shareholders, if any, a copy of a Summary of Rights, in substantially the form
attached hereto as Exhibit C (the "Summary of Rights").  However, if such
                                   -----------------
mailing has not occurred by the expiration of 60 days after the expiration of
the quarter in which this Agreement becomes effective, the Company will promptly
mail the Summary of Rights separately, by first-class, postage prepaid mail, to
each record holder of the Common Shares of the Company as of the close of
business on the Record Date, at the address of such holder shown on the records
of the Company and no such mailing shall be made with the Company's quarterly
report to Shareholders.

     (b)  Distribution of Separate Rights Certificates.  As soon as practicable
after the Distribution Date, the Rights Agent will send, by first-class,
insured, postage prepaid mail, to each record holder of the Common Shares of the
Company as of the close of business on the Distribution Date, at the address of
such holder of Common Shares shown on the records of the Company, a separate
Rights Certificate in substantially the form of Exhibit B attached hereto
evidencing one Right for each Common Share of the Company so held, subject to
adjustment as provided herein.  In the event that an adjustment in the number of
Rights per Common Share has been made pursuant to Section 11(p) hereof, at the
                                                  -------------
time of distribution of the Rights Certificate, the Company shall make the
necessary and appropriate rounding adjustments (in accordance with Section 14(a)
                                                                   -------------
hereof) so that Rights Certificates representing only whole numbers of Rights
are distributed and cash is paid in lieu of any fractional Rights.  As of and
after the Distribution Date, the Rights will be evidenced solely by such Rights
Certificates.

     (c)  Issuance of Additional Common Shares and Rights.  Rights shall be
issued in respect of all Common Shares of the Company issued (whether originally
issued or later issued) after the Record Date but prior to the earlier of the
Distribution Date or the Expiration Date.

                                       5
<PAGE>

Certificates representing such Common Shares shall be deemed to be 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 Garmin Ltd. and UMB Bank,
     N.A., as Rights Agent (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 Garmin Ltd Inc. Under certain
     circumstances, as set forth in the Rights Agreement, such Rights may be
     redeemed, may expire or may be evidenced by separate certificates and will
     no longer be evidenced by this certificate. Under certain circumstances,
     Rights issued to, or which are or were beneficially owned by, Acquiring
     Persons or their Affiliates or Associates (as such terms are defined in the
     Rights Agreement) and any subsequent holder of such Rights may become null
     and void. In addition, Rights held by Persons other than an Acquiring
     Person may not be transferred to an Acquiring Person or certain other
     Persons.

Until the earlier of the Distribution Date or the Expiration Date, the Rights
associated with the Common Shares of the Company represented by certificates
containing the foregoing legend shall be evidenced by such certificates alone,
and the surrender for transfer of any of such certificates shall also constitute
the transfer of the Rights associated with the Common Shares represented by such
certificate.

     (d)  Purchase of Common Shares by the Company.  In the event that the
Company purchases or acquires any of its Common Shares after the Record Date but
prior to the Distribution Date, the Company shall not be entitled to exercise
any Rights associated with the Common Shares so purchased or acquired.  Upon
reissuance of such Common Shares by the Company the Rights shall again attach to
such Common Shares as set forth in Section 3(c) of this Agreement.
                                   ------------

     (e)  Restriction on Transfers to Acquiring Persons.  Notwithstanding
anything in this Agreement to the contrary, no Right shall at any time be
transferable or transferred, in one transaction or in a series of related
transactions (including a tender offer or exchange offer), directly or
indirectly (i) to any Person who is an Acquiring Person, (ii) to any Person in
connection with a transaction or series of related transactions in which such
Person becomes an Acquiring Person, (iii) to any Person who, as a result of such
transfer, would beneficially own 15 percent or more of the Rights, or (iv) to
any Affiliate or Associate of a Person referred to in any one or more of the
foregoing clauses (i), (ii), or (iii).  Any purported or attempted transfer of a
Right on or after the Record Date in violation of the foregoing provisions
(regardless whether such purported or attempted transfer shall be recorded on
any transfer ledger) shall be null and void as of the date of the purported or
attempted transfer without any further action on the part of the Company or the
Rights Agent, and any Right that has been the subject of any such purported or
attempted transfer shall for purposes of this Agreement and the Right
Certificate be deemed to be held beneficially by the Person who attempted to
make such purported or attempted transfer and, thereafter, shall continue to be
exercisable by such Person or, in the case of a transfer not prohibited by this
Agreement, such Person's transferee, for a like number of 1/l,000ths of a
Preferred Share (or other securities, cash or other assets, as the case may be)
pursuant to this

                                       6
<PAGE>

Agreement. The Company may require (or cause the Rights Agent or any transfer
agent of the Company to require) any Person who submits a Right Certificate for
transfer on the register of members or any other registry books or to exercise
the Rights represented thereby to establish to the satisfaction of the Company,
in its sole discretion, that such attempted transfer is not in violation of the
provisions of this Section 3(e). The Company and the Right s Agent shall use all
                   ------------
reasonable efforts to insure the provisions of this Section 3(e) are complied
                                                    ------------
with, but shall have no liability to any holder of a Right Certificate or any
other Person as a result of a failure to make any determinations with respect to
an Acquiring Person or its Affiliates, Associates or transferees thereof.

SECTION 4.  Form of Rights Certificates.

     (a)  Form of Certificate.  The Rights Certificates (and the forms of
election to purchase shares and of assignment to be printed on the reverse
thereof) shall, subject to paragraph (a) of Section 3 of this Agreement, be
                                            ---------
substantially the same as Exhibit B hereto and may have such marks of
                          ---------
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any Shares exchange on which the Rights may from time to
time be listed, or to conform to usages.  Subject to the provisions of Section
                                                                       -------
11 and Section 22 hereof, the Rights 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 1/l,000ths of a Preferred Share as shall be set forth
therein at the price per 1/1,000ths of a Preferred Share set forth therein (the
"Purchase Price"), but the number of such shares and the Purchase Price shall be
 --------------
subject to adjustment as provided herein.

     (b)  Notwithstanding any other provision of this Agreement, any Rights
Certificate issued pursuant to Section 3 or Section 22 hereof that represent
                               ---------    ----------
Rights beneficially owned by (i) an Acquiring Person or any Associate or
Affiliate thereof, (ii) a transferee of an Acquiring Person (or of any Associate
or Affiliate of such Acquiring Person) who becomes a transferee after the
Acquiring Person became such, or (iii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate of such Acquiring Person) 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 (whether or not in writing)
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or understanding
that has a primary purpose or effect avoidance of Section 7(e) hereof, any
                                                  ------------
Rights Certificate issued at any time to any nominee of such Acquiring Person,
Associate or Affiliate, and any Rights Certificate issued pursuant to Section 6
                                                                      ---------
or Section 11 upon transfer, exchange, replacement or adjustment of any other
   ----------
Rights Certificate referred to in this sentence, shall contain the following
legend:

     The Rights represented by this Rights Certificate are or were beneficially
     owned by a Person who was or became an Acquiring Person or an Affiliate or
     an Associate of an Acquiring Person (as such terms are defined in the
     Rights Agreement). Accordingly, this Rights Certificate and the Rights
     represented

                                       7
<PAGE>

     hereby may become null and void in the circumstances specified in Section
                                                                       -------
     7(e) of the Rights Agreement.
     ----

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

SECTION 5.  Countersignature and Registration.

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

     (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 the Rights Certificates upon exercise or transfer, books
for registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face by each of the Rights
Certificates and the date of each of the Rights Certificates, and such other
information as the Rights Agent deems appropriate in the circumstances.

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

     Subject to the provisions of Section 4(b), Section 7(e) and Section 14
                                  ------------  ------------     ----------
hereof, at any time after the close of business on the Distribution Date and at
or prior to the close of business on the Expiration Date, any Rights
Certificates may be transferred, split up or combined with or exchanged for any
other Rights Certificates, entitling the registered holder to purchase a like
number of 1/1,000ths of a Preferred Share (or following a Triggering Event,
Common Shares, other securities or other assets, as may be necessary) as the
Rights Certificate or Rights Certificates surrendered then entitled such holder
(or former holder in the case of a transfer) to

                                       8
<PAGE>

purchase. Any registered holder desiring to transfer, split up, combine or
exchange any Rights Certificate shall make such request in writing delivered to
the Rights Agent, and shall surrender the Rights Certificate or Rights
Certificates to be transferred, split up, combined or exchanged at the principal
office or offices of the Rights Agent designated for such purpose 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 Rights
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the Rights
Agent shall, subject to Section 4(b), Section 7(e) and Section 14 hereof,
                        ------------  ------------     ----------
countersign and deliver to the Person entitled thereto a Rights Certificate or
Rights Certificates, as the case may be, as so requested. The Company or the
Rights Agent may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Rights Certificates.

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

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

     (a)  Subject to Section 7(e) hereof, the registered holder of any Rights
                     ------------
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
                            ------------  ------------------     -------------
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase on
the reverse side thereof duly completed and executed, to the Rights Agent at the
principal office of the Rights Agent or offices designated by the Rights Agent
for such purposes, together with payment of the aggregate Purchase Price for the
total number of 1/1,000ths of a Preferred Share (or other securities or assets,
as may be necessary and authorized) as to which such surrendered Rights are
exercised, at or prior to the close of business on the earlier of: (i) ________,
2010 (the "Final Expiration Date"); (ii) the date on which the Rights are
           ---------------------
redeemed as provided in Section 23; or (iii) the consummation of a transaction
                        ----------
contemplated by Section 13(d) hereof (such earlier date being herein referred to
                -------------
as the "Expiration Date").
        ---------------

     (b)  The Purchase Price for each 1/1,000ths of a Preferred Share pursuant
to the exercise of a Right shall initially be $_________, shall be subject to
adjustment from time to time as provided in Section 11 and Section 13 hereof and
                                            ---------      ----------
shall be payable in accordance with paragraph (c) below.

