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Exhibit 4.1  

DOV PHARMACEUTICAL, INC.  

AND  

CONTINENTAL STOCK TRANSFER & TRUST CO.  

AS RIGHTS AGENT  

 
  SHAREHOLDER RIGHTS AGREEMENT    
  

DATED AS OF OCTOBER 8, 2002  

  

 
 

TABLE OF CONTENTS    
  

	Section
 
	 	 
	 	Page

	Section 1.	 	Certain Definitions	 	1
	

Section 2.	
 	

Appointment of Rights Agent	
 	

5
	

Section 3.	
 	

Issue of Right Certificates	
 	

6
	

Section 4.	
 	

Form of Right Certificates	
 	

7
	

Section 5.	
 	

Countersignature and Registration	
 	

9
	

Section 6.	
 	

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

9
	

Section 7.	
 	

Exercise of Rights; Exercise Price; Expiration Date of Rights	
 	

10
	

Section 8.	
 	

Cancellation and Destruction of Right Certificates	
 	

11
	

Section 9.	
 	

Reservation and Availability of Preferred Stock	
 	

12
	

Section 10.	
 	

Preferred Stock Record Date	
 	

13
	

Section 11.	
 	

Adjustment of Exercise Price, Number and Kind of Shares or Number of Rights	
 	

13
	

Section 12.	
 	

Certificate of Adjusted Exercise Price or Number of Shares	
 	

21
	

Section 13.	
 	

Consolidation, Merger or Sale or Transfer of Assets or Earning Power	
 	

21
	

Section 14.	
 	

Fractional Rights and Fractional Shares	
 	

24
	

Section 15.	
 	

Rights of Action	
 	

24
	

Section 16.	
 	

Agreement of Right Holders	
 	

25
	

Section 17.	
 	

Right Certificate Holder Not Deemed a Shareholder	
 	

25
	

Section 18.	
 	

Concerning the Rights Agent	
 	

26
	

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 Right Certificates	
 	

29
	

Section 23.	
 	

Redemption	
 	

30
	

Section 24.	
 	

Exchange	
 	

31
	

Section 25.	
 	

Notice of Certain Events	
 	

32
	

Section 26.	
 	

Notices	
 	

33
	

Section 27.	
 	

Supplements and Amendments	
 	

33
	

Section 28.	
 	

Successors	
 	

34
	

Section 29.	
 	

Determinations and Actions by the Board of Directors	
 	

34
	

Section 30.	
 	

Benefits of this Agreement	
 	

34
	

Section 31.	
 	

Severability	
 	

35
	
 	
 	

 	
 	

 

i

 

	

Section 32.	
 	

Governing Law	
 	

35
	

Section 33.	
 	

Counterparts	
 	

35
	

Section 34.	
 	

Descriptive Headings	
 	

35

Exhibit A—Certificate
of Designations of

Series E Junior Participating

Cumulative Preferred Stock 

Exhibit B—Form
of Right Certificate 

ii

 
 

SHAREHOLDER RIGHTS AGREEMENT    
  

        Agreement, dated as of October 8, 2002, between DOV Pharmaceutical, Inc., a Delaware corporation (the "Company"), and Continental Stock
Transfer & Trust Co., a federally chartered trust company (the "Rights Agent"). 

W I T N E S S E T H 

        WHEREAS,
the Board of Directors of the Company desires to provide shareholders of the Company with the opportunity to benefit from the long-term prospects and value of the
Company and to ensure that shareholders of the Company receive fair and equal treatment in the event of any proposed takeover of the Company; and 

        WHEREAS,
on October 8, 2002, the Board of Directors of the Company (i) authorized and declared a dividend distribution of one Right (as such term is hereinafter defined)
for each share of Common Stock, par value $0.0001 per share, of the Company (the "Common Stock") outstanding as of October 9, 2002 (the "Record Date"), (ii) authorized and declared a
dividend distribution of 1.62 Rights for each share of Series B Preferred Stock, par value $1.00 per share, of the Company (the "Series B Preferred Stock") outstanding as of the Record
Date, in accordance with the provisions of Section 4(b) of the Fourth Amended and Restated Certificate of Incorporation, (iii) authorized the issuance of one Right for each share of
Common Stock of the Company issued (whether or not originally issued (including upon the conversion of Series B Preferred Stock into Common Stock) or sold from the Company's treasury, except in
the case of treasury shares having associated Rights) between the Record Date and the earlier of the Distribution Date or the Expiration Date (as such terms are hereinafter defined) and
(iv) authorized the issuance, for each share of Series B Preferred Stock issued (whether or not originally issued or sold from the Company's treasury, except in the case of treasury
shares having associated Rights) between the Record Date and the earlier of the Distribution Date or the Expiration Date, such number of Rights as is equal to the number of shares of Common Stock of
the Company into which one share of Series B Preferred Stock is then convertible as of the date of issuance, each Right initially representing the right to purchase one
ten-thousandth of a share of Series E Junior Participating Cumulative Preferred Stock of the Company having the rights, powers and preferences set forth on  Exhibit A hereto, upon the terms and
subject to the conditions hereinafter set forth (the "Rights"); and 

        WHEREAS,
the Company desires to appoint the Rights Agent to act as rights agent hereunder, in accordance with the terms and conditions hereof. 

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

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

        (a)  "Acquiring Person" shall mean any Person (as such term is hereinafter defined) who or which, together with all Affiliates
(as such term is hereinafter defined) and Associates (as such term is hereinafter defined) of such Person, shall be the Beneficial Owner (as such term is hereinafter defined) of 15% or more of the
shares of Common Stock of the Company then outstanding, but shall not include (i) the Company, (ii) any Subsidiary (as such term is hereinafter defined) of the Company, (iii) any
employee benefit plan or compensation arrangement of the Company or any Subsidiary of the Company or (iv) any Person holding shares of Common Stock of the Company organized, appointed or
established by the Company or any Subsidiary of the Company for or pursuant to the terms of any such employee benefit plan or compensation arrangement (the Persons described in clauses
(i) through (iv) above are referred to herein as "Exempt Persons"); provided, however, that the term "Acquiring Person" shall not include
any Grandfathered Person, unless such Grandfathered Person becomes the Beneficial Owner of a percentage of the shares of Common Stock of the Company then outstanding equal to or exceeding such
Grandfathered Person's Grandfathered Percentage. 

 

        Notwithstanding
the foregoing, no Person shall become an "Acquiring Person" as the result of an acquisition by the Company of Common Stock of the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares Beneficially Owned by such Person to 15% (or in the case of a Grandfathered Person, the Grandfathered Percentage applicable to such
Grandfathered Person) or more of the shares of Common Stock of the Company then outstanding; provided, however, that if a Person shall become the
Beneficial Owner of 15% (or in the case of a Grandfathered Person, the Grandfathered Percentage applicable to such Grandfathered Person) or more of the shares of Common Stock of the Company then
outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of any additional shares (other than pursuant to a stock
split, stock dividend or similar transaction) of Common Stock of the Company and immediately thereafter be the Beneficial Owner of 15% (or in the case of a Grandfathered Person, the Grandfathered
Percentage applicable to such Grandfathered Person) or more of the shares of Common Stock of the Company then outstanding, then such Person shall be deemed to be an "Acquiring Person." 

        In
addition, notwithstanding the foregoing, a Person shall not be an "Acquiring Person" if the Board of Directors of the Company determines at any time that a Person who would otherwise
be an "Acquiring Person," has become such without intending to become an "Acquiring Person," and such Person divests as promptly as practicable (or within such period of time as the Board of Directors
of the Company determines is reasonable) a sufficient number of shares of Common Stock of the Company so that such Person would no longer be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this Section 1(a). 

        (b)  "Adjustment Shares" shall have the meaning set forth in Section 11(a)(ii) hereof. 

        (c)  "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations (the "Rules") under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date
of this Agreement; provided, however, that no Person who is a director or officer of the Company shall be deemed an Affiliate or an Associate of any
other director or officer of the Company solely as a result of his or her position as director or officer of the Company. 

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

        (i)    which
such Person or any of such Person's Affiliates or Associates, directly or indirectly, Beneficially Owns (as determined pursuant to Rule 13d-3 of
the Rules under the Exchange Act, as in effect on the date of this Agreement); 

        (ii)  which
such Person or any of such Person's Affiliates or Associates, directly or indirectly, has: 

        (A)  the
right to acquire (whether or not such right is exercisable immediately or only after the passage of time or upon the satisfaction of any conditions or both) pursuant
to any agreement, arrangement or understanding (whether or not in writing) (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public
offering of securities) or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the "Beneficial Owner" of, or to "Beneficially Own" or have "Beneficial Ownership" of, (1) securities tendered pursuant to a
tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange;
(2) securities issuable upon exercise of these Rights at any time prior to the 

2

 

occurrence of a Triggering Event; or (3) securities issuable upon exercise of Rights from and after the occurrence of a Triggering Event, which Rights were acquired by such Person or any of
such Person's
Affiliates or Associates prior to the Distribution Date or pursuant to Sections 3(a), 11(i) or 22 hereof; or 

        (B)  the
right to vote pursuant to any agreement, arrangement or understanding (whether or not in writing); provided, however,
that a Person shall not be deemed the "Beneficial Owner" of, or to "Beneficially Own" or have "Beneficial Ownership" of, any security under this clause (B) if the agreement, arrangement or
understanding to vote such security (1) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the Rules of
the Exchange Act and (2) is not also then reportable by such person on Schedule 13D under the Exchange Act (or any comparable or successor report); or 

        (C)  the
right to dispose of pursuant to any agreement, arrangement or understanding (whether or not in writing) (other than customary arrangements with and between
underwriters and selling group members with respect to a bona fide public offering of securities); or 

        (iii)  which
are Beneficially Owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or understanding (whether or not in writing) (other than customary agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in clause (B) of
Section 1(d)(ii) hereof) or disposing of any securities of the Company; 

provided, however, that (1) no Person engaged in business as an underwriter of securities shall be deemed the Beneficial Owner of any securities
acquired through such Person's participation as an underwriter in good faith in a firm commitment underwriting until the expiration of forty (40) days after the date of such acquisition, and
(2) no Person who is a director or an officer of the Company shall be deemed, as a result of his or her position as director or officer of the Company, the Beneficial Owner of any securities of
the Company that are Beneficially Owned by any other director or officer of the Company. 

        For
all purposes of this Agreement, the phrase "then outstanding," when used with reference to the percentage of the then outstanding securities Beneficially Owned by a Person, shall
mean the number of securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such Person would be deemed to Beneficially Own
hereunder. 

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

        (f)    "Certificate of Incorporation" when used in reference to the Company shall mean the Fourth Amended and Restated
Certificate of Incorporation, as may be amended from time to time, of the Company. 

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

        (h)  "Common Stock" when used in reference to the Company shall mean the common stock, par value $0.0001 per share, of the
Company or any other shares of capital stock of the Company 

3

 

into which such stock shall be reclassified or changed. "Common Stock" when used with reference to any Person other than the Company organized in corporate form shall mean (i) the capital
stock or other equity interest of such Person with the greatest voting power, (ii) the equity securities or other equity interest having power to control or direct the management of such Person
or (iii) if such Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person and which have issued any such outstanding capital stock,
equity securities or equity interest. "Common Stock" when used with reference to any Person not organized in corporate form shall mean units of beneficial interest which (x) shall represent the
right to participate generally in the profits and losses of such Person (including without limitation any flow-through tax benefits resulting from an ownership interest in such Person) and
(y) shall be entitled to exercise the greatest voting power of such Person or, in the case of a limited partnership, shall have the power to remove or otherwise replace the general partner or
partners. 

        (i)    "Current Value" shall have the meaning set forth in Section 11(a)(iii) hereof. 

        (j)    "Depositary Agent" shall have the meaning set forth in Section 7(c) hereof. 

        (k)  "Distribution Date" shall have the meaning defined in Section 3(a) hereof. 

        (l)    "Exempt Person" shall have the meaning set forth in the definition of "Acquiring Person." 