                                       9
<PAGE>

     (c)  Upon receipt of a Rights Certificate representing exercisable Rights
with the form of election to purchase and the Certificate duly completed and
executed, payment of the Purchase Price for the number of 1/1,000ths of a
Preferred Share (or other securities or other assets, as the case may be) to be
purchased and an amount equal to any applicable transfer tax, the Rights Agent
shall thereupon, subject to Section 20(k), promptly:
                            -------------

          (i)    (A) requisition from any transfer agent of the Preferred Shares
     (or make available, if the Rights Agent is serving in its separate capacity
     as the transfer agent for such Preferred Shares) a certificate for the
     total number of 1/1,000ths of a Preferred Share 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 Preferred Shares issuable upon exercise of the Rights
     hereunder with a depositary agent, requisition from the depositary agent a
     depositary receipt representing such number of 1/1,000ths of a Preferred
     Share as are to be purchased (in which case certificates for the Preferred
     Shares represented by such receipts shall be deposited by the transfer
     agent with the depositary agent), and the Company hereby irrevocably
     authorizes the depositary agent to comply with such request;

          (ii)   when appropriate, requisition from the Company the amount of
     cash, if any, to be paid in lieu of issuance of fractional shares in
     accordance with Section 14;
                     ----------

          (iii)  promptly after receipt of such certificate or depositary
     receipt, cause the same to be delivered to or upon the order of the
     registered holder of such Rights Certificates, registered in such name or
     names as may be designated by such holder; and

          (iv)   when appropriate, after receipt promptly deliver such cash, if
     any, to or upon the order of the registered holder of such Rights
     Certificate.

The payment of the Purchase Price may be made: (i) in cash or by certified bank
check or bank draft payable to the order of the Company, (ii) by delivery of a
certificate or certificates (with appropriate Shares powers executed in blank
attached thereto) evidencing a number of Common Shares equal to the then
Purchase Price divided by the current market price (as determined pursuant to
Section 11(d) hereof) per Common Share on the Trading Date immediately preceding
-------------
the date of such exercise, or (iii) by a combination of (i) and (ii).  In the
event that the Company is obligated to issue securities, distribute property or
pay cash pursuant to Section 11(a)(iii) hereof, the Company will make all
                     ------------------
arrangements necessary so that cash, property or securities are available for
issuance, distribution or payment by the Rights Agent, if and when appropriate.

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

     (e)  Notwithstanding anything in this Agreement to the contrary, if there
occurs the event set forth in Section 11(a)(ii), then any Rights that are or
                              -----------------
were beneficially owned by: (i) an

                                       10
<PAGE>

Acquiring Person or any Associate or Affiliate of such Acquiring Person; (ii)
any subsequent holder of such Rights; (iii) a transferee of an Acquiring Person
or of any Associate or Affiliate thereof who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which a majority of the Board 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 or be (as the case may be) null and void with respect
------------
to the rights provided under Section 11(a)(ii) without any further action, and
                             ----------------
shall thereafter not provide any such holder with any rights whatsoever under
this Agreement or otherwise. The Company shall use all reasonable efforts to
insure that the provisions of this Section 7(e) and Section 4(b) hereof are
                                   ------------     ------------
complied with, but shall have no liability to any holder of Rights Certificates
or other Person as a result of its failure to make any determinations with
respect to an Acquiring Person or its Affiliates, Associates or transferees
thereof.

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

SECTION 8.  Cancellation and Destruction of Rights Certificates.

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

SECTION 9.  Reservation and Availability of Capital Shares.

     The Company covenants and agrees that it will:

     (a)  Cause to be reserved, through a statement of intention by the Board of
Directors that such securities will be issued in relevant circumstances, out of
its authorized and unissued Preferred Shares (and following the occurrence of a
Triggering Event, out of its authorized and unissued Common Shares, other
securities as provided herein or some combination thereof) the number of
Preferred Shares or other securities as provided herein or some combination of
such

                                       11
<PAGE>

securities that will be sufficient to permit the exercise in full of all
outstanding Rights whenever issued.

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

     (c)  Use its best efforts to: (i) file, as soon as practicable following
the first occurrence of the Distribution Date, a registration statement under
the Securities Act with respect to the securities purchasable upon exercise of
the Rights on an appropriate form; (ii) cause such registration statement to
become effective as soon as practicable after such filing; (iii) cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the date of the expiration
of the Rights; (iv) to otherwise comply with all requirements of the Securities
Act and the Exchange Act applicable to the exercise of the Rights and issuance
of the securities upon such exercise; and (v) take promptly such action as may
be appropriate under the blue sky or securities laws of the States such laws of
which would be applicable to the Rights and the exercise thereof in order for
the securities issuable upon exercise of the Rights to be offered, sold and
delivered in accordance with such laws. Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction unless the requisite qualifications in such jurisdiction shall have
been obtained.

     (d)  Take all such action as may be necessary to ensure that all 1/1,000ths
of the Preferred Shares (and following the occurrence of a Triggering Event, the
other securities as permitted herein) 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 non-assessable.

     (e)  Pay when due and payable any and all state, federal and foreign
transfer taxes and charges which may be payable in respect of the issuance or
delivery of the Rights Certificates or of any certificates for a number of
1/1,000ths of the Preferred Shares (or other securities, as the case may be)
upon the exercise of Rights all costs and expenses incurred in connection with
the obligations set forth in this Section 9.  The Company shall not, however, be
                                  ---------
required: (i) to pay any transfer tax that may be payable in respect of any
transfer involved in the transfer or delivery of Rights Certificates or the
issuance or delivery of a number of certificates for whole or fractional
Preferred Shares (or other securities, as the case may be) in a name other than
that of the registered holder of the Rights Certificate evidencing Rights
surrendered for exercise; or (ii) to issue or deliver any certificates for whole
or fractional Preferred Shares upon the exercise of any Rights until any such
tax shall have been paid (any such tax being payable by the holder of such
Rights Certificate at the time of surrender) or until it has been established to
the Company's satisfaction that no such tax is due.

     (f)  The Company agrees to provide to the Rights Agent, immediately
following the later to occur of an event described in Section 11(a)(i)(B) or
Section 13 hereof or the Distribution Date, an opinion of counsel reasonably
acceptable to the Rights Agent that the Common Shares

                                       12
<PAGE>

underlying the Rights have been or are being properly registered under the
Securities Act and all securities or "blue sky" laws of the various states, as
applicable, or in the alternative, the Rights are not subject to registration
under the Securities Act and/or any securities or "blue sky" laws of the various
states.

SECTION 10.    Preferred Share Record Date.

     Each person in whose name any certificate for any whole or fractional
Preferred Share (or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of such Preferred Shares (or other securities, as the case may be)
represented thereby, and such certificate shall be dated, the date upon which
the Rights Certificate evidencing such Rights was duly surrendered and payment
of the Purchase Price (and any applicable transfer taxes) was made; provided,
                                                                    --------
however, that if the date of such surrender and payment is a date upon which the
-------
Preferred Share (or other securities, as the case may be) transfer books of the
Company are closed, such person shall be deemed to have become the record holder
of such shares on, and such certificates shall be dated, the next succeeding
business day on which such transfer books for such securities are open.  Prior
to the exercise of the Rights evidenced thereby, the holder of a Rights
Certificate shall not be entitled to any rights as a shareholder of the Company
with respect to shares for which the Rights may be exercisable, including,
without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company except as provided herein.

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

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

     (a)  In the event that:

          (i)    Changes in the Preferred Shares.  The Company shall at any time
     after the date of this Agreement (A) declare a dividend on the Preferred
     Shares payable in shares of the Preferred Shares, (B) subdivide the
     outstanding Preferred Shares, (C) combine the outstanding Preferred Shares
     into a smaller number of shares or (D) issue any shares of its capital
     shares in a reclassification of the Preferred Shares (including any such
     reclassification in connection with a consolidation or merger in which the
     Company is the continuing or surviving company), except as otherwise
     provided in this Section 11(a) and Section 7(e) hereof, then 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 Preferred Shares (or other securities, as the case
     may be), issuable on such date, shall be proportionately adjusted so that
     the holder of any Right exercised after such time shall be entitled to
     receive, upon the payment of the Purchase Price then in effect, the
     aggregate number (whether whole or fractional) and kind of securities that
     if such Right had been exercised immediately prior to such date and at a
     time when the Preferred Share transfer books of the Company were open, such
     holder would have owned upon such exercise and been entitled to receive by
     virtue of

                                       13
<PAGE>

     such dividend, subdivision, combination or reclassification. If an event
     occurs that would require an adjustment under both this Section 11(a)(i)
                                                             ----------------
     and Section 11(a)(ii) hereof, the adjustment provided for in this Section
         -----------------                                             -------
     11(a)(i) shall be in addition to, and shall be made prior to any adjustment
     --------
     required pursuant to Section 11(a)(ii).
                          -----------------

          (ii)   Determination of Preferred Shares. Any Person (other than the
     Company, any Subsidiary of the Company, any employee benefit plan of the
     Company or any of its subsidiaries or any Person holding securities of the
     Company organized, appointed or established by the Company or any of its
     subsidiaries for or pursuant to the terms of any such plan), alone or
     together with its Affiliates and Associates, shall become an Acquiring
     Person (except pursuant to a Permitted Offer), then proper provisions shall
     be made so that each holder of a Right, except as provided in Section 7(e)
                                                                   ------------
     hereof, shall, for a period of 60 days after the effective date of an
     appropriate registration statement filed pursuant to Section 9 hereof, have
                                                          ---------
     a right to receive, upon exercise thereof at the then current Purchase
     Price in accordance with the terms of this Agreement, such number of whole
     or fractional Preferred Shares (or if the Board determines prior to the
     Distribution Date, such number of Common Shares of the Company in lieu of
     the Preferred Shares) as shall equal the result obtained by multiplying the
     then current Purchase Price by the then number of 1/1,000ths of a Preferred
     Share (or such Common Share) for which a Right is exercisable immediately
     prior to the occurrence of such Section 11(a)(ii) event then dividing that
                                     -----------------
     product (which, following such first occurrence, shall thereafter be
     referred to as the Purchase Price for each Right and for all other purposes
     of this Agreement) by 50 percent of the current market price per one share
     of the Preferred Shares (or Common Shares of the Company, as the case may
     be) (determined pursuant to Section 11(d)) on the date of the first
                                 -------------
     occurrence of the event set forth in this subparagraph (ii) (such number of
                                               -----------------
     shares being referred to as the "Adjustment Shares").
                                      -----------------

          (iii)  Insufficient Preferred Shares.  There shall not be sufficient
     unissued Preferred Shares (or Common Shares of the Company as provided for
     in Section 11(a)(ii) hereof) to permit the exercise in full of all the
        -----------------
     outstanding Rights in accordance with the foregoing subparagraph (ii) and
     the Rights become so exercisable, notwithstanding any other provision of
     this Agreement, to the extent necessary and permitted by applicable law,
     each Right shall thereafter represent the right to receive, upon exercise
     thereof at the then current Purchase Price in accordance with the terms of
     this Agreement: (A) shares (whether whole or fractional) of Common Shares
     of the Company that may permissibly be issued; (B) a number (whether whole
     or fractional) of other equity securities of the Company (or in the
     discretion of the Board of Directors of the Company, debt) including, but
     not limited to, whole or fractional shares of preferred shares of the
     Company other than the Preferred Shares (such alternative securities of the
     Company being referred to as "Capital Share Equivalents"); or (C) some
                                   -------------------------
     combination of (A), (B) and the Preferred Shares, that, in the case of (A),
     (B) or (C), the Board of Directors of the Company has determined to have
     the same aggregate current market value as determined based upon advice of
     a nationally recognized investment banking firm selected by a majority of
     the Board and/or pursuant to Section 11(d)(i) and (ii) hereof, to the
                                  -------------------------
     extent applicable as the aggregate value of the Preferred Shares if there
     were available for issuance sufficient shares of Preferred Shares;
     provided, however, if there are unavailable sufficient Preferred Shares or
     --------  -------
     Capital Share Equivalents, then the Company shall, to the extent

                                       14
<PAGE>

     permitted by applicable law, promptly take all such action as may be
     necessary to authorize additional Preferred Shares or Capital Share
     Equivalents for issuance upon exercise of the Rights, including the calling
     of a meeting of shareholders; and provided, further, that if the Company is
                                       --------  -------
     unable to cause sufficient Preferred Shares or Capital Share Equivalents to
     be available for issuance upon exercise in full of all of the outstanding
     Rights, then each Right shall thereafter represent the right to receive the
     Adjusted Number of Shares upon exercise of the Adjusted Purchase Price (as
     such terms are hereinafter defined). As used herein, the term "Adjusted
                                                                    --------
     Number of Shares" shall be equal to that number of whole or fractional
     ----------------
     Preferred Shares (or Capital Share Equivalents) equal to the product of (A)
     the number of Adjustment Shares and (B) a fraction, the numerator of which
     is the number of Preferred Shares (or Capital Share Equivalents) available
     for issuance upon exercise of the Rights and the denominator of which is
     the aggregate number of Adjustment Shares otherwise issuable upon exercise
     in full of all Rights (assuming there were a sufficient number of Preferred
     Shares (or Capital Share Equivalents as the case may be) available) (such
     fraction being referred to as the "Proration Factor"). The "Adjusted
                                        ----------------         --------
     Purchase Price" shall mean the product of the Purchase Price and the
     --------------
     Proration Factor. The Board of Directors may, but shall not be required to,
     establish procedures to allocate the right to receive Preferred Shares and
     other Capital Share Equivalents upon exercise of the Rights among holders
     of Rights.

     (b)  Preferred Share Rights or Warrants.  In case the Company shall fix a
record date for the issuance of rights or warrants to all holders of Preferred
Shares entitling them (for a period expiring within 45 calendar days after such
record date) to subscribe for or purchase Preferred Shares (or Securities
convertible into the Preferred Shares or similar preferred shares) at a price
per Preferred Share (or having a conversion price per Preferred Share, if a
security convertible into Preferred Shares) less than the current market price
per Preferred Share (as defined in Section 11(d) hereof) on such record date,
                                   -------------
then 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 Shares (whether whole or fractional) outstanding on such record
date plus the number of Preferred Shares that the aggregate offering price of
the total number of Preferred Shares and/or similar 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 Preferred Shares (whether whole or
fractional) outstanding on such record date plus the number of additional
Preferred Shares (whether whole or fractional) and/or similar 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 part or all in a form other than cash, then
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.  Preferred Shares (whether whole or fractional)
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 has not been
fixed.

                                       15
<PAGE>

     (c)  Distributions on the Preferred Shares. In case the Company shall fix a
record date for the making of a distribution to all holders of Preferred Shares
(including any such distribution made in connection with a consolidation or
merger in which the Company is the continuing company) of evidences of
indebtedness, assets (other than a regular periodic cash dividend at a rate not
in excess of 125 percent of the rate of the last cash dividend theretofore paid
out of the earnings or retained earnings of the Company or a dividend payable in
Preferred Shares (but including any dividend payable in shares other than
Preferred Shares)), securities or subscription rights or warrants (excluding
those referred to in Section 11(b) hereof), then the Purchase Price to be in
                     -------------
effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction the
numerator of which shall be the current market price per Preferred Share (as
defined in Section 11(d) hereof) on such record date, less the fair market value
           -------------
(as determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and the Holders of the Rights) of the
portion of the assets, evidences of indebtedness, securities, subscription
rights or warrants so to be distributed and applicable to one Preferred Share
and the denominator of which shall be such current market price per Preferred
Share (as determined pursuant to Section 11(d) hereof). 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 that would then be in effect if such record date had not
been fixed.

     (d)  Determination of Current Market Price.  For the purpose of any
computation hereunder:

          (i)   The "current market price" per Common Share on any date shall be
                     --------------------
     deemed to be for purposes other than Section 11 (a)(iii) hereof the average
                                          -------------------
     of the daily closing prices per share of such Common Shares for the 30
     consecutive Trading Days (as such term is hereinafter defined) immediately
     prior to such date and for purposes of Section 11(a)(iii) hereof, the
                                            ------------------
     average of the daily closing prices per share of such Common Shares for the
     10 consecutive Trading Days immediately prior to that date; provided,
                                                                 --------
     however, that in the event that the current market price per share of
     -------
     Common Shares is determined during the period following the announcement by
     the issuer of such Common Shares of (A) a dividend or distribution on such
     Common Shares payable in shares of such Common Shares or securities
     convertible into shares of such Common Shares (other than the Rights), or
     (B) any subdivision, combination or reclassification of such Common Shares,
     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 or 10 Trading Day
     period, then, and in each such case, the current market price shall be
     appropriately adjusted to reflect the current market price per Common Share
     Equivalent.  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 principal
     national securities exchange on which the Common Shares are listed or
     admitted to trading or, if the Common Shares are not listed or admitted to
     trading on any national securities exchange, the last sale price or, if not
     so reported, the average of the high bid and low asked prices in the over-
     the-counter market,

                                       16
<PAGE>

     as reported by the National Association of Securities Dealers, Inc.
     Automated Quotation System (the "NASDAQ System") or such other system then
                                      -------------
     in use, or, if on any such date the Common Shares are not quoted by such
     organization, the average of the closing bid and asked prices as furnished
     by a professional market maker making a market in the Common Shares
     selected by the Board of Directors of the Company. If on any such date no
     market maker is making a market in the Common Shares, the fair value of
     such Common Shares on such date shall be as determined in good faith by a
     majority of the Board (or, if at the time of such determination there is an
     Acquiring Person, by a nationally recognized investment banking firm
     selected by such majority). The term "Trading Day" shall mean a day on
                                           -----------
     which the principal national securities exchange on which the Common Shares
     are listed or admitted for trading is open for the transaction of business
     or, if the Common Shares are not listed or admitted for trading on any
     national securities exchange, a Business Day on which securities were
     traded in the over-the-counter market. If the Common Shares are not
     publicly held or not so listed or traded, "current market price" per share
                                                --------------------
     shall mean the fair value per share as determined in good faith by the
     Board of Directors, or, if at the time of such determination there is an
     Acquiring Person, by a nationally recognized investment banking firm, which
     determination shall be described in a statement filed with the Rights Agent
     and shall be conclusive for all purposes.