        (m)  "Exercise Price" shall have the meaning defined in Section 4(a) hereof. 

        (n)  "Expiration Date" and "Final Expiration Date" shall have the meanings set
forth in Section 7(a) hereof. 

        (o)  "Fair Market Value" of any securities or other property shall be as determined in accordance with Section 11(d)
hereof. 

        (p)  "Grandfathered Percentage" shall mean, with respect to any Grandfathered Person, the percentage of the outstanding shares
of Common Stock of the Company that such Grandfathered Person, together with all Affiliates and Associates of such Grandfathered Person, Beneficially Owns as of the Grandfathered Time, plus an
additional 1/2%; provided, however, that, in the event any Grandfathered Person shall sell, transfer, or otherwise dispose of any outstanding shares of Common Stock of the Company after
the Grandfathered Time, the Grandfathered Percentage shall, subsequent to such sale, transfer or disposition, mean, with respect to such Grandfathered Person, the lesser of (i) the
Grandfathered Percentage as in effect immediately prior to such sale, transfer or disposition or (ii) the percentage of outstanding shares of Common Stock of the Company that such Grandfathered
Person Beneficially Owns immediately following such sale, transfer or disposition, plus an additional 1/2%. 

        (q)  "Grandfathered Person" shall mean any one or more of the following Persons: (A) Elan Corporation, plc and its
Affiliates and Associates and (B) any other Person who or which, together with all Affiliates and Associates of such Person, is, as of the Grandfathered Time, the Beneficial Owner of 15% or
more of the shares of Common Stock of the Company then outstanding. Notwithstanding anything to the contrary provided in this Agreement, any Grandfathered Person who after the Grandfathered Time
becomes the Beneficial Owner of less than 15% of the shares of Common Stock of the Company then outstanding shall cease to be a Grandfathered Person and shall be subject to all of the provisions of
this Agreement in the same manner as any Person who is not and was not a Grandfathered Person. 

        (r)  "Grandfathered Time" shall mean 7:00 p.m., New York, New York time, on October 8, 2002. 

        (s)  "Group" shall have the meaning set forth in clause (b) of the definition of "Person." 

4

 

        (t)    "Person" shall mean (a) an individual, a corporation, a partnership, a limited liability company, an association,
a joint stock company, a trust, a business trust, a government or political subdivision, any unincorporated organization, or any other association or entity including any successor (by merger or
otherwise) thereof or thereto, and (b) a "group" as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended. 

        (u)  "Preferred Stock" shall mean shares of Series E Junior Participating Cumulative Preferred Stock, par value $1.00
per share, of the Company having the rights and preferences set forth in the form of Certificate of Designations attached hereto as Exhibit A. 

        (v)  "Preferred Stock Equivalents" shall have the meaning set forth in Section 11(b) hereof. 

        (w)  "Principal Party" shall have the meaning defined in Section 13(b) hereof. 

        (x)  "Redemption Price" shall have the meaning defined in Section 23 hereof. 

        (y)  "Registered Common Stock" shall have the meaning set forth in Section 13(b) hereof. 

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

        (aa) "Section 11(a)(ii) Event" shall have the meaning set forth in Section 11(a)(ii) hereof. 

        (bb) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth in
Section 11(a)(iii) hereof. 

        (cc) "Section 13 Event" shall mean any event described in clauses (x), (y) or (z) of
Section 13(a) hereof. 

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

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

        (ff)  "Series B Preferred Stock" shall mean Series B Preferred Stock, par value $1.00 per share, of the Company. 

        (gg) "Spread" shall have the meaning set forth in Section 11(a)(iii) hereof. 

        (hh) "Stock Acquisition Date" shall mean the date of the first public announcement (which for purposes of this definition
shall include, without limitation, the issuance of a press release or the filing of a publicly-available report or other document with the Securities and Exchange Commission or any other
governmental agency) by the Company, acting pursuant to a resolution adopted by the Board of Directors of the Company, or an Acquiring Person, subject in each case to the last paragraph of
Section 1(a), that an Acquiring Person has become such. 

        (ii)  "Subsidiary" shall mean, with reference to any Person, any corporation or other entity of which securities or other
ownership interests having ordinary voting power sufficient, in the absence of contingencies, to elect a majority of the board of directors or other persons performing similar functions of such
corporation or other entity are at the time directly or indirectly Beneficially Owned or otherwise controlled by such Person either alone or together with one or more Affiliates of such Person. 

        (jj)  "Substitution Period" shall have the meaning set forth in Section 11(a)(iii) hereof. 

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

        Section
2.    Appointment of Rights Agent.    The Company hereby appoints the Rights Agent to act as agent for the
Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date (as hereinafter defined in Section 3(a)) also be the holders of the 

5

 

Common Stock of the Company and Series B Preferred Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to
time appoint such Co-Rights Agents as it may deem necessary or desirable. In the event the Company appoints one or more Co-Rights Agents, the respective duties of the Rights
Agent and any Co-Rights Agents shall be as the Company shall determine. The Company shall give ten (10) days' prior written notice to the Rights Agent of the appointment of one or
more Co-Rights Agents and the respective duties of the Rights Agent and any such Co-Rights Agents. The Rights Agent shall have no duty to supervise, and shall in no event be
liable for, the acts or omissions of any such Co-Rights Agent. 

        Section
3.    Issue of Right Certificates.    

        (a)  From
the date hereof until the earlier of (i) the Close of Business on the tenth calendar day after the Stock Acquisition Date or (ii) the Close of
Business on the tenth Business Day (or such later calendar day, if any, as the Board of Directors of the Company may determine in its sole discretion) after the date a tender or exchange offer by any
Person, other than an Exempt Person, is first published or sent or given within the meaning of Rule 14d-4(a) of the Exchange Act, or any successor rule, if, upon consummation
thereof, such Person could become the Beneficial Owner of 15% (or in the case of a Grandfathered Person, the Grandfathered Percentage applicable to such Grandfathered Person) or more of the shares of
Common Stock of the Company then outstanding (including any such date which is after the date of this Agreement and prior to the issuance of the Rights) (the earliest of such dates being herein
referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of Section 3(b) hereof) by the certificates for the Common Stock of the Company and
for the
Series B Preferred Stock, as applicable, registered in the names of the holders of the Common Stock of the Company and Series B Preferred Stock, as applicable (which certificates for
Common Stock of the Company and Series B Preferred Stock shall be deemed also to be certificates for Rights) and not by separate certificates, and (y) the Rights will be transferable
only in connection with the transfer of the underlying shares of Common Stock of the Company and the underlying shares of Series B Preferred Stock, as applicable. As soon as practicable after
the Distribution Date, the Rights Agent will, at the Company's expense send, by first-class, insured, postage prepaid mail, to each record holder of the Common Stock of the Company and to each record
holder of Series B Preferred Stock as of the Close of Business on the Distribution Date, at the address of such holder shown on the records of the Company, one or more certificates, in
substantially the form of Exhibit B hereto (the "Right Certificates"), evidencing one Right for each share of Common Stock of the Company and
1.62 Rights for each share of Series B Preferred Stock so held, subject to adjustment as provided herein. In the event that an adjustment in the number of Rights per share of Common Stock of
the Company or Series B Preferred Stock has been made pursuant to Section 11(o) hereof, the Company may make the necessary and appropriate rounding adjustments (in accordance with
Section 14(a) hereof) at the time of distribution of the Right Certificates, so that Right Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any
fractional Rights. As of and after the Close of Business on the Distribution Date, the Rights will be evidenced solely by such Right Certificates. 

        (b)  With
respect to certificates for the Common Stock of the Company or Series B Preferred Stock issued prior to the Close of Business on the Record Date, the Rights
will be evidenced by such certificates for the Common Stock of the Company or Series B Preferred Stock, as applicable, on or until the Distribution Date (or the earlier redemption, expiration
or termination of the Rights), and the registered holders of the Common Stock of the Company and Series B Preferred Stock also shall be the registered holders of the associated Rights. Until
the Distribution Date (or the earlier redemption, expiration or termination of the Rights), the transfer of any of the certificates for the Common Stock of the Company or Series B Preferred
Stock outstanding prior to the date of this Agreement shall also constitute the transfer of the Rights associated with the 

6

 

Common Stock of the Company or Series B Preferred Stock, as applicable, represented by such certificate. 

        (c)  Certificates
for the Common Stock of the Company and Series B Preferred Stock issued after the Record Date, but prior to the earlier of the Distribution Date or
the redemption, expiration or termination of the Rights, shall be deemed also to be certificates for Rights, and shall bear a legend, substantially in the form set forth below: 

This
certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Shareholder Rights Agreement between DOV Pharmaceutical, Inc. and Continental Stock
Transfer & Trust Co., as Rights Agent, dated as of October 8, 2002, as amended, restated, renewed or extended from time to time (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the principal offices of DOV Pharmaceutical, Inc. and the stock transfer administration office of the Rights Agent. Under
certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. DOV Pharmaceutical, Inc.
may redeem the Rights at a redemption price of $0.01 per Right, subject to adjustment, under the terms of the Rights Agreement. DOV
Pharmaceutical, Inc. will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request
therefor. Under certain circumstances, Rights issued to or held by Acquiring Persons or any Affiliates or Associates thereof (as defined in the Rights Agreement), and any subsequent holder of such
Rights, may become null and void. The Rights shall not be exercisable, and shall be void so long as held, by a holder in any jurisdiction where the requisite qualification, if any, to the issuance to
such holder, or the exercise by such holder, of the Rights in such jurisdiction shall not have been obtained or be obtainable. 

        With
respect to such certificates containing the foregoing legend, the Rights associated with the Common Stock of the Company and Series B Preferred Stock represented by such
certificates shall be evidenced by such certificates alone until the Distribution Date (or the earlier redemption, expiration or termination of the Rights), and the transfer of any of such
certificates shall also constitute the transfer of the Rights associated with the Common Stock of the Company or Series B Preferred Stock, as applicable represented by such certificates. In the
event that the Company purchases or acquires any shares of Common Stock of the Company or Series B Preferred Stock after the Record Date but prior to the Distribution Date, any Rights
associated with such Common Stock of the Company or Series B Preferred Stock shall be deemed canceled and retired so that the Company shall not be entitled to exercise any Rights associated
with the shares of Common Stock of the Company or Series B Preferred Stock which are no longer outstanding. The failure to print the foregoing legend on any such certificate representing Common
Stock of the Company or Series B Preferred Stock or any defect therein shall not affect in any manner whatsoever the application or interpretation of the provisions of Section 7(e)
hereof. 

        (d)  Notwithstanding
anything in this Agreement to the contrary, in the event that prior to the earlier of the Distribution Date or the redemption, expiration or termination
of the Rights, any shares of Series B Preferred Stock are retired and canceled in connection with the conversion of such shares into Common Stock of the Company pursuant to the Certificate of
Incorporation, then the associated Rights shall be deemed to be similarly retired and canceled. 

        Section
4.    Form of Right Certificates.    

        (a)  The
Right Certificates (and the forms of election to purchase shares and of assignment and certificate to be printed on the reverse thereof) shall each be substantially
in the form of 

7

 

 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, rule or regulation or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to customary usage. The Right Certificates shall be in a machine printable format and in a form reasonably satisfactory to
the Rights Agent. Subject to the provisions of Section 11 and Section 22 hereof, the Right Certificates, whenever distributed, shall be dated as of the Record Date, shall show the date
of countersignature, and on their face shall entitle the holders thereof to purchase such number of one ten-thousandths of a share of Preferred Stock as shall be set forth therein
at the price set forth therein (the "Exercise Price"), but the number of such shares and the Exercise Price shall be subject to adjustment as provided herein. 

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

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

        The
Company shall give notice to the Rights Agent promptly after it becomes aware of the existence and identity of any Acquiring Person or any Associate or Affiliate thereof. The Company
shall instruct the Rights Agent in writing of the Rights which should be so legended. The failure to print the foregoing legend on any such Right Certificate or any defect therein shall not affect in
any manner whatsoever the application or interpretation of the provisions of Section 7(e) hereof. 