          (ii)  The "current market price" per Preferred Share shall be
                    --------------------
     determined in the same manner as set forth above for the Common Shares in
     clause (i) of this Section 11(d) (other than the last sentence thereof).
                        -------------
     If the current market price per Preferred Share cannot be determined in the
     manner provided above or if the Preferred Shares are not publicly held or
     listed or traded in a manner described in clause (i) of this Section 11(d),
                                                                  -------------
     the "current market price" per share of Preferred Shares shall be
          --------------------
     conclusively deemed to be an amount equal to 1,000 (as such number may be
     appropriately adjusted for such events as Shares splits, Shares dividends
     and recapitalization with respect to the Common Shares occurring after the
     date of this Agreement) multiplied by the current market price per Common
     Share.  If neither the Common Shares nor the Preferred Shares is publicly
     held or so listed or traded, "current market price" per Preferred Share
                                   --------------------
     shall be determined in the same manner as set forth in the last sentence of

     Section 11(d)(i).  For all purposes of this Agreement, the "current market
     ----------------                                            --------------
     price" of 1/1,000ths of a Preferred Share shall be equal to the "current
     -----                                                            -------
     market price" of one Preferred Share divided by 1,000.
     ------------

     (e)  Limitation on Adjustment on Purchase Price.  Notwithstanding anything
herein to the contrary, no adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least 1
percent in such 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 ten-thousandth of
----------
a share as the case may be. Notwithstanding the first sentence of this Section
                                                                       -------
11(e), any adjustment required by this Section 11 shall be made no later than
-----                                  ----------
the earlier of (i) three years from the date of the transaction which mandates
such adjustment or (ii) the Expiration Date.

     (f)  If, as a result of an adjustment made pursuant to Section 11(a), the
                                                            -------------
holder of any Right thereafter exercised shall become entitled to receive any
Capital Share Equivalents or other

                                       17
<PAGE>

shares of capital shares of the Company other than Preferred Shares, thereafter
the number of such other shares so receivable upon exercise of any Right and the
payment Purchase Price thereof shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Preferred Shares contained in Section 11(a) through (o),
                                                  -------------------------
inclusive, and the provisions of Sections 7, 9, 10, 13 and 14 with respect to
                                 ----------------------------
the Preferred Shares shall apply on like terms to any such other shares.

     (g)  All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of 1/1,000ths of a
Preferred Share 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) hereof, upon each adjustment of the Purchase Price as a result of
-------------
the calculations made in Sections 11(b) and (c) hereof, 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 1/1,000ths of
a Preferred Share (calculated to the nearest ten-thousandth) obtained by (i)
multiplying (x) the number of 1/1,000ths of a share covered by a Right
immediately prior to this adjustment by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price and (ii) dividing the
product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.

     (i)  The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights in lieu of any adjustment in the
number of 1/1,000ths of a Preferred Share 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 1/1,000ths of a Preferred Share
for which a Right was exercisable immediately prior to such adjustment.  Each
Right held of record prior to such adjustment of the number of Rights 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 the 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
date thereafter, but, if the Rights Certificates have been issued, shall be at
least 10 Business Days later than the date of the public announcement.  If
Rights Certificates have been issued, upon each adjustment of the number of
Rights pursuant to this Section 11(i), the Company shall, as promptly as
                        -------------
practicable, cause to be distributed to holders of record of Rights Certificates
on such record date Rights Certificates evidencing, subject to Section 14, the
                                                               ----------
additional Rights to which such holders shall be entitled as a result of such
adjustment, or, at the option of the Company, shall cause to be distributed to
such holders of record in substitution and replacement for the Rights
Certificates held by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment.  Rights Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the option
of the Company, the adjusted Purchase Price) and shall be registered in the
names of the holders of record of Rights Certificates on the record date
specified in the public announcement.

                                       18
<PAGE>

     (j)  Irrespective of any adjustment or change in the Purchase Price or the
number of 1/1,000ths of a Preferred Share issuable upon the exercise of the
Rights, the Rights Certificates theretofore and thereafter issued may continue
to express the Purchase Price per 1/1,000ths of a share and the number of
1/l,000ths of a share that were expressed in the initial Rights Certificates
issued hereunder and if so, shall not affect in any way the adjustments or
changes required under this Agreement.

     (k)  Before taking any action that would cause an adjustment reducing the
Purchase Price below the then stated value, if any, of the number of 1/1,000ths
of a Preferred Share 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 non-
assessable such number of 1/1,000ths of such Preferred Share at such adjusted
Purchase Price.

     (l)  In any case in which this Section 11 shall require that an adjustment
                                    ----------
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuance to the holder of any Right exercised after such record date the number
of 1/1,000ths of Preferred Shares and Capital Share Equivalents, if any,
issuable upon such exercise over and above the number of 1/1,000ths of Preferred
Shares and other capital shares 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 other securities
upon the occurrence of the event requiring such adjustment.

     (m)  Notwithstanding anything in this Section 11 to the contrary, 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 Preferred Shares, (ii) issuance wholly for cash of any shares of
Preferred Shares at less than the current market price, (iii) issuance wholly
for cash of Preferred Shares or securities which by their terms are convertible
into or exchangeable for Preferred Shares, (iv) share 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 Shares shall not be
taxable to such shareholders.

     (n)  The Company covenants and agrees that, after the Distribution Date, it
will not, except as permitted by Section 23 or Section 26 hereof, take (nor will
                                 ----------    ----------
it permit any of its subsidiaries 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.

     (o)  The Company covenants and agrees that it shall not, at any time after
the Distribution Date (other than in a transaction or series of transactions
that comply with Section 11(n) hereof): (i) consolidate with; (ii) merge with or
                 -------------
into; or (iii) sell or transfer (or permit any of its subsidiaries to sell or
transfer), in one or more transactions, assets or earning power aggregating more
than 50 percent of the assets or earning power of the Company and its

                                       19
<PAGE>

subsidiaries (taken as a whole) to any other Person if at the time of or
immediately after such consolidation, merger or sale there are any rights,
warrants, other instruments or securities outstanding or agreements in effect
which would substantially diminish or otherwise eliminate the benefits intended
to be afforded by the Rights.

     (p)  Notwithstanding anything in this Agreement to the contrary, in the
event that the Company shall at any time after the Record Date and prior to the
Distribution Date:  (i) declare a dividend on the outstanding Common Shares of
the Company payable in shares of Common Shares of the Company, (ii) subdivide
the outstanding Common Shares of the Company, or (iii) combine the outstanding
Common Shares of the Company into a smaller number of shares, then the number of
Rights associated with each Common Share of the Company 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 Common Share of the Company following any such event shall equal the result
obtained by multiplying the number of Rights associated with each Common Share
of the Company immediately prior to such event by a fraction, the numerator of
which shall be the total number of Common Shares of the Company outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of Common Shares of the Company outstanding
immediately following the occurrence of such event.

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

     (r)  Notwithstanding any other provision of this Agreement to the contrary,
if the Company determines that a registration statement filed pursuant to
Section 9(c) hereof is required to be amended or supplemented to continue to
------------
comply with the Securities Act, then the Company may suspend the exercisability
of the Rights and shall promptly after such determination take all necessary
steps to cause to be effective such amended or supplemented registration
statement. Immediately following such determination to amend or supplement such
registration statement, and immediately following the time such amended or
supplemented registration statement shall become effective, the Company shall
publicly announce the suspension of the exercisability of the Rights or the
termination of such suspension.

SECTION 12.    Certificate of Adjusted Purchase Price or Number of Shares.

     Whenever an adjustment is made as provided in Section 11 and Section 13
                                                   ----------     ----------
hereof, the Company shall:  (a) promptly prepare a certificate setting forth
such adjustment, and a brief statement of the facts accounting for such
adjustment; (b) promptly file with the Rights Agent and with each transfer agent
for the Preferred Shares and the Common Shares copy of such certificate; and (c)
mail a brief summary thereof to each holder of a Rights Certificate (or, if
prior to the Distribution Date, to each holder of a certificate representing
Common Shares) in accordance with Section 25 hereof.  The Rights Agent shall be
                                  ----------
fully protected in relying on any such certificate and on any adjustment therein
contained and shall not be obligated or responsible for calculating any
adjustment nor shall it be deemed to have knowledge of such adjustments unless
and until it shall have received such certificate.

                                       20
<PAGE>

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

     (a)  Effect on Rights.  In the event that, following the Share Acquisition
Date, directly or indirectly: (x) the Company shall consolidate with, or merge
with and into, any other Person (other than a Subsidiary of the Company in a
transaction that complies with Section 11(o) hereof) and the Company shall not
                               -------------
be the surviving or continuing company of such consolidation or merger; (y) any
Person (other than a Subsidiary of the Company in a transaction that complies
with Section 11(o) hereof) shall consolidate with, or merge with or into, the
     -------------
Company, and the Company shall be the continuing or surviving company of such
consolidation or merger and, in connection with such consolidation or merger,
all or part of the outstanding Common Shares of the Company shall be changed
into or exchanged for Shares or other securities of any other Person or cash or
any other property; or (z) 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 percent 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 or any Subsidiary of the Company in one or more transactions
each of which complies with Section 11(o) hereof), then, and in each such case
                            -------------
(except as may be contemplated by Section 13(d) hereof), proper provision shall
                                  -------------
be made so that:  (i) each holder of a Right (except as provided in Section 7(e)
                                                                    ------------
hereof) shall thereafter be entitled to receive, upon the exercise thereof at
the then current Purchase Price in accordance with the terms of this Agreement,
such number of shares of validly authorized and issued, fully paid, non-
assessable and freely tradable Common Shares of the Principal Party (as
hereinafter defined), not subject to any liens, encumbrances, rights of call or
first refusal, or other adverse claims as shall be equal to the result obtained
by (A) multiplying the then current Purchase Price by the then number of
1/1,000ths of a Preferred Share for which a Right is then exercisable
immediately prior to the first occurrence of any of the events described in
subsections (x), (y) or (z) of this paragraph (a) of Section 13 (each a "Section
                                                     ----------          -------
13 Event") (or, if an event described in Section 11(a)(ii) (each a "Section
--------                                 -----------------          -------
11(a)(ii) Event") has occurred prior to the first occurrence of a Section 13
---------------
Event, multiplying the number of such 1/1,000ths 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 (B) 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 the Agreement) by 50 percent of the current market
price per Common Share of such Principal Party (determined in the manner
described in Section 11(d)(i) hereof) 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 apply to such Principal Party
                                ----------
following the first occurrence of a Section 13 Event; and (iv) such Principal
Party shall take such steps (including, but not limited to, the authorization
and reservation of a sufficient number of its Common Shares) in connection with
the consummation of any such transaction as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to its Common Shares thereafter deliverable upon the exercise of
the Rights.

                                       21
<PAGE>

     (b)  Definition of Principal Party.  The term "Principal Party" shall mean:
                                                    ---------------

          (i)   in the case of any transaction described in subsection (x) or
     (y) of paragraph (a) of this Section 13, the Person that is the issuer of
                                  ----------
     any securities into which Common Shares of the Company are converted in
     such merger or consolidation, and if no securities are so issued, the
     Person that is the other party to the merger or consolidation; or

          (ii)  in the case of any transaction described in subsection (z) of
     paragraph (a) 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;

provided, however, that in any such case, (x) if the Common Shares of such
--------  -------
Person are not at such time and have 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 Person the Common Shares of which
is and has been so registered, "Principal Party" shall refer to such other
                                ---------------
Person the Common Shares of which are so registered; (y) in case such Person is
a Subsidiary, directly or indirectly, of more than one Person, the Common Shares
of all of which are and have been so registered, "Principal Party" shall refer
                                                  ---------------
to whichever of such Persons is the issuer of the Common Shares 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 (x) and (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 sat forth in this Section 13 in the
                                                             ----------
same ratio as their direct or indirect interests in such Person bear to the
total of such interests.

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

          (i)  prepare and file a registration statement under the Securities
     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 (A) become effective as soon as
     practicable after such filing, and (B) will use its best efforts to cause
     such registration statement to remain effective (with a prospectus at all
     times meeting the requirements of the Securities Act) until the date of
     expiration of the Rights and will use its best efforts to comply with all
     applicable State blue sky and other securities laws; and

                                       22
<PAGE>

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

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

  (d)  Permitted Offers.  Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not be applicable to a transaction described in
          ----------
subsections (x) and (y) of paragraph (a) of this Section 13 if: (i) such
                                                 ----------
transaction is consummated with a Person or Persons who acquired Common Shares
pursuant to a Permitted Offer (or a wholly owned subsidiary of any such Person
or Persons); (ii) the price per Common Share of the Company offered in such
transaction is not less than the price per Common Share of the Company paid to
all holders of Common Shares of the Company whose shares were purchased pursuant
to such Permitted Offer; and (iii) the form of consideration being offered to
the remaining holders of Common Shares of the Company pursuant to such
transaction is the same as the form of consideration paid pursuant to such
Permitted Offer.  Upon consummation of such transaction contemplated by this
paragraph (d), all Rights hereunder shall expire.

SECTION 14.    Fractional Rights and Fractional Shares.

  (a)  Issuance of Fractional Rights. The Company shall not be required to
issue fractions of Rights, except prior to the Distribution Date in accordance
with Section 11(p) hereof, or to distribute Rights Certificates that evidence
     -------------
fractional Rights.  In lieu of such fractional Rights, there shall be paid to
the registered holders of the Rights Certificates with regard to which such
fractional Rights would otherwise be issuable, an amount in cash equal to the
same fraction of the current market value of a whole Right.  For the purposes of
this Section 14(a), the current market value of a whole Right shall be the
     -------------
closing price of the Rights for the Trading Day immediately prior to the date on
which such fractional Rights would have been otherwise issuable.  The closing
price of the Rights for any day shall be the last sale price, regular way, or,
in case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed 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 sale 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 NASDAQ System 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 shall be as determined in good faith by the
Board, or, if at the time of such determination there is an Acquiring Person, by
a nationally recognized investment banking firm selected by such majority.

                                       23
<PAGE>

     (b)  Issuance of Certain Fractional Shares of Preferred Shares. The Company
shall not be required to issue fractions of Preferred Shares (other than
fractions that are integral multiples of 1/1,000ths of a Preferred Share) upon
exercise of the Rights or to distribute certificates which evidence fractional
shares (other than fractions that are integral multiples of 1/1,000ths of a
Preferred Share). In lieu of fractional shares that are not integral multiples
of 1/1,000ths of a Preferred Share, the Company may pay to the registered
holders of Rights Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current market
value of 1/1,000ths of a Preferred Share. For purposes of this Section 14(b),
                                                                -------------
the current market value of 1/1,000ths of a Preferred Share shall be 1/1,000ths
of the closing price of a Preferred Share (as determined pursuant to Section
                                                                     -------
11(d)(ii)) 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 its Common Shares upon exercise of
the Rights or to distribute certificates which evidence fractional shares of
such Common Shares. In lieu of fractional shares of such Common Shares, the
Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one (1) Common Share of the Company. For
purposes of this Section 14(c), the current market value of one Common Share
                 -------------
shall be the closing price of one Common Share (as determined pursuant to
Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
---------------
such exercise.

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

SECTION 15.    Rights of Action.

     All rights of action in respect of this Agreement are vested in the
respective registered holders of the Rights Certificates (and, prior to the
Distribution Date, the registered holders of the Common Shares); and any
registered holder of any Rights Certificate (or, prior to the Distribution Date,
of the Common Shares), may, in his own behalf and for his own benefit, enforce,
and may institute and maintain any suit, action or proceeding against the
Company to enforce, or otherwise act in respect of, his right to exercise the
Rights evidenced by such Rights Certificate in the manner provided in such
Rights Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and 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 Agents and with every other holder of a Right that:

                                       24
<PAGE>

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

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

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

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

SECTION 17.    Rights Certificate Holder Not Deemed a Shareholder.

     No holder, as such, of any Rights Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose the holder of the number of
Preferred Shares 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 Rights Certificate be construed to confer upon the
holder of any Rights 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 (except as provided in Section 24), or to receive
                                                      ----------
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Rights Certificates 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

                                       25
<PAGE>

execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability or expense incurred without gross
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the cost and expenses of
defending against any claim of liability in the premises and reasonable counsel
fees and expenses. The indemnification provided herein shall survive the
expiration of the Rights and the termination of this Agreement.

     (b)  The Rights Agent shall be protected and shall incur no liability for
or in respect of any action taken, suffered or omitted by it in connection with
its administration of this Agreement in reliance upon any Rights Certificate or
certificate for the Common Shares 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.

     (c)  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), even if the Rights Agent has been advised of the likelihood of such
loss or damage and regardless of the form of action.

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, share 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, however, 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
Rights Certificates shall have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of the predecessor Rights
Agent and deliver such Rights Certificate so countersigned; and in case at that
time any of the Rights Certificates shall not have been countersigned, any
successor Rights Agent may countersign such Rights Certificates in its name as
the successor Rights Agent; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.

     (b)  In case at any time the name of the Rights Agent shall be changed and
at such time any of the Rights Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Rights Certificates so countersigned; and in case at that time
any of the Rights Certificates shall not have been countersigned, the Rights
Agent may countersign such Rights Certificates either in its prior name

                                       26
<PAGE>

or in its changed name; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.

SECTION 20.    Duties of Rights Agent.

     The Rights Agent undertakes only the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the Company
and the holders of Rights Certificates, by their acceptance thereof, shall be
bound and no implied duties shall be read into this Agreement against the Rights
Agent:

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

     (b)  Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter 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, any assistant Treasurer, the
Secretary, or any assistant Secretary of the Company and delivered to the Rights
Agent; and such certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.

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

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

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

                                       27
<PAGE>

     (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 be reasonably required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.

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

     (h)  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.

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

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

     (k)  If, with respect to any Rights Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicated an affirmative response

                                       28
<PAGE>

to clause 1 and/or 2 thereof, the Rights Agent shall not take any further action
with respect to such requested exercise of transfer without receiving written
instructions of the Company.

     (l)  The Rights Agent shall have no responsibility to the Company, holders
of Rights, any holders of Common Shares or any holders of Preferred Shares for
interest or earnings or any monies held by the Rights Agent pursuant to and in
compliance with this Agreement.

     (m)  The Rights Agent shall not be required to take notice or been deemed
to have notice of any fact, event or determination (including, without
limitation, any dates or events defined in this Agreement or the designation of
any Person as an Acquiring Person, Affiliate or Associate) under this Agreement
unless and until the Rights Agent shall be specifically notified in writing by
the Company of such fact, event or determination, and all notices shall be
effective if given in accordance with Section 25 hereof, and in the absence of
such notice the Rights Agent may conclusively assume that no such event or
condition exists.

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 and upon 30 days notice in writing mailed
to the Company and to each transfer agent of the Preferred Shares and the Common
Shares by registered or certified mail, and to the holders of the Rights
Certificates by first class mail.  The Company may remove the Rights Agent or
any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights
Agent or successor Rights Agent, as the case may be, and to each transfer agent
of the Preferred Shares and the Common Shares by registered or certified mail,
and to the holders of the Rights Certificates by first-class mail.  If the
Rights Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor 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 Rights Certificate (who shall, with such notice, submit his
Rights Certificate for inspection by the Company), then the registered holder of
any Rights Certificate or the resigning Rights Agent 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)
a corporation organized, existing and doing business under the laws of the
United States or of any state of the United States, in good standing, which is
authorized under such laws to exercise corporate trust or stock transfer powers
and is subject to supervision or examination by federal or state authority and
which has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million; or (ii) an Affiliate of a corporation described
in clause (i) 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 and the
duties and obligations of the resigning Rights Agent shall cease and terminate;
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 Preferred Shares and the Common Shares, and mail a notice
thereof in writing to the registered holders of the Rights Certificates.
Failure to give any notice

                                       29
<PAGE>

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 Rights Certificates.