8

   
        Section 5.    Countersignature and Registration.    

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

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

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

        (a)  Subject
to the provisions of Section 4(b), Section 7(e) and Section 14 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 Right Certificate or Certificates may be transferred, split up, combined or exchanged for another Right Certificate or Certificates,
entitling the registered holder to purchase a like number of one ten-thousandths of a share of Preferred Stock (or following a Triggering Event, preferred stock, cash, property, debt
securities, Common Stock of the Company or any combination thereof) as the Right Certificate or Certificates surrendered then entitled such holder to purchase and at the same
Exercise Price. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate shall make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Certificates to be transferred, split up, combined or exchanged, with the form of assignment and certificate duly executed, at the office or offices of the Rights Agent
designated for such purpose. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Right Certificate until the
registered holder shall have completed and signed the certificate contained in the form of assignment on the reverse side of such Right Certificate and shall have provided such additional evidence of
the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. 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 Right Certificate or Certificates, as the case may be, as so requested.
The Company may require payment by the registered holder of a Right Certificate, of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates. 

9

 

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

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

        (a)  Subject
to Section 7(e) hereof, the registered holder of any Right Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein) in
whole or in part at any time after the Distribution Date upon surrender of the Right Certificate, with the form of election to purchase and the certificate on the reverse side thereof duly executed,
to the Rights Agent at the office or offices of the Rights Agent designated for such purpose, together with payment of the aggregate Exercise Price for the total number of one
ten-thousandths of a share of Preferred Stock (or other securities, cash or other assets, as the case may be) as to which such surrendered Rights are then exercised, at or prior to the
earlier of (i) the Close of Business on the tenth anniversary of the Record Date (the "Final Expiration Date"), (ii) the time at which the Rights are redeemed as provided in
Section 23 hereof or (iii) the time at which such Rights are exchanged as provided in Section 24 hereof (the earlier of (i), (ii) or (iii) being herein referred to
as the "Expiration Date"). Except as set forth in Section 7(e) hereof and notwithstanding any other provision of this Agreement, any Person who prior to the Distribution Date becomes a record
holder of shares of Common Stock of the Company or Series B Preferred Stock may exercise all of the rights of a registered holder of a Right Certificate with respect to the Rights associated
with such shares of Common Stock of the Company or Series B Preferred Stock in accordance with the provisions of this Agreement, as of the date such Person becomes a record holder of shares of
Common Stock of the Company or Series B Preferred Stock. 

        (b)  The
Exercise Price for each one ten-thousandth of a share of Preferred Stock pursuant to the exercise of a Right shall initially be Fifty United States
Dollars (U.S. $50.00), shall be subject to adjustment from time to time as provided in Section 11 and Section 13 hereof and shall be payable in lawful money of the United States of
America in accordance with Section 7(c) below. 

        (c)  As
promptly as practicable following the Distribution Date, the Company shall deposit with a corporation, trust, bank or similar institution in good standing organized
under the laws of the United States or any State of the United States, which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or
examination by a federal or state authority (such institution is hereinafter referred to as the "Depositary Agent"), certificates representing the shares of Preferred Stock that may be acquired upon
exercise of the Rights and the Company shall cause such Depositary Agent to enter into an agreement pursuant to which the Depositary Agent shall issue receipts representing interests in the shares of
Preferred Stock so deposited. Upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase and the certificate on the reverse side thereof duly executed,
accompanied by payment of the Exercise Price for the shares to be purchased and an amount equal to any applicable transfer tax (as determined by the Rights Agent) by certified check or bank draft
payable to the order of the Company or by money order, the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) requisition from the Depositary Agent (or make
available, if the Rights Agent is the Depositary Agent) depositary receipts or certificates for the number of one ten-thousandths of a share of Preferred Stock to be purchased and the
Company hereby irrevocably authorizes the Depositary Agent to comply with all such requests, (ii) when appropriate, requisition from the Company the amount of cash, if any, to be paid in lieu
of 

10

 

issuance of fractional shares in accordance with Section 14 hereof, (iii) promptly after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon
the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder and (iv) when appropriate, after receipt promptly deliver such
cash to or upon the order of the registered holder of such Right Certificate. In the event that the Company is obligated to issue other securities (including Common Stock) of the Company, pay cash or
distribute other property pursuant to Section 11(a) hereof, the Company will make all arrangements necessary so that such other securities, cash or other property are available for distribution
by the Rights Agent, if and when appropriate. The payment of the Exercise Price may be made by certified or bank check payable to the order of the Company, or by money order or wire transfer of
immediately available funds to the account of the Company (provided that notice of such wire transfer shall be given by the holder of the related Right to the Rights Agent). 

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

        (e)  Notwithstanding
anything in this Agreement to the contrary, from and after the first occurrence of a Section 11(a)(ii) Event or Section 13 Event,
any Rights Beneficially Owned by (i) an Acquiring Person or
any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any Associate or Affiliate of an Acquiring Person) who becomes a transferee after the
Acquiring Person becomes such or (iii) a transferee of an Acquiring Person (or of any Associate or Affiliate of an 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 the Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights, the shares of Common Stock of the Company
or Series B Preferred Stock associated with such Rights or the Company, or (B) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this Section 7(e), shall be null and void without any further action and no holder of such Rights shall have any rights
whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts to ensure that the provisions of this
Section 7(e) and Section 4(b) hereof are complied with, but shall have no liability to any holder of Right Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or any Affiliates or Associates of an Acquiring Person or any transferee of any of them hereunder. 

        (f)    Notwithstanding
anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a
registered holder of Rights 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 Right Certificate surrendered for such exercise, and (ii) provided such additional evidence of the identity of
the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. 

        Section
8.    Cancellation and Destruction of Right Certificates.    All Right Certificates surrendered for the
purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or,
if surrendered to the Rights Agent, shall be canceled by it, and no Right Certificates shall be issued 

11

 

in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Right Certificates to the
Company. 

        Section
9.    Reservation and Availability of Preferred Stock.    

        (a)  The
Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Preferred Stock or any authorized and
issued shares of Preferred Stock held in its treasury, the number of shares of Preferred Stock that will be sufficient to permit the exercise in full of all outstanding and exercisable Rights. Upon
the occurrence of any events resulting in an increase in the aggregate number of shares of Preferred Stock issuable upon exercise of all
outstanding Rights in excess of the number then reserved, the Company shall make appropriate increases in the number of shares so reserved. 

        (b)  The
Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares of Preferred Stock issued or reserved for issuance
to be listed, upon official notice of issuance, upon the principal national securities exchange, if any, upon which the Common Stock of the Company is listed or, if the principal market for the Common
Stock of the Company is not on any national securities exchange, to be eligible for quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or any successor
thereto or other comparable quotation system. 

        (c)  The
Company shall use its best efforts to (i) file, as soon as practicable following the earliest date after the occurrence of a
Section 11(a)(ii) Event on which the consideration to be delivered by the Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) hereof, or as soon as required by law following the Distribution Date, as the case may be, a registration statement under the Securities Act of 1933, as amended (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 and (iii) cause such registration statement to remain effective (with a prospectus that at all times meets the requirements of the Securities Act) until the
earlier of (A) the date as of which the Rights are no longer exercisable for such securities or (B) the Expiration Date. The Company will also take such action as may be appropriate
under, and which will ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights. The Company may temporarily suspend, for a
period of time not to exceed ninety (90) days after the date determined in accordance with the provisions of the first sentence of this Section 9(c), the exercisability of the Rights in
order to prepare and file such registration statement and permit it to become effective. Upon such suspension, the Company shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect, in each case with prompt written notice to the Rights Agent.
Notwithstanding any such provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction unless the requisite qualification in such jurisdiction shall have been
obtained. 

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

        (e)  The
Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect
of the issuance or delivery of the Right Certificates or of any certificates for shares of Preferred Stock upon the exercise of Rights. The Company shall not, however, be required to pay any transfer
tax 

12

 

which may be payable in respect of any transfer or delivery of Right Certificates to a person other than, or in respect of the issuance or delivery of securities in a name other than that of, the
registered
holder of the Right Certificates evidencing Rights surrendered for exercise or to issue or deliver any certificates for securities in a name other than that of the registered holder upon the exercise
of any Rights until such tax shall have been paid (any such tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due. 

        Section
10.    Preferred Stock Record Date.    Each Person in whose name any certificate for Preferred Stock
(including any fraction of a share of Preferred Stock) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the shares of Preferred Stock
represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Exercise Price (and any applicable
transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Preferred Stock transfer books of
the Company are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred
Stock transfer books of the Company are open; and further provided, however, that if delivery of shares of Preferred Stock is delayed pursuant to
Section 9(c), such Person shall be deemed to have become the record holder of such shares of Preferred Stock only when such shares first become deliverable. Prior to the exercise of the Right
evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a shareholder of the Company with respect to shares for which the Rights shall be exercisable, including,
without limitation, the right to vote, to receive dividends or other 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 Exercise Price, Number and Kind of Shares or Number of Rights.    The Exercise Price, the
number and kind of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. 

        (a)  (i) In
the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Stock payable in shares of
Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine the outstanding Preferred Stock into a smaller number of shares or (D) issue any shares of its capital
stock in a reclassification of the Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a) and Section 7(e) hereof, the Exercise Price in effect at the time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised
after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the
Preferred Stock transfer books of the Company were open, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the consideration to be paid upon the exercise of a Right be less than the aggregate par
value of the shares of capital stock of the Company issuable upon exercise of a Right. If an event occurs which would require an adjustment under both 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) hereof. 

        (ii)  Subject
to the provisions of Section 24 hereof, in the event any Person, alone or together with its Affiliates and Associates, shall become an Acquiring Person,
then, promptly following any such occurrence (a "Section 11(a)(ii) Event"), proper provision shall be made so 

13

 

that each holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have a right to receive, upon exercise thereof at the then current Exercise Price in accordance with
the terms of this Agreement, such number of shares of Preferred Stock of the Company as shall equal the result obtained by (x) multiplying the then current Exercise Price by the then number of
one ten-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event, whether or not
such Right was then exercisable, and dividing that product by (y) 50% of the Fair Market Value per one ten-thousandth of a share of the Preferred Stock (determined pursuant to
Section 11(d)) on the date of the occurrence of a Section 11(a)(ii) Event (such number of shares being referred to as the "Adjustment Shares"). 

14

  

        (iii)  In
lieu of issuing any shares of Preferred Stock in accordance with Section 11(a)(ii) hereof, the Company, acting by or pursuant to a resolution of the
Board of Directors of the Company, may, and in the event that the number of shares of Preferred Stock which are authorized by the Company's Certificate of Incorporation but not outstanding or reserved
for issuance for purposes other than upon exercise of the Rights is not sufficient to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii) of this
Section 11(a), the Company, acting by or pursuant to a resolution of the Board of Directors of the Company, shall: (A) determine the excess of (X) the Fair Market Value of the
Adjustment Shares issuable upon the exercise of a Right (the "Current Value") over (Y) the Exercise Price attributable to each Right (such excess being referred to as the "Spread") and
(B) with respect to all or a portion of each Right (subject to Section 7(e) hereof), make adequate provision to substitute for the Adjustment Shares, upon payment of the applicable
Exercise Price, (1) Common Stock of the Company, (2) cash, (3) a reduction in the Exercise Price, (4) Preferred Stock Equivalents which the Board of Directors of the
Company has deemed to have the same value as shares of Common Stock of the Company, (5) debt securities of the Company, (6) other assets or securities of the Company or (7) any
combination of the foregoing which, when added to any shares of Preferred Stock issued upon such exercise, has an aggregate value equal to the Current Value, where such aggregate value has been
determined by the Board of Directors of the Company based upon the advice of a nationally recognized investment banking firm selected by the Board of Directors of the Company;  provided, however, that if
the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty
(30) days following the later of (x) the first occurrence of a Section 11(a)(ii) Event and (y) the date on which the Company's right of redemption pursuant to
Section 23(a) expires (the later of (x) and (y) being referred to herein as the "Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver,
upon the surrender for exercise of a Right and without requiring payment of the Exercise Price, shares of Preferred Stock (to the extent available) and then, if necessary, cash, which shares and/or
cash have an aggregate value equal to the Spread. If the Board of Directors of the Company shall determine in good faith that it is likely that sufficient additional shares of Preferred Stock could be
authorized for issuance upon exercise in full of the Rights, the 30-day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the
Section 11(a)(ii) Trigger Date, in order that the Company may seek shareholder approval for the authorization of such additional shares (such period, as it may be extended, being
referred to herein as the "Substitution Period"). To the extent that the Company determines that some action need be taken pursuant to the first and/or second sentences of this
Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights and (y) may suspend the
exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made
pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has
been temporarily suspended and a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the Preferred Stock shall be
the Fair Market Value (as determined pursuant to Section 11(d) hereof) per share of the Preferred Stock on the Section 11(a)(ii) Trigger Date and the value of any Preferred Stock
Equivalent shall be deemed to have the same value as the Preferred Stock on such date. 