     Notwithstanding any of the provisions of this Agreement or of the Rights to
the contrary, the Company may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price per share and the number
or kind or class of shares or other securities or property purchasable under the
Rights Certificates made in accordance with the provisions of this Agreement.
In addition, in connection with the issuance or sale of Common Shares of the
Company following the Distribution Date and prior to the redemption or
expiration of the Rights, the Company (a) shall, with respect to such Common
Shares so issued or sold pursuant to the exercise of stock options or under any
employee plan or arrangement granted or awarded prior to or 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 Certificates
would be issued, and (ii) no such Rights Certificate shall be issued if, and to
the extent that, appropriate adjustment shall otherwise have been made in lieu
of the issuance thereof.

SECTION 23.    Redemption and Termination.

     (a)  The Board of Directors of the Company may, at its option, at any time
prior to 5:00 p.m., New York, New York time, on the earlier of (x) the Share
Acquisition Date (or if the Share Acquisition Date shall have occurred prior to
the Record Date, the close of business on the tenth day following the Record
Date) or (y) the Final Expiration Date, redeem all but not less than all of the
then outstanding Rights at a redemption price of $0.01 per Right as such amount
may be appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"), provided, however, that if,
                                ----------------    --------  -------
following the occurrence of a Share Acquisition Date but prior to any event
described in Section 13(a), either (x) in connection with any event specified in
             -------------
Section 13(a) in which all holders of Common Shares are treated alike and not
-------------
involving (other than as a holder of Common Shares 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 (y) following the occurrence of an event set forth in, and the
expiration of any period during which the holders of Rights may exercise the
Rights under, Section 11(a)(ii) if each of the following shall have occurred and
              -----------------
remain in effect: (i) such Section 11(a)(ii) Event shall be deemed inadvertent
as determined by the Board in its discretion taking into account all such
factors as the Board deems relevant; (ii) a Person who is an Acquiring Person
shall have transferred or otherwise disposed of a number of Common Shares in a
transaction, or series of

                                       30
<PAGE>

transactions, which did not result in the occurrence of a Triggering Event such
that such Person is thereafter a Beneficial Owner of 10 percent or less of the
outstanding Common Shares of the Company, (iii) there are no other Persons,
immediately following the occurrence of the event described in clause (ii)
hereof, who is Acquiring Persons, and (iv) the transfer or other disposition
described in clause (ii) hereof, above was other than pursuant to a transaction,
or series of transactions, which directly or indirectly involved the Company or
any of its Subsidiaries, then the right of redemption shall be reinstated and
thereafter be subject to the provisions of this Section 23.
                                                ----------

     (b)  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.  Promptly after the action of the Board of Directors ordering the
redemption for the Rights, the Company shall file with the Rights Agent evidence
of such action by the Board of Directors and shall give notice of such
redemption to the holders of the then outstanding Rights by mailing such notice
to each such holder at such holder's last address as it appears upon the
registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the Transfer Agent for the Common Shares of the Company.  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 Shares of the Company prior to the Distribution Date.

SECTION 24.    Notice of Certain Events.

     (a)  In case the Company shall propose at any time following the
Distribution Date: (i) to pay any dividend payable in stock of any class to the
holders of Preferred Shares or to make any other distribution to the holders of
Preferred Shares (other than a regular periodic cash dividend at a rate not in
excess of 125 percent of the rate of the last cash dividend theretofore paid);
(ii) to offer to the holders of Preferred Shares rights or warrants to subscribe
for or to purchase any additional Preferred Shares or shares of any class or any
other securities, rights or options; (iii) to effect any reclassification of
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares); (iv) to effect any consolidation or merger
into or with any other Person (other than a Subsidiary of the Company in a
transaction or transactions that comply with Section 11(o) hereof); (v) to
                                             -------------
effect any sale or other transfer (or to permit one or more of its subsidiaries
to effect any sale or other transfer), in one or more transactions, of more than
50 percent of the assets or earning power of the Company and its subsidiaries
(taken as a whole) to, any other Person (other than a Subsidiary of the Company
in a transaction or transactions that comply with Section 11(o) hereof); or (vi)
                                                  -------------
to effect the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall give to each holder of a Rights Certificate,
in accordance with Section 25, a notice of such proposed action, which shall
                   ----------
specify the record date for, and the purposes of, such share dividend,
distribution of rights or warrants, or the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution, or winding up
is to take place and the date of participation therein by the holders of the
Preferred Shares, if any such date is to be

                                       31
<PAGE>

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 Shares 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 the Preferred Shares, whichever shall be earlier.

     (b)  In case any of the events set forth in Section 11(a)(ii) of this
                                                 -----------------
Agreement shall occur, then, in any such case; (i) the Company shall, as soon as
practicable thereafter, give to each holder of a Rights Certificate, in
accordance with Section 25 and to the extent feasible, 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); and (ii) all references
                                     -----------------
in the preceding paragraph to Preferred Shares shall be deemed to thereafter
refer to Common Shares and/or other securities, as the case may be.

SECTION 25.    Notices.

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

               Garmin Ltd.
               Attn:  Co-Chief Executive Officer
               Queensgate House
               P.O. Box 30464SMB
               113 South Church Street, George Town,
               Grand Cayman, Cayman Islands
               (345) 946-5203

               With Copies to:
               Garmin International, Inc.
               Attn.:  President
               1200 East 151st Street
               Olathe, Kansas  66062

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

               UMB Bank, N.A., as Rights Agent
               Attn.:  Corporate Trust Department
               P.O. Box 417015
               Kansas City, Missouri  64141-7015

                                       32
<PAGE>

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

SECTION 26.    Supplements and Amendments.

     Prior to the Distribution Date and subject to the penultimate sentence of
this Section 26, the Company and the Rights Agent shall, if the Company so
     ----------
directs, supplement or amend any provision of this Agreement without the
approval of any holders of Rights Certificates.  From and after the Distribution
Date and subject to the penultimate sentence of this Section 26, the Company and
                                                     ----------
the Rights Agent shall, if the Company so directs, supplement, amend, remove any
provision of this Agreement without approval of any holders of Rights 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 (which lengthening or
shortening, following the first occurrence of an event set forth in clauses (i)
and (ii) of the first provision to Section 23(a) hereof, shall be effective only
                                   -------------
if approved by at least 70 percent of the then members of the Board); or (iv) to
change or supplement the provisions hereunder in any manner which the Company
may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Rights Certificates (other than an Acquiring Person
or an Affiliate or Associate of an Acquiring Person); provided, 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 and an opinion of
counsel reasonably acceptable to the Rights Agent that state that the proposed
supplement or amendment is in compliance with the terms of this Section 26, the
                                                                ----------
Rights Agent shall execute such supplement or amendment unless the Rights Agent
shall have determined in good faith that such supplement or amendment would
adversely affect its interests under this Agreement.  Notwithstanding anything
contained in this Agreement to the contrary, no supplement or amendment shall be
made which changes the Redemption Price, the Final Expiration Date, the Purchase
Price or the number of 1/1,000ths of Preferred Shares for which a Right is
exercisable.  Prior to the Distribution Date, the interests of the holders of
Rights shall be deemed coincident with the interests of the holders of Common
Shares of the Company.

SECTION 27.    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 28.    Determination and Actions by the Board of Directors, etc.

     For all purposes of this Agreement, any calculation of the number of Common
Shares of the Company outstanding at any particular time, including for purposes
of determining the particular percentage of such outstanding Common Shares of
the Company of which any Person

                                       33
<PAGE>

is the Beneficial Owner, shall be made in accordance with the provisions of Rule
13d-3(d)(l)(i) of the General Rules and Regulations under the Exchange Act. The
Board of Directors of the Company shall have the exclusive power and authority
to administer this Agreement and to exercise all rights and powers specifically
granted to the Board or the Company, or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power to (i) interpret the provisions of this Agreement, and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights or to
amend the Agreement). All such actions, calculations, interpretations and
determinations (including, for the purpose of clause (ii) below, all omissions
with respect to the foregoing which are done or made by the Board) in good
faith, shall (i) be final, conclusive and binding on the Company, the Rights
Agent, the holders of the Rights Certificates and all other parties, and (ii)
not subject to the Board to any liability to the holders of the Rights
Certificates.

SECTION 29.    Benefits of this Agreement.

     Nothing in this Agreement shall be construed to give any Person other than
the Company, the Rights Agent and the registered holders of the Rights
Certificates 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 Rights Certificates.

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; provided, however, that
                                                --------  -------
notwithstanding anything in this Agreement to the contrary, if any such term,
provision, covenant or restriction is held by such court or authority to be
invalid, void or unenforceable and the Board of Directors of the Company
determines in its good faith judgment that severing the invalid language from
this Agreement would adversely affect the purpose or effect of this Agreement,
the right or redemption set forth in Section 23 hereof shall be reinstated and
                                     ----------
shall not expire until the close of business on the tenth day following the date
of such determination by the Board of Directors.

SECTION 31.    Governing Law.

     This Agreement, each Rights Certificate and each Right issued hereunder
shall be deemed to be a contract made under the laws of the State of Delaware
and for all purposes shall be governed by and construed in accordance with the
laws of such State applicable to contracts to be made and performed entirely
within such State, except for Sections 18, 19, 20 and 21 hereof and relating to
                              --------------------------
the rights, duties and obligations of the Rights Agent, which shall be governed
by the laws of the State of Missouri without reference to its choice of law
rules.

                                       34
<PAGE>

SECTION 32.    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 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.

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

                              GARMIN LTD.

Attest:

By:__________________________________     By:__________________________________
   Name:  Andrew R. Etkind                    Name:  Min H. Kao
   Title:  General Counsel and Secretary      Title:  Co-Chief Executive Officer

                              UMB BANK, N.A., AS RIGHTS AGENT

Attest:

By:__________________________________     By:__________________________________
   Name:_____________________________        Name:_____________________________
   Title:____________________________        Title:____________________________

                                       35
<PAGE>

                                                                       Exhibit A
                                    FORM OF

                                  RESOLUTIONS

                                       OF

                                  GARMIN LTD.