        (b)  If
the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Stock entitling them (for a period expiring within
forty-five (45) calendar days after such record date) to subscribe for or purchase Preferred Stock (or securities having the 

15

 

same or more favorable rights, privileges and preferences as the shares of Preferred Stock ("Preferred Stock Equivalents")) or securities convertible into Preferred Stock or Preferred Stock
Equivalents at a price per share of Preferred Stock or per share of Preferred Stock Equivalents (or having a conversion price per share, if a security convertible into Preferred Stock or Preferred
Stock Equivalents) less than the Fair Market Value (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock on such record date, the Exercise Price to be in effect after
such record date shall be determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Preferred
Stock outstanding on such record date, plus the number of shares of Preferred Stock which the aggregate offering price of the total number of shares of Preferred Stock and/or Preferred Stock
Equivalents to be offered (and the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such Fair Market Value and the denominator of which shall be the
number of shares of Preferred Stock outstanding on such record date, plus the number of additional shares of Preferred Stock and Preferred Stock Equivalents to be offered for subscription or purchase
(or into which the convertible securities so to be offered are initially convertible); provided, however, that in no event shall the consideration to be
paid upon the exercise of a Right be less than the aggregate par value of the shares of stock of the Company issuable upon exercise of a Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value of such consideration shall be the Fair Market Value thereof determined in accordance with Section 11(d) hereof.
Shares of Preferred Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustments 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 Exercise Price shall be adjusted to be the Exercise Price which would then be in effect if such record
date had not been fixed. 

        (c)  If
the Company shall fix a record date for the making of a distribution to all holders of Preferred Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing or surviving corporation), of evidences of indebtedness, cash (other than a regular periodic cash dividend out of the earnings or
retained earnings of the Company), assets (other than a dividend payable in Preferred Stock, but including any dividend payable in stock other than Preferred Stock) or convertible securities,
subscription rights or warrants (excluding those referred to in Section 11(b)), the Exercise Price to be in effect after such record date shall be determined by multiplying the Exercise Price
in effect immediately prior to such record date by a fraction, the numerator of which shall be the Fair Market Value (as determined pursuant to Section 11(d) hereof) per one
ten-thousandth of a share of Preferred Stock on such record date, less the Fair Market Value (as determined pursuant to Section 11(d) hereof) of the portion of the cash, assets or
evidences of indebtedness so to be distributed or of such convertible securities, subscription rights or warrants applicable to one ten-thousandth of a share of Preferred Stock and the
denominator of which shall be the Fair Market Value (as determined pursuant to Section 11(d) hereof) per one ten-thousandth of a share of Preferred Stock;  provided, however, that in no event shall
the consideration to be paid upon the exercise of a Right be less than the aggregate par value of the shares
of stock of the Company issuable upon exercise of a Right. 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
Exercise Price shall again be adjusted to be the Exercise Price which would be in effect if such record date had not been fixed. 

        (d)  For
the purpose of this Agreement, the "Fair Market Value" of any share of Preferred Stock, Common Stock or any other stock or any Right or other security or any other
property shall be determined as provided in this Section 11(d). 

16

 

          (i)  In
the case of a publicly-traded stock or other security, the Fair Market Value on any date shall be deemed to be the average of the daily closing prices per share of
such stock or per unit of such other security for the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided,
however, that in the event that the Fair Market Value per share of any share of stock is determined during a period following the announcement by the issuer of such stock of
(x) a dividend or distribution on such stock payable in shares of such stock or securities convertible into shares of such stock or (y) any subdivision, combination or reclassification
of such stock, and prior to the expiration of the 30 Trading Day period after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination
or reclassification, then, and in each such case, the Fair Market Value shall be properly adjusted to take into account ex-dividend trading. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the securities are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such security is listed or
admitted to trading; or, if not listed or admitted to trading on any national securities exchange, the last quoted price (or, if not so quoted, the average of the last quoted high bid and low asked
prices) in the over-the-counter market, as reported by NASDAQ or such other system then in use; or, if on any such date no bids for such security are 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 such security selected by the Board of Directors of the Company. If on any
such date no market maker is making a market in such security, the Fair Market Value of such security on such date shall be determined reasonably and with utmost good faith to the holders of the
Rights by the Board of Directors of the Company, provided, however, that if at the time of such determination there is an Acquiring Person, the Fair
Market Value of such security on such date shall be determined by a nationally recognized investment banking firm selected by the Board of Directors of the Company, which 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. The term "Trading Day" shall mean a day on which the principal national
securities exchange on which such security is listed or admitted to trading is open for the transaction of business or, if such security is not listed or admitted to trading on any national securities
exchange, a Business Day. 

        (ii)  If
a security is not publicly held or not so listed or traded, "Fair Market Value" shall mean the fair value per share of stock or per other unit of such security,
determined reasonably and with utmost good faith to the holders of the Rights by the Board of Directors of the Company; provided, however, that if at
the time of such determination there is an Acquiring Person, the Fair Market Value of such security on such date shall be determined by a nationally recognized investment banking firm selected by the
Board of Directors of the Company, which 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;  provided, however, that for the purposes of making any adjustment provided for by Section 11(a)(ii) hereof, the Fair Market Value of a
share of Preferred Stock shall not be less than the product of the then Fair Market Value of a share of Common Stock multiplied by the higher of the then Dividend Multiple or Vote Multiple (as both of
such terms are defined in the Certificate of Designations attached as Exhibit A hereto) applicable to the Preferred Stock and shall not exceed 105% of the product of the then Fair Market Value
of a share of Common Stock 

17

 

multiplied by the higher of the then Dividend Multiple or Vote Multiple applicable to the Preferred Stock. 

        (iii)  In
the case of property other than securities, the Fair Market Value thereof shall be determined reasonably and with utmost good faith to the holders of Rights by the
Board of Directors of the Company; provided, however, that if at the time of such determination there is an Acquiring Person, the Fair Market Value of
such property on such date shall be determined by a nationally recognized investment banking firm selected by the Board of Directors of the Company, which determination shall be described in a
statement filed with the Rights Agent and shall be binding upon the Rights Agent and the holders of the Rights. 

        (e)  Anything
herein to the contrary notwithstanding, no adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at
least 1% in the Exercise Price; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall
be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest one-millionth of a
share of Common Stock of the Company or hundred-millionth of a share of Preferred Stock, as the case may be, or to such other figure as the Board of Directors of the Company may deem appropriate.
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 (3) years from the
date of the transaction which mandates such adjustment or (ii) the Expiration Date. 

        (f)    If
as a result of any provision of Section 11(a) or Section 13(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any
shares of capital stock of the Company other than Preferred Stock, thereafter the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Stock contained in Section 11(a), (b), (c), (d), (e), (g) through
(k) and (m), inclusive, and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like terms to any such other shares. 

        (g)  All
Rights originally issued by the Company subsequent to any adjustment made to the Exercise Price hereunder shall evidence the right to purchase, at the adjusted
Exercise Price, the number of one ten-thousandths of a share of Preferred Stock (or other securities or amount of cash or combination thereof) purchasable from time to time hereunder upon
exercise of the Rights, all subject to further adjustment as provided herein. 

        (h)  Unless
the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Exercise Price as a result of the calculations made
in Section 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number
of one ten-thousandths of a share of Preferred Stock (calculated to the nearest hundred-millionth) as the Board of Directors of the Company determines is appropriate to preserve the
economic value of the Rights, including, by way of example, that number obtained by (i) multiplying (x) the number of one ten-thousandths of a share of Preferred Stock for
which a Right may be exercisable immediately prior to this adjustment by (y) the Exercise Price in effect immediately prior to such adjustment of the Exercise Price and (ii) dividing the
product so obtained by the Exercise Price in effect immediately after such adjustment of the Exercise Price. 

        (i)    The
Company may elect on or after the date of any adjustment of the Exercise Price to adjust the number of Rights, in substitution for any adjustment in the number of
shares of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of one
ten-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. 

18

 

Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one-millionth) obtained by dividing the Exercise
Price in effect immediately prior to adjustment of the Exercise Price by the Exercise Price in effect immediately after adjustment of the Exercise 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 Exercise Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at least ten (10) days later than the date of the public announcement. If
Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to
holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a
result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment.
Right Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Exercise Price) and
shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement. 

        (j)    Irrespective
of any adjustment or change in the Exercise Price or the number of one ten-thousandths of a share of Preferred Stock issuable upon the exercise
of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the Exercise Price per share and the number of shares which were expressed in the initial Right
Certificates issued hereunder without prejudice to any adjustment or change. 

        (k)  Before
taking any action that would cause an adjustment reducing the Exercise Price below the then stated value, if any, of the number of one ten-thousandths
of a share of Preferred Stock issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable shares of Preferred Stock at such adjusted Exercise Price. 

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

        (m)  Anything
in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Exercise Price, in addition to those
adjustments expressly required by this Section 11, as and to the extent that in its good faith judgment the Board of Directors of the Company shall determine to be advisable in order that any
consolidation or subdivision of the Preferred Stock, issuance wholly for cash of any shares of Preferred Stock at less than the Fair Market Value, issuance wholly for cash of shares of Preferred Stock
or securities which by their terms are convertible into or exchangeable for shares of Preferred Stock, stock dividends or issuance of rights, options or warrants referred to hereinabove in this
Section 11, 

19

 

hereafter made by the Company to holders of its Preferred Stock, shall not be taxable to such shareholders. 

        (n)  The
Company covenants and agrees that it shall not, at any time after the Distribution Date and so long as the Rights have not been redeemed pursuant to
Section 23 hereof or exchanged pursuant to Section 24 hereof, (i) consolidate with (other than a Subsidiary of the Company in a transaction that complies with the proviso at the
end of this sentence), (ii) merge with or into, or (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction or a series of related transactions, assets
or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries taken as a whole, to any other Person or Persons (other than the Company and/or any of its
Subsidiaries in one or more transactions each of which complies with the proviso at the end of this sentence) if (x) at the time of or immediately after such consolidation, merger or sale there
are any rights, warrants or other instruments outstanding or agreements or arrangements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the
Rights, or (y) prior to, simultaneously with or immediately after such consolidation, merger or sale the shareholders of a Person who constitutes, or would constitute, the "Principal Party" for
the purposes of Section 13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates and Associates; provided,
however, that this Section 11(n) shall not affect the ability of any Subsidiary of the Company to consolidate with, or merge with or into, or sell or transfer assets or
earning power to, any other Subsidiary of the Company. The Company further covenants and agrees
that after the Distribution Date it will not, except as permitted by Section 23 or Section 27 hereof, take (or permit any Subsidiary to take) any action if at the time such action is
taken it is reasonably foreseeable that such action will substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights. 

        (o)  Notwithstanding
anything in this Agreement to the contrary, in the event the Company shall at any time after the date of this Agreement and prior to the Distribution
Date (i) declare or pay any dividend on the outstanding Common Stock of the Company payable in shares of Common Stock of the Company or effect a subdivision, combination or consolidation of the
outstanding shares of Common Stock of the Company (by reclassification or otherwise than by payment of dividends in shares of Common Stock of the Company) into a greater or lesser number of shares of
Common Stock of the Company, then in any such case (A) the number of one ten-thousandths of a share of Common Stock of the Company shall be determined by multiplying the number of
one ten-thousandths of a share of Preferred Stock so purchasable immediately prior to such event by a fraction, the numerator of which is the number of shares of Common Stock of the
Company outstanding immediately prior to such event and the denominator of which is the number of shares of Common Stock of the Company outstanding immediately after such event, and (B) each
share of Common Stock of the Company outstanding immediately after such event shall have issued with respect to it that number of Rights which each share of Common Stock of the Company outstanding
immediately prior to such event had issued with respect to it, or (ii) declare or pay any dividend on the outstanding Series B Preferred Stock payable in shares of Series B
Preferred Stock or effect a subdivision, combination or consolidation of the outstanding shares of Series B Preferred Stock (by reclassification or otherwise than by payment of dividends in
shares of Series B Preferred Stock) into a greater or lesser number of shares of Series B Preferred Stock, then in any such case (A) the number of one ten-thousandths
of a share of Preferred Stock purchasable after such event upon proper exercise of each Right attached to a share of Series B Preferred Stock shall be determined by multiplying the number of
one ten-thousandths of a share of Preferred Stock so purchasable immediately prior to such event by a fraction, the numerator of which is the number of shares of Series B Preferred
Stock outstanding immediately prior to such event and the denominator of which is the number of shares of Series B Preferred Stock outstanding immediately after such event, and (B) each
share of Series B 

20

 

Preferred Stock outstanding immediately after such event shall have issued with respect to it that number of Rights which each share of Series B Preferred Stock outstanding immediately prior
to such event had issued with respect to it. The adjustments provided for in this Section 11(o) shall be made successively whenever such a dividend is declared or paid or such a subdivision,
combination or consolidation is effected with respect to the Common Stock of the Company or the Series B Preferred Stock. 

        (p)  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 of holders of Right Certificates under this Rights Agreement, including rights to purchase securities of the Principal Party following a Section 13 Event
which has occurred or may thereafter occur, as set forth in Section 13 hereof. Upon exercise of a Right Certificate under Section 11(a)(ii), the Rights Agent shall return such Right
Certificate duly marked to indicate that such exercise has occurred. 

        Section
12.    Certificate of Adjusted Exercise Price or Number of Shares.    Whenever an adjustment is made as
provided in Section 11 or 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 Stock, the Common Stock of the Company and the Series B Preferred Stock a copy of
such certificate and (c) mail a brief summary thereof to each holder of a Right Certificate (or, if prior to the Distribution Date, to each holder of a certificate representing shares of Common
Stock of the Company or Series B Preferred Stock) in accordance with Section 26 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment
contained therein and shall not be deemed to have knowledge of any such adjustment unless and until it shall have received such certificate. 

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

        (a)  In
the event that, following the Stock 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 which is not prohibited by Section 11(n) hereof), and the Company shall not be the continuing or surviving corporation of such
consolidation or merger, (y) any Person (other than a Subsidiary of the Company in a transaction which is not prohibited by the proviso at the end of the first sentence of Section 11(n)
hereof) shall consolidate with the Company, or merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with such merger, all
or part of the shares of Common Stock of the Company shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (z) the Company shall
sell, mortgage or otherwise transfer (or one or more of its Subsidiaries shall sell, mortgage or otherwise transfer), in one transaction or a series of related transactions, assets or earning power
aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company or any Subsidiary of the Company in
one or more transactions, each of which is not prohibited by the proviso at the end of the first sentence of Section 11(n) hereof), then, and in each such case, proper provision shall be made
so that: (i) each holder of a Right, except as provided in Section 7(e) hereof, shall have the right to receive, upon the exercise thereof at the then current Exercise Price in
accordance with the terms of this Agreement, such number of validly authorized and issued, fully paid and nonassessable shares of freely tradable Common Stock of the Principal Party (as hereinafter
defined in Section 13(b)), free and clear of rights of call or first refusal, liens, encumbrances, transfer restrictions or other adverse claims, as shall be equal to the result obtained by
(1) multiplying the then current Exercise Price by the number of one ten-thousandths of a share of Preferred Stock for which a Right is exercisable immediately prior to the first
occurrence of a Section 13 Event, and dividing that product by (2) 50% of the Fair Market Value (determined pursuant to Section 11(d) hereof) per 

21

 

share of the Common Stock of such Principal Party on the date of consummation of such consolidation, merger, sale or transfer; (ii) such Principal Party shall thereafter be liable for, and
shall assume, by virtue of such consolidation, merger, sale, mortgage or transfer, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company" shall
thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply to such Principal Party; and (iv) such
Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock to permit exercise of all outstanding Rights in accordance
with this Section 13(a) and the making of payments in cash and/or other securities in accordance with Section 11(a)(iii) hereof) in connection with such consummation as may be
necessary to assure that the provisions hereof shall thereafter be applicable,
as nearly as reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon the exercise of the Rights. 

        (b)  "Principal
Party" shall mean 

          (i)  in
the case of any transaction described in clause (x) or (y) of the first sentence of Section 13(a), the Person that is the issuer of any
securities into which shares of Common Stock of the Company are converted in such merger or consolidation, or, if there is more than one such issuer, the issuer of Common Stock that has the highest
aggregate Fair Market Value (determined pursuant to Section 11(d)), and if no securities are so issued, the Person that is the other party to the merger or consolidation, or, if there is more
than one such Person, the Person the Common Stock of which has the highest aggregate Fair Market Value (determined pursuant to Section 11(d)); and 

        (ii)  in
the case of any transaction described in clause (z) of the first sentence of Section 13(a), the Person that is the party receiving the greatest portion
of the assets or earning power transferred pursuant to such transaction or transactions, or, if each Person that is a party to such transaction or transactions receives the same portion of the assets
or earning power transferred pursuant to such transaction or transactions or if the Person receiving the largest portion of the assets or earning power cannot be determined, whichever Person the
Common Stock of which has the highest aggregate Fair Market Value (determined pursuant to Section 11(d)); 

provided, however, that in any such case, (1) if the Common Stock of such Person is not at such time and has not been continuously over the
preceding 12-month period registered under Section 12 of the Exchange Act ("Registered Common Stock") or such Person is not a corporation, and such Person is a direct or indirect
Subsidiary or Affiliate of another Person who has Registered Common Stock outstanding, "Principal Party" shall refer to such other Person; (2) if the Common Stock of such Person is not
Registered Common Stock or such Person is not a corporation, and such Person is a direct or indirect Subsidiary of another Person but is not a direct or indirect Subsidiary of another Person which has
Registered Common Stock outstanding, "Principal Party" shall refer to the ultimate parent entity of such first-mentioned Person; (3) if the Common Stock of such Person is not Registered Common
Stock or such Person is not a corporation, and such Person is directly or indirectly controlled by more than one Person, and one or more of such other Persons has Registered Common Stock outstanding,
"Principal Party" shall refer to whichever of such other Persons is the issuer of the Registered Common Stock having the highest aggregate Fair Market Value (determined pursuant to
Section 11(d)); and (4) if the Common Stock of such Person is not Registered Common Stock or such Person is not a corporation, and such Person is directly or indirectly controlled by
more than one Person, and none of such other Persons has Registered Common Stock outstanding, "Principal Party" shall refer to whichever ultimate parent entity is the corporation having the greatest
shareholders' equity or, if no such ultimate parent entity is a corporation, "Principal Party" shall refer to whichever ultimate parent entity is the entity having the greatest net assets. 

22

 

        (c)  The
Company shall not consummate any such consolidation, merger, sale or transfer unless prior thereto (x) the Principal Party shall have a sufficient number of
authorized shares of its Common Stock, which have not been issued or reserved for issuance, to permit the exercise in full of the Rights in accordance with this Section 13, and (y) the
Company and each Principal Party and each other Person who may become a Principal Party as a result of such consolidation, merger, sale or transfer shall have executed and delivered to the Rights
Agent a supplemental agreement providing for the terms set forth in Section 13(a) and (b) and further providing that, as soon as practicable after the date of any consolidation, merger,
sale or transfer of assets mentioned in Section 13(a), the Principal Party at its own expense 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, cause such registration statement to become effective as soon as practicable after such filing and cause such registration statement to remain effective (with a prospectus that at
all times meets the requirements of the Securities Act) until the Expiration Date; 

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

        (iii)  list
(or continue the listing of) the Rights and the securities purchasable upon exercise of the Rights on a national securities exchange or to meet the eligibility
requirements for quotation on NASDAQ; and 

        (iv)  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 on Form 10 under the Exchange Act. 

23

  

        (d)  In
case the Principal Party which is to be a party to a transaction referred to in this Section 13 has a provision in any of its authorized securities or in its
certificate of incorporation or By-laws or other instrument governing its affairs, which provision would have the effect of (i) causing such Principal Party to issue (other than to
holders of Rights pursuant to this Section 13), in connection with, or as a consequence of, the consummation of a transaction referred to in this Section 13, shares of Common Stock of
such Principal Party at less than the then current Fair Market Value (determined pursuant to Section 11(d)) or securities exercisable for, or convertible into, Common Stock of such Principal
Party at less than such Fair Market Value, or (ii) providing for any special payment, tax or similar provisions in connection with the issuance of the Common Stock of such Principal Party
pursuant to the provisions of this Section 13, then, in such event, the Company shall not consummate any such transaction unless prior thereto the Company and such Principal Party shall have
executed and delivered to the Rights Agent a supplemental agreement providing that the provision in question of such Principal Party shall have been canceled, waived or amended, or that the authorized
securities shall be redeemed, so that the applicable provision will have no effect in connection with, or as a consequence of, the consummation of the proposed transaction. 

        The
provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. 

        Section 14.    Fractional Rights and Fractional Shares.    

        (a)  The
Company shall not be required to issue fractions of Rights, except prior to the Distribution Date as provided in Section 11(o) hereof, or to distribute Right
Certificates which evidence fractional Rights. If the Company elects not to issue such fractional Rights, the Company shall pay, in lieu of such fractional Rights, to the registered holders of the
Right Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the Fair Market Value of a whole Right, as determined
pursuant to Section 11(d) hereof. 

        (b)  The
Company shall not be required to issue fractions of shares of Preferred Stock (other than fractions which are integral multiples of one ten-thousandth of
a share of Preferred Stock) upon exercise of the Rights or to distribute certificates which evidence fractional shares of Preferred Stock (other than fractions which are integral multiples of one
ten-thousandth of a share of Preferred Stock). In lieu of fractional shares of Preferred Stock that are not integral multiples of one ten-thousandth of a share of Preferred
Stock, the Company may pay to the registered holders of Right Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the Fair Market
Value of one ten-thousandth of a share of Preferred Stock. For purposes of this
Section 14(b), the Fair Market Value of one ten-thousandth of a share of Preferred Stock shall be determined pursuant to Section 11(d) hereof for the Trading Day immediately
prior to the date of such exercise. 

        (c)  The
holder of a Right by the acceptance of the Rights 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, other than rights of
action vested in the Rights Agent pursuant to Sections 18 and 20 hereof, are vested in the respective registered holders of the Right Certificates (or, prior to the Distribution Date, the registered
holders of the Common Stock of the Company and the Series B Preferred Stock); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the Common Stock of the
Company or the Series B Preferred Stock), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Stock of the
Company and the Series B Preferred Stock), may, in such registered holder's own behalf and for such registered holder's own 

24

 

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 Right evidenced by such Right
Certificate in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance of the obligations hereunder and injunctive relief
against actual or threatened violations of the obligations hereunder of any Person subject to this Agreement. Holders of Rights shall be entitled to recover the reasonable costs and expenses,
including attorneys' fees, incurred by them in any action to enforce the provisions of this Agreement. 