                           SERIES A PREFERRED SHARES

     RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Company in accordance with the provisions of the Memorandum
of Association and Articles of Association, a series of Series A Preferred
Shares of the Company be, and it hereby is created, and the designation and
amount thereof and the voting powers, preferences and relative, participating,
optional and other special rights of such series, and the qualifications,
limitations or restrictions thereof (in addition to the provisions set forth in
the Memorandum of Association and Articles of Association, which are applicable
to the Preferred Shares) are as follows:

     1.   Designation and Amount.  The shares of such series shall be designated
          ----------------------
as "Series A Preferred Shares" and the number of shares initially constituting
    -------------------------
such series shall be 100,000.

     2.   Dividends and Distributions.
          ---------------------------

          (A)  Subject to any prior and superior rights of the holders of any
series of Preferred Shares ranking prior and superior to the shares of Series A
Preferred Shares with respect to dividends, the holders of shares of Series A
Preferred Shares shall be entitled prior to the payment of any dividends on
shares ranking junior to the Series A Preferred Shares to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the last day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
   -------------------------------
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Shares, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $10.00 or (b) subject to the provision for
adjustment hereinafter set forth, 1,000 times the aggregate per share amount of
all cash dividends, and 1,000 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in Common Shares, par value $0.01 per share, of the Company (the "Common
                                                                          ------
Shares") or a subdivision of the outstanding Common Shares (by reclassification
------
or otherwise), declared on the Common Shares since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series A Preferred Shares.  In the event the Company shall at any time
after _____________, 2000 (the "Rights Declaration Date") (i) declare any
                                -----------------------
dividend on Common Shares payable in Common Shares, (ii) subdivide the
outstanding Common Shares, or (iii) combine the outstanding Common Shares into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Preferred Shares 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

<PAGE>

numerator of which is the number of Common Shares that were outstanding
immediately after such event and the denominator of which is the number of
Common Shares outstanding immediately prior to such event. Such adjustment shall
be made successively whenever such a dividend or change in the Common Shares is
consummated.

          (B)  The Company shall declare a dividend or distribution on the
Series A Preferred Shares as provided in paragraph (A) above immediately after
it declares a dividend or distribution on the Common Shares (other than a
dividend payable in Common Shares); provided, that in the event no dividend or
                                    --------
distribution shall have been declared on the Common Shares during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $10.00 per share on the Series A Preferred
Shares shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.

          (C)  Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Shares from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series A Preferred Shares,
unless the date of issue of such shares is prior to the record date for the
first Quarterly Dividend Payment Date, in which case dividends on such shares
shall begin to accrue from the date of issue of such shares, or unless the date
of issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Preferred Shares entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest.  Dividends paid on the shares of Series A Preferred Shares in
an amount less than the total amount of such dividends at the time accrued ant
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 Preferred
Shares 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.

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

          (A)  Subject to the provision for adjustment hereinafter set forth,
each 1/1,000th share of Series A Preferred Shares shall entitle the holder
thereof to one vote on all matters voted on at a meeting of the shareholders of
the Company. In the event the Company shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Shares payable in Common
Shares, or (ii) subdivide the outstanding Common Shares, or (iii) combine the
outstanding Common Shares into a smaller number of shares, then in each such
case the number of votes per share to which holders of shares of Series A
Preferred Shares 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
Common Shares outstanding immediately after such event and the denominator of
which is the number of Common Shares that were outstanding immediately prior to
such event.  Such adjustment shall be made successively whenever such a dividend
or change in the Common Shares is consummated.

                                       2
<PAGE>

          (B)  Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Shares and the holders of Common Shares shall vote
together as one class on all matters voted on at a meeting of shareholders of
the Company.

          (C)  Except as set forth herein, holders of Series A Preferred Shares
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 Shares as
set forth herein) for taking any corporate action.

     4.   Certain Restrictions.
          --------------------

          (A)    Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Shares as provided in Section 2
                                                                      ---------
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Shares
outstanding shall have been paid in full, the Company shall not

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

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

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

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

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

     5.   Reacquired Shares. Any shares of Series A Preferred Shares purchased
          -----------------
or otherwise acquired by the Company in any manner whatsoever shall be retired
and cancelled

                                       3
<PAGE>

promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued Preferred Shares and may be reissued
as part of a new series of Preferred Shares to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.

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

          (A)  In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, no distribution shall be made on any
capital shares of the Company that rank junior (whether as to dividends or upon
liquidation, dissolution or winding up) to Series A Preferred unless prior
thereto the holders of Series A Preferred Shares shall have received an amount
equal to 1,000 times the aggregate amount to be distributed per share to holders
of the common shares.

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

          (C)  In the event the Company shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Shares payable in Common
Shares, (ii) subdivide the outstanding Common Shares, or (iii) combine the
outstanding Common Shares into a smaller number of shares, then in each such
case the amount that the holders of the Series A Preferred Shares were entitled
to receive upon liquidation, dissolution or winding up of the Company
immediately prior to such event shall be adjusted by multiplying such number by
a fraction the numerator of which is the number of Common Shares that were
outstanding immediately after such event and the denominator of which is the
number of Common Shares outstanding immediately prior to such event.  Such
adjustment shall be made successively whenever such a dividend or change in the
Common Shares is consummated.

     7.   Merger, Consolidation, etc.  In case the Company shall enter into any
          --------------------------
merger, consolidation, combination or other transaction in which the Common
Shares are exchanged for or changed into other shares or securities, cash and/or
any other property, then in any such case each share of Series A Preferred
Shares shall at the same time be similarly exchanged or changed in an amount per
share (subject to the provision for adjustment hereinafter set forth) equal to
1,000 times the aggregate amount of shares, securities, cash and/or other
property (payable in kind), as the case may be, into which or for which each
share of Common Shares is changed or exchanged.  In the event the Company shall
at any time after the Rights Declaration Date (i) declare any dividend on Common
Shares payable in Common Shares, (ii) subdivide the outstanding Common Shares,
or (iii) combine the outstanding Common Shares into a smaller number of shares,
then, in each such case, the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Series A Preferred Shares shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of Common Shares outstanding immediately after such event and the
denominator of which is the number of Common Shares that were outstanding
immediately prior to such event.

     8.   No Redemption.  The Series A Preferred Shares shall not be redeemable.
          -------------

                                       4
<PAGE>

     9.   Ranking.  The Series A Preferred Shares shall rank on a parity with
          -------
all other series of the Company's Preferred Shares as to the payment of
dividends and other distribution of assets, unless the terms of any such other
series shall provide otherwise.

     10.  Amendment.  The powers, preferences, rights, qualifications,
          ---------
limitations and restrictions of the Series A Preferred Shares may not be
materially altered or changed so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding shares
of Series A Preferred Shares, voting separately as a class.

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

     AND BE IT FURTHER RESOLVED , that any documents heretofore executed or
lawful actions heretofore taken by any of the officers of the Company in
connection with the transactions herein described are hereby ratified, confirmed
and approved in all respects.

                                       5
<PAGE>

                                                                       EXHIBIT B
                           FORM OF RIGHTS CERTIFICATE

Certificate No. A-                                          [___________] Rights

     NOT EXERCISABLE AFTER [_____________] OR EARLIER IF REDEEMED BY THE
     COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
     COMPANY, AT $[__________________] PER RIGHT ON THE TERMS SET FORTH IN THE
     RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY
     AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND
     ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS
     PRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A
     PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN ASSOCIATE OR AFFILIATE
     OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
     ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY
     BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE
     RIGHTS AGREEMENT.]*

                              RIGHTS CERTIFICATE
                              ------------------

     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 [________], 2000
(the "Rights Agreement") between Garmin Ltd., a Cayman Islands corporation (the
      ----------------
"Company"), and UMB Bank, N.A., a national banking association organized and
 -------
existing under the laws of the United States of America, as rights agent (the
"Rights Agent"), to purchase from the Company at any time prior to 5:00 P.M.
 ------------
(New York, New York time) on [_______________] at the principal office or
offices of the Rights Agent designated for such purpose, or its successors as
Rights Agent, 1/1,000ths of a fully paid nonassessable share of the Series A
Preferred Shares (the "Preferred Shares"), of the Company, at a purchase price
                       ----------------
of $[_________] per 1/1,000ths of a share (the "Purchase Price"), upon
                                                --------------
presentation and surrender of this Rights Certificate with the Form of Election
to Purchase and related Certificate duly executed.  The number of Rights
evidenced by this Rights Certificate (and the number of shares which may be
purchased upon exercise thereof) set forth above, and the Purchase Price per
1/1,000ths share set forth above, are the number and Purchase Price as of
[_______________], 2000, based on the Preferred Shares of the Company as
constituted at such date.

     Upon the occurrence of a transaction listed in Section 11(a)(ii) (a
"Section 11(a)(ii) Event"), if the Rights evidenced by this Rights Certificate
 -----------------------
are beneficially owned by (i) an

_______________________
*   The portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.
<PAGE>

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 Shares or other securities which may be purchased
upon the exercise of the Rights evidenced by this Rights Certificate are subject
to modification and adjustment upon the happening of certain events.

     This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitation of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Rights Agent.

     This Rights Certificate, with or without other Rights Certificates, upon
surrender at the office or offices the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of 1/1,000ths of a share of Preferred Shares as the Rights
evidenced by the Rights Certificate or Rights Certificates surrendered shall
have entitled such holder to purchase.  If this Rights Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender hereof
another Rights Certificate or Rights Certificates for the number of whole Rights
not exercised.

     Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Company at its options at a redemption
price of $0.01 per Right.

     No fractional shares of Preferred Shares will be issued upon the exercise
of any Right or Rights evidenced hereby (other than fractions which are integral
multiples of 1/1,000ths of a share of Preferred Shares), but in lieu thereof a
cash payment will be made, as provided in the Rights Agreement.

     No holder of this Rights Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of Preferred Shares or of any
other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
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 action affecting shareholders

                                       2
<PAGE>

(except as provided in the Rights Agreement), or to receive dividends or
subscription rights, or otherwise, until the Right or Right evidenced by this
Rights Certificate shall have been exercised as provided in the Rights
Agreement.

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

     WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal.  Dated as of this [______] day of [________________], 2000.

[SEAL]                        GARMIN LTD.

                              By:______________________________________
                                 Title:  Co-Chief Executive Officer

ATTEST:

___________________________
Title:  Secretary

Countersigned:

[RIGHTS AGENT]

By:_____________________________
    Authorized Signature

                                       3
<PAGE>

                  [Form of Reverse Side of Rights Certificate]

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

     (To be executed by the registered holder if such holder desires to transfer
the Rights Certificates.)

     FOR VALUE RECEIVED _____________________________ hereby sells, assigns and
transfers unto_________________________________________________________________
_______________________________________________________________________________
               (Please print name and address of transferee)

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

Dated:___________________________

                              __________________________________________
                              Signature

Signature Guaranteed:

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

     The undersigned hereby certifies by checking the appropriate boxes that:

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

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

Dated:_________________________

                              _______________________________________
                              Signature

Signature Guaranteed:

                                       4
<PAGE>

                                     NOTICE
                                     ------

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

                                       5
<PAGE>

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

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

To:___________________________________

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

Please insert social security
or other identifying number

_____________________________________________________________________________
                        (Please print name and address)

_____________________________________________________________________________

If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance 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:_______________________, _____

                              ____________________________________
                              Signature

Signature Guaranteed:

                                       6
<PAGE>

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

     The undersigned hereby certifies by checking the appropriate boxes that:

     (1) the Rights evidenced by this Rights Certificate (TM) are (TM) are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);

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

Dated:_______________, 2000

                              __________________________________________
                              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 Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.

                                      7
<PAGE>

                                                                       EXHIBIT C

                     DETAILED SUMMARY OF RIGHTS TO PURCHASE
                           SERIES A PREFERRED SHARES

          On ____________, 2000, the Board of Directors of Garmin Ltd. (the
"Company") declared a dividend distribution of one Right for each outstanding
share of the Company's Common Shares, $0.01 par value per share (the "Common
Shares") of the Company to the shareholders of record on __________, 2000 (the
"Record Date").  Each Right entitles the registered holder to purchase from the
Company 1/1,000ths of a share of Series A Preferred Shares (the "Preferred
Shares") or in some circumstances, Common Shares, other securities, cash or
other assets as summarized below at a price of $_________ per share (the
"Purchase Price"), (both shares and price are subject to adjustment as described
below).  The complete terms and conditions of the Rights are set forth in a
Rights Agreement (the "Rights Agreement") between the Company and UMB Bank,
N.A., as rights agent, dated as of ____________, 2000, as may be amended from
time to time.  Capitalized terms not defined herein are defined in the Rights
Agreement.

          Each share outstanding on the Record Date will receive one Right.
Until the Distribution Date (or the earlier redemption or expiration of the
Rights), Common Shares issued (whether newly issued or later issued) will have
the Rights automatically attached.

          In the event that a Person or group of affiliated or associated
persons (an "Acquiring Person") becomes the beneficial owner of or announces a
tender or exchange offer for 15 percent or more of the outstanding Common Shares
of the Company, proper provision shall be made so that each holder of a Right,
other than of Rights that are or were beneficially owned by the Acquiring Person
(which will thereafter be null and void), will thereafter have the right to
receive upon exercise that number of shares of the Preferred Shares (or in
certain circumstances, Common Shares or assets or other securities of the
Company) having a market value of two times the exercise price of the Right.  In
the event that the Company were acquired in a merger or other business
combination transaction (other than pursuant to a Permitted Offer) or more than
50 percent of the Company's (together with its subsidiaries) assets or earning
power were sold, proper provision shall be made so that each holder of a Right,
other than of Rights that are or were beneficially owned by an Acquiring Person
(which will thereafter be null and void) shall thereafter have the right to
receive, upon the exercise thereof at the then current exercise price of the
Right, that number of shares of the highest priority voting securities of the
acquiring company (or certain of its affiliates) that at the time of such
transaction would have a market value of two times the exercise price of the
Right.  If the Rights are exercised to acquire the Preferred Shares, then the
Rights will not be exercisable to acquire the securities of any Acquiring
Person.

          Until ten calendar days following the earlier to occur of (unless
extended by the Board of Directors and subject to the earlier redemption or
expiration of the Rights): (i) the date of a public announcement that an
Acquiring Person acquired, or obtained the right to acquire, beneficial
ownership of 15 percent or more of the outstanding shares of the Common Shares
of the Company, or (ii) the commencement or announcement of an intention to make
a tender offer or exchange offer that would result in an Acquiring Person
beneficially owning 15 percent or more of such outstanding Common Shares of the
Company (the earlier of such dates being called
<PAGE>

the "Distribution Date"), the Rights will be evidenced, with respect to any of
the Company's Common Shares certificates outstanding as of the Record Date, by
such Common Shares certificate. The certificates for Common Shares issued after
the Record Date, but prior to the Distribution Date will have a notation
referencing the Rights Agreement. The Rights Agreement provides that, until the
Distribution Date, the Rights will be transferred with and only with the
Company's Common Shares, and until the Distribution Date (or earlier redemption
or expiration of the Rights), the surrender for transfer of any of the Company's
Common Shares certificates outstanding as of the Record Date, will also
constitute the transfer of the Rights associated with the Common Shares
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to holders of record of the Company's Common
Shares as of the close of business on the Distribution Date and such separate
Rights Certificates alone will evidence the Rights.

          Permitted Offer is defined in the Rights Agreement as a tender offer
that is for all outstanding Common Shares of the Company at a price and on terms
determined to be adequate prior to the purchase of shares under such tender or
exchange offer, by at least 70% of the members of the Board of Directors of the
Company, taking into account all factors that such directors deem relevant
including, without limitation, prices that could reasonably be achieved if the
Company or its assets were sold on an orderly basis designed to realize maximum
value and otherwise in the best interests of the Company and its shareholders
(other than the Person or any Affiliate or Associate thereof for whose benefit
the offer is being made).

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

          With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1
percent in such Purchase Price.  No fractional shares will be issued (other than
fractional shares which are integral multiples of 1/1,000ths of a share of
Preferred Shares) and, in lieu thereof, an adjustment in cash will be made based
on the market price of the Preferred Shares on the last Trading Date prior to
the date of exercise.

          The Rights are not exercisable until the Distribution Date.  The
Rights will expire on _________, 2010, unless earlier redeemed by the Company as
described below.

          At any time prior to 5:00 p.m. New York, New York time on the tenth
calendar day after the first date after the public announcement that an
Acquiring Person has acquired beneficial ownership of 15 percent or more of the
outstanding shares of the Common Shares of the Company (the "Share Acquisition
Date"), the Company may redeem the Rights in whole, but not in part, at a price
of $0.01 per Right (the "Redemption Price"). Following the Share Acquisition

                                       2
<PAGE>

Date, but prior to an event listed in Section 13(a) of the Rights Agreement
(i.e. a merger, consolidation or sale of more than 50 percent of the assets or
earnings power of the Company and its subsidiaries), the Company may redeem the
Rights in connection with any event specified in Section 13(a) in which all
shareholders are treated alike and which does not include the Acquiring Person
or its Affiliates or Associates.  In addition, the Company's right of redemption
may be reinstated following an inadvertent trigger of the Rights (as determined
by the Board) if an Acquiring Person reduces its beneficial ownership to 10
percent or less of the outstanding Common Shares of the Company in a transaction
or series of transactions not involving the Company.  Immediately upon the
action of the Board of Directors of the Company electing to redeem the Rights,
the Company shall make announcement thereof, and upon such election, the right
to exercise 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 of the Company, shareholders may, depending on the
circumstances, recognize taxable income in the event that the Rights become
exercisable for the Preferred Shares (or other securities, as the case may be)
of the Company.

          Prior to the Distribution Date the Company may amend or supplement any
provision of the Rights Agreement without the consent of the holders of the
Rights.  Following the Distribution Date, the Company may amend the provisions
of the Rights Agreement in order to cure any ambiguity, to correct any defect or
inconsistency, to make changes deemed necessary or desirable so long as such
changes do not adversely affect the interests of the holders of the Rights
(excluding the interests of any Acquiring Person and its affiliates and
associates).  In either case, however, the Company may not amend or supplement
the Rights Agreement to change or supplement the Redemption Price, Final
Expiration Date, the Purchase Price or the number of 1/1,000ths of a share of
Preferred Shares for which a Right is exercisable.

          The Rights may have the effect of impeding a change in control of the
Company without the prior consent of the Company's Board of Directors, and the
Rights could cause substantial dilution to a person that attempts to acquire the
Company without conditioning the offer on redemption of the Rights by the
Company's Board of Directors or on the acquisition by such person of a
substantial number of Rights.

          A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form S-1 dated
_________, 2000.  A copy of the Rights Agreement is available free of charge
from the Company by written request to Garmin Ltd., c/o Garmin International,
Inc., 1200 E. 151st Street, Olathe, Kansas 66062.  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.  In the event of a conflict between this summary and the Rights
Agreement, the Rights Agreement will prevail.

                                      3

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