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

        (a)  prior
to the Distribution Date, each Right will be transferable only simultaneously and together with the transfer of shares of Common Stock of the Company or
Series B Preferred Stock, as applicable; 

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

        (c)  subject
to Sections 6(a) and 7(f), the Company and the Rights Agent may deem and treat the person in whose name a Right Certificate (or, prior to the Distribution Date,
the associated certificate representing Common Stock of the Company or Series B Preferred Stock, as applicable) is registered as
the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificates or the associated certificate representing Common Stock
of the Company or Series B Preferred Stock made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and, subject to the last sentence of Section 7(e),
neither the Company nor the Rights Agent shall 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
the 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 obligations; provided, however, that the Company must use its best efforts to have any such
order, decree or ruling lifted or otherwise overturned as soon as possible. 

        Section 17.    Right Certificate Holder Not Deemed a Shareholder.    No holder, as such, of any Right
Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the shares of Preferred Stock or any other securities of the Company which may at any time be
issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such,
any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent
to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in Section 25 hereof), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof. 

25

 

        Section 18.    Concerning the Rights Agent.    

        (a)  The
Company agrees to pay to the Rights Agent such compensation as shall be agreed to in writing between the Company and the Rights Agent for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense,
incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and
administration of this Agreement, including the costs and expenses of defending against any claim of liability arising therefrom, directly or indirectly. The provisions of this Section 18(a)
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 Right Certificate or certificate representing Common Stock of the Company, Series B Preferred Stock, Preferred Stock, or other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it in good faith and
without negligence to be genuine and to be signed and executed by the proper Person or Persons. 

        (c)  The
Rights Agent shall not be liable for consequential damages under any provision of this Agreement or for any consequential damages arising out of any act or failure
to act hereunder. 

        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 or shareholder services business of the Rights
Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties
hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of
the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent
may countersign such Right Certificates either in the name of the predecessor or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement. 

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

26

 

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

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

        (b)  Whenever
in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without
limitation, the identity of any Acquiring Person and the determination of "Fair Market Value") 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 shall be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by a person believed by the
Rights Agent to be the Chairman of the Board of Directors, a Vice Chairman of the Board of Directors, the President, a Vice President, the Treasurer, any Assistant Treasurer, the Secretary or an
Assistant Secretary of the Company and delivered to the Rights Agent. Any 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 Right Certificates (except its
countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. 

        (e)  The
Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof
by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including the Rights becoming void
pursuant to Section 7(e) hereof) or any adjustment required under the provisions of Sections 11, 13 or 23(c) hereof or responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after receipt of a certificate describing
any such adjustment furnished in accordance with Section 12 hereof), nor shall it be responsible for any determination by the Board of Directors of the Company of the Fair Market Value of the
Rights or Preferred Stock pursuant to the provisions of Section 14 hereof; nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or
reservation of any shares of Common Stock of the Company or Preferred Stock to be issued pursuant to this Agreement or any Right Certificate or as to whether or not any shares of Common Stock of the
Company or Preferred Stock will, when so issued, be validly authorized and issued, fully paid and nonassessable. 

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

27

 

        (g)  The
Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder and certificates delivered pursuant to
any provision hereof from any person believed by the Rights Agent to be the Chairman of the Board of Directors, any Vice Chairman of the Board of Directors, the President, a Vice President, the
Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer of the Company, and is authorized to apply to such officers for advice or instructions in connection with its duties, and it
shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. Any application by the Rights Agent for written instructions
from the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be taken or omitted by the Rights Agent under this Agreement and the date on or after which such
action shall be taken or such omission shall be effective. The Rights Agent shall not be liable for any action taken by, or omission of, the Rights Agent in accordance with a proposal included in such
application on or after the date specified in such application (which date shall not be less than five Business Days after the date any officer of the Company actually receives such application,
unless any such officer shall have consented in writing to an earlier date) unless, prior to taking any such action (or the effective date in the case of an omission), the Rights Agent shall have
received written instructions in response to such application specifying the action to be taken or omitted. 

        (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 the
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. 

28

  

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

        Section 21.    Change of Rights Agent.    The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties under this Agreement upon thirty (30) days' notice in writing mailed to the Company by first class mail. The Company may remove the Rights Agent or any successor
Rights Agent (with or without cause), effective immediately or on a specified date, by written notice given to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer
agent of the Common Stock of the Company, Series B Preferred Stock and Preferred Stock, and by giving notice to the holders of the Right Certificates by any means reasonably determined by the
Company to inform such holders of such removal (including without limitation, by including such information in one or more of the Company's reports to shareholders or reports or filings with the
Securities and Exchange Commission). If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the
Company shall fail to make such appointment within a period of thirty (30) days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right Certificate for inspection by the Company), then the incumbent Rights
Agent or the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be (a) a corporation organized and doing business under the laws of the United States or of the Commonwealth of Massachusetts or the State of New York (or of
any other state of the United States so long as such corporation is authorized to do business as a banking institution in the Commonwealth of Massachusetts or the State of New York), in good standing,
which is authorized under such laws to exercise stock transfer or corporate trust 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 $10,000,000 or (b) an Affiliate of a Person described in clause (a) of this sentence. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor
Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary
for the purpose. Not later than the effective date of any such appointment, the Company
shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock of the Company, Series B Preferred Stock and the Preferred Stock, and give
notice to the holders of the Right Certificates by any means reasonably determined by the Company to inform such holders of such appointment (including without limitation, by including such
information in one or more of the Company's reports to shareholders or reports or filings with the Securities and Exchange Commission). Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the
case may be. 

        Section 22.    Issuance of New Right Certificates.    Notwithstanding any of the provisions of this Agreement
or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by the Board of Directors of the 

29

 

Company to reflect any adjustment or change in the Exercise Price per share and the number or kind or class of shares of stock or other securities or property purchasable under the Right Certificates
made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of shares of Common Stock of the Company or Series B Preferred Stock following the
Distribution Date and prior to the redemption or expiration of the Rights, the Company (a) shall, with respect to shares of Common Stock of the Company or Series B Preferred Stock so
issued or sold pursuant to the exercise of stock options or under any employee plan or arrangement, or upon the exercise, conversion or exchange of securities hereafter 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 Right Certificates representing the appropriate number of Rights in connection
with such issuance or sale; provided, however, that (i) no such Right Certificate shall be issued
if, and to the extent that, 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
Right Certificate would be issued, and (ii) no such Right Certificate shall be issued if, and to the extent that, appropriate adjustments shall otherwise have been made in lieu of the issuance
thereof. 

        Section 23.    Redemption.    

        (a)  The
Board of Directors of the Company may, at its option, redeem all but not less than all of the then outstanding Rights at a redemption price of $0.01 per Right,
appropriately adjusted to reflect (i) any dividend declared or paid on the Common Stock of the Company in shares of Common Stock of the Company or any subdivision or combination of the
outstanding shares of Common Stock of the Company or similar event or (ii) any dividend declared or paid on the Series B Preferred Stock in shares of Series B Preferred Stock or
any subdivision or combination of the outstanding shares of Series B Preferred Stock or similar event, in each case occurring after the date of this Agreement (such redemption price, as
adjusted from time to time, being hereinafter referred to as the "Redemption Price"). The Rights may be redeemed only until the earlier to occur of (i) the time at which any Person becomes an
Acquiring Person or (ii) the Final Expiration Date. 

        (b)  Immediately
upon the action of the Board of Directors of the Company ordering the redemption of the Rights in accordance with Section 23 hereof, 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 for each Right so held. Promptly after the action of the
Board of Directors of the Company ordering the redemption of the Rights in accordance with Section 23 hereof, the Company shall give notice of such redemption to the Rights Agent and the
holders of the then outstanding Rights by mailing such notice to the Rights Agent and to all such holders at their last addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the Transfer Agent for the Common Stock of the Company and Series B Preferred Stock. Any notice which is mailed in the manner herein provided
shall be deemed given, whether or not the holder receives the notice. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they
appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of
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 or Section 24 hereof or in connection with the purchase of shares of Common Stock of the
Company or Series B Preferred Stock prior to the Distribution Date. 

        (c)  The
Company may, at its option, pay the Redemption Price in cash, shares of Common Stock of the Company (based on the Fair Market Value of the Common Stock of the
Company as 

30

 

of the time of redemption) or any other form of consideration deemed appropriate by the Board of Directors of the Company. 

        Section 24.    Exchange.    

        (a)(i)  The
Board of Directors of the Company may, at its option, at any time on or after the occurrence of a Section 11(a)(ii) Event, exchange
all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 7(e) hereof) for shares of Common Stock of
the Company at an exchange ratio of one share of Common Stock of the Company per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the
date hereof (such exchange ratio being hereinafter referred to as the "Section 24(a)(i) Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors of the Company shall not
be empowered to effect such exchange at any time after any Person (other than an Exempt Person), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more
of the Common Stock of the Company. 

        (ii)  Notwithstanding
the foregoing, the Board of Directors of the Company may, at its option, at any time on or after the occurrence of a
Section 11(a)(ii) Event, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of
Section 7(e) hereof) for shares of Common Stock of the Company at an exchange ratio specified in the following sentence, as appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date of this Agreement. Subject to the adjustment described in the foregoing sentence, each Right may be exchanged for that number of shares of Common Stock of
the Company obtained by dividing the Spread (as defined in Section 11(a)(iii)) by the then Fair Market Value per one ten-thousandth of a share of Preferred Stock on the earlier of
(x) the date on which any person becomes an Acquiring Person or (y) the date on which a tender or exchange offer by any Person (other than an Exempt Person) is first published or sent or
given within the meaning of Rule 14d-4(a) of the Exchange Act or any successor rule, if upon consummation thereof such Person could become an Acquiring Person (such exchange ratio
being referred to herein as the "Section 24(a)(ii) Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors of the Company shall not be empowered to effect such exchange
at any time after any Person (other than an Exempt Person), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the Common Stock of the Company. 

        (b)  Immediately
upon the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to subsection (a) of this Section 24 and
without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of shares
of Common Stock of the Company equal to the number of such Rights held by such holder multiplied by the Section 24(a)(i) Exchange Ratio or the Section 24(a)(ii) Exchange
Ratio, as applicable. The Company shall promptly give notice of any such exchange in accordance with Section 26 hereof and shall promptly mail a notice of any such exchange to all of the
holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent; provided,  however, that the failure to give, or
any defect in, such notice shall not affect the validity of such exchange. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the shares of Common Stock of
the Company for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of
Rights (other than Rights which have become void pursuant to the provisions of Section 7(e) hereof) held by each holder of Rights. 

31

 

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

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

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

        Section 25.    Notice of Certain Events.    

        (a)  In
case the Company shall propose, at any time after the Distribution Date, (i) to pay any dividend payable in stock of any class to the holders of Preferred
Stock or to make any other distribution to the holders of Preferred Stock (other than a regular periodic cash dividend out of earnings or retained earnings of the Company), or (ii) to offer to
the holders of Preferred Stock rights or warrants to subscribe for or to purchase any additional shares of Preferred Stock or shares of stock of any class or any other securities, rights or options,
or (iii) to effect any reclassification of its Preferred Stock (other than a reclassification involving only the subdivision of outstanding shares of Preferred Stock), or (iv) to effect
any consolidation or merger into or with, or to effect any sale, mortgage or other transfer (or to permit one or more of its Subsidiaries to effect any sale, mortgage or other transfer), in one
transaction or a series of related transactions, of 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to, any other Person (other than a Subsidiary of
the Company in one or more transactions each of which is not prohibited by the proviso at the end of the first sentence of Section 11(n) hereof), (v) to effect the liquidation,
dissolution or winding up of the Company, (vi) to declare or pay any dividend on the Common Stock of the Company payable in Common Stock of the Company or to effect a subdivision, combination
or consolidation of the Common Stock of the Company (by reclassification or otherwise than by payment of dividends in Common Stock of the Company) or (vii) to declare or pay any dividend on the
Series B Preferred Stock payable in Series B Preferred Stock or to effect a subdivision, combination or consolidation of Series B Preferred Stock (by reclassification or otherwise
than by payment of dividends in Series B Preferred Stock), then in each such case, the Company shall give to each holder of a Right Certificate and to the Rights Agent, in accordance with
Section 26 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, 

32

 

distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the shares of Common Stock of the Company, Series B Preferred Stock and/or Preferred Stock, if any such date is to be fixed, and such notice shall be so
given in the case of any action covered by clause (i) or (ii) above at least twenty (20) days prior to the record date for determining holders of the shares of Preferred Stock for
purposes of such action, and in the case of any such other action, at least twenty (20) days prior to the date of the taking of such proposed action or the date of participation therein by the
holders of the shares of Common Stock of the Company, Series B Preferred Stock and/or Preferred Stock, whichever shall be the earlier; provided,  however, no such notice shall be required pursuant to this Section 25 as a result of any Subsidiary of the Company effecting a consolidation or
merger with or into, or effecting a sale or other transfer of assets or earnings power
to, any other Subsidiary of the Company in a manner not inconsistent with the provisions of this Agreement. 

        (b)  In
case any Section 11(a)(ii) Event shall occur, then, in any such case, the Company shall as soon as practicable thereafter give to each registered holder
of a Right Certificate and to the Rights Agent, in accordance with Section 26 hereof, a notice of the occurrence of such event, which shall specify the event and the consequences of the event
to holders of Rights under Section 11(a)(ii) hereof. 

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

DOV
Pharmaceutical, Inc.

433 Hackensack Avenue

Hackensack, NJ 07601

Facsimile No. (201) 968-0986

Attention: General Counsel 

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

Continental
Stock Transfer & Trust Co.

17 Battery Place, 8th Floor

New York, NY 10004

Facsimile No. (212) 509-5150

Attention: Roger Bernhammer 

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

        Section 27.    Supplements and Amendments.    Prior to the occurrence of a
Section 11(a)(ii) Event, the Company and the Rights Agent shall, if the Board of Directors of the Company so directs, supplement or amend any provision of this Agreement as the Board of
Directors of the Company may 

33

 

deem necessary or desirable without the approval of any holders of certificates representing shares of Common Stock of the Company, Series B Preferred Stock or any other securities of the
Company. From and after the occurrence of a Section 11(a)(ii) Event, the Company and the Rights Agent shall, if the Board of Directors of the Company so directs, supplement or amend this
Agreement without the approval of any holder of Right Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein which may be defective
or inconsistent with any other provisions herein, (iii) to shorten or lengthen any time period hereunder, or (iv) to change or supplement the provisions hereof in any manner which the
Board of Directors of the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Right Certificates (other than an Acquiring Person or any
Affiliate or Associate of an Acquiring Person); provided, however, that from and after the occurrence of
a Section 11(a)(ii) Event 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 the benefits to, the holders of Rights (other than an Acquiring Person or any Affiliate or Associate of an Acquiring Person). Without limiting the foregoing, the Company may at any time
prior to the occurrence of a Section 11(a)(ii) Event amend this Agreement to lower the threshold set forth in Section 1(a) to not less than the greater of (i) the sum of
..001% and the largest percentage of the outstanding Common Stock of the Company then known by the Company to be Beneficially Owned by any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or any Subsidiary of the Company, or any entity holding Common Stock of the Company for or pursuant to the terms of any such plan) and (ii) 10%. Upon
the delivery of such certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 27, the Rights
Agent shall execute such supplement or amendment. Prior to the occurrence of a Section 11(a)(ii) Event, the interests of the holders of Rights shall be deemed coincident with the
interests of the holders of Common Stock of the Company or Series B Preferred Stock, as applicable. Notwithstanding any other provision hereof, the Rights Agent's consent must be obtained
regarding any amendment or supplement pursuant to this Section 27 which alters the Rights Agent's rights or duties. 

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

        Section 29.    Determinations and Actions by the Board of Directors.    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 of Directors or to the Company, or as may be necessary
or advisable in the administration of this Agreement, including without limitation, the right and power to (i) interpret the provisions of this Agreement and (ii) make all determinations
deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board of Directors in good faith
shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not
subject any member of the Board of Directors to any liability to the holders of the Rights or to any other person. 

        Section 30.    Benefits of this Agreement.    Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Stock of the Company and
Series B Preferred Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and
the 

34

 

registered holders of the Right Certificates (and, prior to the Distribution Date, registered holders of the Common Stock of the Company and Series B Preferred Stock). 

        Section 31.    Severability.    If any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force
and effect and shall in no way be affected, impaired or invalidated; provided, however, that
notwithstanding anything in this Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board
of Directors of the Company determines in its good faith judgment that severing the invalid language from the Agreement would adversely affect the purpose or effect of the Agreement, the right of
redemption set forth in Section 23 hereof shall be reinstated and shall not expire until the Close of Business on the tenth day following the date of such determination by the Board of
Directors. 

        Section 32.    Governing Law.    This Agreement, each Right and each Right Certificate issued hereunder shall
be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be
made and to be performed entirely within such State. The courts of the State of Delaware and of the United States of America located in the State of Delaware (the "Delaware Courts") shall have
exclusive jurisdiction over any litigation arising out of or relating to this Agreement and the transactions contemplated hereby, and any Person commencing or otherwise involved in any such litigation
shall waive any objection to the laying of venue of such litigation in the Delaware Courts and shall not plead or claim in any Delaware Court that such litigation brought therein has been brought in
an inconvenient forum. 

        Section 33.    Counterparts.    This Agreement may be executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 

        Section 34.    Descriptive Headings.    Descriptive headings of the several Sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 

[Remainder
of page intentionally left blank] 

35

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

	ATTEST:	 	DOV Pharmaceutical, Inc.
	

 	

 	
 	

 	

 
	By:	    
	 	By:	    

	 	 	 	 	Name:

Title:
	

 	

 	
 	

 	

 
	ATTEST:	 	Continental Stock Transfer & Trust Co., as Rights Agent
	

 	

 	
 	

 	

 
	By:	    
	 	By:	    

	 	 	 	 	Name:

Title:

36

Exhibit A  

VOTE OF DIRECTORS ESTABLISHING

SERIES E JUNIOR PARTICIPATING CUMULATIVE

PREFERRED STOCK

of

DOV PHARMACEUTICAL, INC.  

        Pursuant to Section 151 of the General Corporation Law of the State of Delaware: 

        VOTED,
that pursuant to authority conferred upon and vested in the Board of Directors by the Fourth Amended and Restated Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), of DOV Pharmaceutical, Inc. (the "Corporation"), the Board of Directors hereby establishes and designates a series of Preferred Stock of the Corporation, and hereby fixes and
determines the relative rights and preferences of the shares of such series, in addition to those set forth in the Certificate of Incorporation, as follows: 

        Section
1.    Designation and Amount.    The shares of such series shall be designated as "Series E Junior
Participating Cumulative Preferred Stock" (the "Series E Preferred Stock"), and the number of shares initially constituting such series shall be 50,000; provided, however, that if more than a
total of 50,000 shares of Series E Preferred Stock shall be issuable upon the exercise of Rights (the "Rights") issued pursuant to the Shareholder Rights Agreement dated as of October 8,
2002, between the Corporation and Continental Stock Transfer & Trust Co., as Rights Agent (the "Rights Agreement"), the Board of Directors of the Corporation, pursuant to Section 151(g)
of the General Corporation Law of the State of Delaware, may direct by resolution or resolutions that a certificate be properly executed, acknowledged, filed and recorded, in accordance with the
provisions of Section 103 thereof, providing for the total number of shares of Series E Preferred Stock authorized to be issued to be increased (to the extent that the Certificate of
Incorporation then permits) to the largest number of whole shares (rounded up to the nearest whole number) issuable upon exercise of such Rights. 

        Section
2.    Dividends and Distributions.    

        (A)  (i) Subject
to the rights of the holders of any shares of any series of preferred stock (or any similar stock) ranking prior and superior to the Series E
Preferred Stock with respect to dividends, the holders of shares of Series E Preferred Stock, in preference to the holders of shares of common stock and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September
and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share
or fraction of a share of Series E Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provisions for
adjustment hereinafter set forth, 10,000 times the aggregate per share amount of all cash dividends, and 10,000 times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend payable in shares of common stock or a subdivision of the outstanding shares of common stock (by reclassification or otherwise), declared on the
common stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series E Preferred Stock. The multiple of cash and non-cash dividends declared on the common stock to which holders of the Series E Preferred Stock are entitled,
which shall be 10,000 initially but which shall be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Dividend Multiple." In the event the Corporation shall at any
time after October 8, 2002 (the "Rights Declaration Date") (i) declare or pay any dividend on common stock payable in shares of common stock, or (ii) effect a subdivision or
combination or consolidation of the outstanding shares of common stock (by reclassification or otherwise than by payment of a dividend in shares of common stock) into a greater or lesser number of
shares of common stock, then in each such case 

 

the Dividend Multiple thereafter applicable to the determination of the amount of dividends which holders of shares of Series E Preferred Stock shall be entitled to receive shall be the
Dividend Multiple applicable immediately prior to such event multiplied by a fraction, the numerator of which is the number of shares of common stock outstanding immediately after such event and the
denominator of which is the number of shares of common stock that were outstanding immediately prior to such event. 

        (ii)  Notwithstanding
anything else contained in this paragraph (A), the Corporation shall, out of funds legally available for that purpose, declare a dividend or
distribution on the Series E Preferred Stock as provided in this paragraph (A) immediately after it declares a dividend or distribution on the common stock (other than a dividend payable
in shares of common stock); provided that, in the event no dividend or distribution shall have been declared on the common stock during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series E Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. 

        (B)  Dividends
shall begin to accrue and be cumulative on outstanding shares of Series E Preferred Stock from the Quarterly Dividend Payment Date next preceding the
date of issue of such shares of Series E Preferred Stock, unless the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or
is a date after the record date for the determination of holders of shares of Series E Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series E Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix in accordance with applicable law a record date for the determination of
holders of shares of Series E Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than such number of days prior to
the date fixed for the payment thereof as may be allowed by applicable law. 

        Section
3.    Voting Rights.    In addition to any other voting rights required by law, the holders of shares of
Series E Preferred Stock shall have the following voting rights: 

        (A)  Subject
to the provision for adjustment hereinafter set forth, each share of Series E Preferred Stock shall entitle the holder thereof to 10,000 votes on all
matters submitted to a vote of the stockholders of the Corporation. The number of votes which a holder of a share of Series E Preferred Stock is entitled to cast, which shall initially be
10,000 but which may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Vote Multiple." In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare or pay any dividend on common stock payable in shares of common stock, or (ii) effect a subdivision or combination or consolidation of the outstanding shares
of common stock (by reclassification or otherwise than by payment of a dividend in shares of common stock) into a greater or lesser number of shares of common stock, then in each such case the Vote
Multiple thereafter applicable to the determination of the number of votes per share to which holders of shares of Series E Preferred Stock shall be entitled shall be the Vote Multiple
immediately prior to such event multiplied by a fraction, the numerator of which is the number of shares of common stock outstanding immediately after such event and the denominator of which is the
number of shares of common stock that were outstanding immediately prior to such event. 

2

 

        (B)  Except
as otherwise provided herein or by law, the holders of shares of Series E Preferred Stock and the holders of shares of common stock and the holders of
shares of any other capital stock of this Corporation having general voting rights, shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. 

        (C)  Except
as otherwise required by applicable law or as set forth herein, holders of Series E Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with holders of common stock as set forth herein) for taking any corporate action. 

        Section
4.    Certain Restrictions.    

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

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

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

        (iii)  except
as permitted in subsection 4(A)(iv) below, redeem, purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series E Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series E Preferred Stock;
or 

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

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

        Section
5.    Reacquired Shares.    Any shares of Series E Preferred Stock purchased or otherwise acquired by
the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but unissued shares of preferred stock and may be reissued as part of a new series of preferred stock to be created by
resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. 

3

 

        Section
6.    Liquidation, Dissolution or Winding Up.    Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made (x) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the
Series E Preferred Stock unless, prior thereto, the holders of shares of Series E Preferred Stock shall have received an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, plus an amount equal to the greater of (1) $10,000.00 per share or (2) an aggregate amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 10,000 times the aggregate amount to be distributed per share to holders of common stock, or (y) to the holders of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series E Preferred Stock, except distributions made ratably on the Series E Preferred Stock and
all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall
at any time after the Rights Declaration Date (i) declare or pay any dividend on common stock payable in shares of common stock, or (ii) effect a subdivision or combination or
consolidation of the outstanding shares of common stock (by reclassification or otherwise than by payment of a dividend in shares of common stock) into a greater or lesser number of shares of common
stock, then in each such case the aggregate amount per share to which holders of shares of Series E Preferred Stock were entitled immediately prior to such event under clause (x) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of common stock outstanding immediately after such event and the
denominator of which is the number of shares of common stock that were outstanding immediately prior to such event. 

        Neither
the consolidation of nor merging of the Corporation with or into any other corporation or corporations, nor the sale or other transfer of all or substantially all of the assets
of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 6. 

        Section
7.    Consolidation, Merger, etc.    In case the Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of common stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of
Series E Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 10,000 times
the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of common stock is changed or exchanged, plus
accrued and unpaid dividends, if any, payable with respect to the Series E Preferred Stock. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare
or pay any dividend on common stock payable in shares of common stock, or (ii) effect a subdivision or combination or consolidation of the outstanding shares of common stock (by
reclassification or otherwise than by payment of a dividend in shares of common stock) into a greater or lesser number of shares of common stock, then in each such
case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series E Preferred Stock shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of common stock outstanding immediately after such event and the denominator of which is the number of shares of common stock that were outstanding
immediately prior to such event. 

        Section
8.    Redemption.    The shares of Series E Preferred Stock shall not be redeemable; provided, however,
that the foregoing shall not limit the ability of the Corporation to purchase or otherwise deal in such shares to the extent otherwise permitted hereby and by law. 

        Section
9.    Ranking.    Unless otherwise expressly provided in the Certificate of Incorporation or a Certificate of
Designations relating to any other series of preferred stock of the Corporation, the Series E Preferred Stock shall rank junior to every other series of the Corporation's preferred stock 

4

 

previously or hereafter authorized, as to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up and shall rank senior to the common stock. 

        Section
10.    Amendment.    The Certificate of Incorporation and this Certificate of Designations shall not be
amended in any manner which would materially alter or change the powers, preferences or special rights of the Series E Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of two-thirds or more of the outstanding shares of Series E Preferred Stock, voting separately as a class. 

        Section
11.    Fractional Shares.    Series E Preferred Stock may be issued in whole shares or in any fraction
of a share that is one ten-thousandth (1/10,000th) of a share or any integral multiple of such fraction, 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 E Preferred Stock. In lieu of fractional shares, the
Corporation may elect to make a cash payment as provided in the Rights Agreement for fractions of a share other than one ten-thousandth (1/10,000th) of a share or any integral multiple
thereof. 

5

Exhibit B  

[Form
of Right Certificate] 

Certificate
No. R-            Rights 

        NOT
EXERCISABLE AFTER OCTOBER 9, 2012 OR EARLIER IF NOTICE OF REDEMPTION IS GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF DOV PHARMACEUTICAL, INC., AT $0.01
PER RIGHT, ON THE TERMS SET FORTH IN THE SHAREHOLDER RIGHTS AGREEMENT BETWEEN DOV PHARMACEUTICAL, INC. AND CONTINENTAL STOCK TRANSFER & TRUST CO., AS RIGHTS AGENT, DATED AS OF
OCTOBER 8, 2002 (THE "RIGHTS AGREEMENT"). UNDER CERTAIN CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN ASSOCIATE
OR AFFILIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. 

Right
Certificate 

DOV
PHARMACEUTICAL, INC. 

        This
certifies that                        , or registered assigns, is the registered owner of the number of Rights set forth above,
each of which entitles the owner thereof, subject to the
terms, provisions and conditions of the Shareholder Rights Agreement dated as of October 8, 2002 (the "Rights Agreement") between DOV Pharmaceutical, Inc. (the "Company") and Continental
Stock Transfer & Trust Co., as Rights Agent (the "Rights Agent"), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and
prior to the close of business on October 9, 2012 at the office or offices of the Rights Agent designated for such purpose, or its successors as Rights Agent, one ten-thousandth of
a fully paid, non-assessable share of the Series E Junior Participating Cumulative Preferred Stock (the "Preferred Stock") of the Company, at a purchase price of $50.00 per one
ten-thousandth of a share (the "Exercise Price"), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase and the related Certificate duly executed.
The
number of Rights evidenced by this Right Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above, and the Exercise Price per share set forth above, are the
number and Exercise Price as of $50.00, based on the Preferred Stock as constituted at such date. 

        Upon
the occurrence of a Section 11(a)(ii) Event (as such term is defined in the Rights Agreement), if the Rights evidenced by this Right Certificate are beneficially owned
by (i) an Acquiring Person or an Affiliate or Associate of any such Person (as such terms are defined in the Rights Agreement), (ii) a transferee of any such Acquiring Person or
Associate or Affiliate thereof, 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 Exercise Price and the number of shares of Preferred Stock or other securities which may be purchased upon the exercise of the Rights evidenced
by this Right Certificate are subject to modification and adjustment upon the happening of certain events. 

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

 

designated office of the Rights Agent and are also available upon written request to the Company or the Rights Agent. 

        This
Right Certificate, with or without other Right Certificates, upon surrender at the office or offices of the Rights Agent designated for such purpose, may be exchanged for another
Right Certificate or Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of shares of Preferred Stock as the Rights evidenced by the Right
Certificate or Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof
another Right Certificate or Certificates for the number of whole Rights not exercised. If this Right Certificate shall be exercised in whole or in part pursuant to Section 11(a)(ii) of
the Rights Agreement, the holder shall be entitled to receive this Right Certificate duly marked to indicate that such exercise has occurred as set forth in the Rights Agreement. 

        Under
certain circumstances, subject to the provisions of the Rights Agreement, the Board of Directors of the Company at its option may exchange all or any part of the Rights evidenced
by this Certificate for shares of the Company's Common Stock or Preferred Stock at an exchange ratio (subject to adjustment) specified in the Rights Agreement. 

        Subject
to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Board of Directors of the Company at its option at a redemption price
of $0.01 per Right (payable in cash, Common Stock or other consideration deemed appropriate by the Board of Directors). 

        The
Company is not obligated to issue fractional shares of stock upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one
ten-thousandth of a share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts). If the Company elects not to issue such fractional shares, in
lieu thereof a cash payment will be made, as provided in the Rights Agreement. 

        No
holder of this Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of shares of Preferred Stock, Common Stock or 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 actions affecting shareholders (except as provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement. 

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

2

 

        WITNESS
the facsimile signature of the proper officers of the Company as a document under corporate seal. 

	Attested:	 	DOV PHARMACEUTICAL, INC.
	

By:	
 	

 	
 	

By:	
 	

 
	 	 	
 [Secretary or Assistant Secretary]	 	 	 	
 Name:

Title: [Chairman, Vice Chairman, President or

              Vice President]
	

Countersigned:	
 	

 	
 	

 
	

CONTINENTAL STOCK TRANSFER & TRUST CO.	
 	

 	
 	

 
	

By:	
 	

 	
 	

 	
 	

 
	 	 	
 Name:

Title:	 	 	 	 

3

[Form of Reverse Side of Right Certificate]

 
 

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

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

	 	 	Dated:                          ,
            	 	 
	 	 	 	 	

	

 	
 	

 	
 	

 Signature
	

 	
 	

Signature
Guaranteed:                                       
                                          
 

 
 

CERTIFICATE    
  

        The undersigned hereby certifies by checking the appropriate boxes that: 

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

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

	 	 	Dated:                          ,
            	 	 
	 	 	 	 	

	

 	
 	

 	
 	

 Signature

 
 

NOTICE    
  

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

 
 

FORM OF ELECTION TO PURCHASE    
    
    (To be executed if holder desires to
  exercise the Right Certificate.)    
  

To
DOV PHARMACEUTICAL, INC.: 

        The
undersigned hereby irrevocably elects to exercise            Rights represented by this Right Certificate to purchase the shares of Preferred Stock issuable upon the exercise of
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: 

	Please insert social security or other identifying taxpayer number:	 
	 	

	

	

 (Please print name and address)

        If
such number of Rights shall not be all the Rights evidenced by this Right Certificate or if the Rights are being exercised pursuant to Section 11(a)(ii) of the Rights
Agreement, a new Right Certificate for the balance of such Rights shall be registered in the name of and delivered to: 

	Please insert social security or other identifying taxpayer number:	 
	 	

	

	

 (Please print name and address)

	        Dated:                        ,
        	 	

	

 	
 	

 Signature

	Signature Guaranteed:	 	 	 	 
	 	 	
	 	 

 
 

CERTIFICATE    
  

        The undersigned hereby certifies by checking the appropriate boxes that: 

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

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

	        Dated:                        ,
        	 	

	

 	
 	

 Signature

 
 

NOTICE    
  

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

QuickLinks

SHAREHOLDER RIGHTS AGREEMENT

TABLE OF CONTENTS

SHAREHOLDER RIGHTS AGREEMENT

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

CERTIFICATE

NOTICE

FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise the Right Certificate.)

CERTIFICATE

NOTICE<Page>

                                                                    EXHIBIT 10.1

                         COMMON STOCK PURCHASE AGREEMENT

                                 BY AND BETWEEN

                           KINGSBRIDGE CAPITAL LIMITED

                                       AND

                                   AKSYS, LTD.

                          DATED AS OF OCTOBER 15, 2002

<Page>

                                TABLE OF CONTENTS

<Table>
<Caption>

                                                                                                      PAGE

<S>      <C>                <C>                                                                       <C>
ARTICLE I             DEFINITIONS.......................................................................2

         Section 1.01.     "Blackout Shares"............................................................2

         Section 1.02.     "Closing Date"...............................................................2

         Section 1.03.     "Commission".................................................................2

         Section 1.04.     "Commission Documents".......................................................2

         Section 1.05.     "Commitment Period"..........................................................2

         Section 1.06.     "Common Stock"...............................................................2

         Section 1.07.     "Condition Satisfaction Date"................................................2

         Section 1.08.     "Damages"....................................................................2

         Section 1.09.     "Draw Down"..................................................................2

         Section 1.10.     "Draw Down Amount"...........................................................2

         Section 1.11.     "Draw Down Discount Price"...................................................2

         Section 1.12.     "Draw Down Exercise Date"....................................................2

         Section 1.13.     "Draw Down Notice"...........................................................2

         Section 1.14.     "Draw Down Pricing Period"...................................................2

         Section 1.15.     "Effective Date".............................................................3

         Section 1.16.     "Exchange Act"...............................................................3

         Section 1.17.     "Knowledge"..................................................................3

         Section 1.18.     "Legend".....................................................................3

         Section 1.19.     "Make Whole Amount"..........................................................3

         Section 1.20.     "Material Adverse Effect"....................................................3

         Section 1.21.     "Maximum Commitment Amount"..................................................3

         Section 1.22.     "Maximum Draw Down Amount"...................................................3

         Section 1.23.     "Minimum Draw Down Amount"...................................................3

         Section 1.24.     "NASD".......................................................................3

         Section 1.25.     "Other Financing"............................................................3

         Section 1.26.     "Permitted Transaction"......................................................3

         Section 1.27.     "Person".....................................................................3

         Section 1.28.     "Principal Market"...........................................................4

         Section 1.29.     "Prohibited Transaction".....................................................4

         Section 1.30.     "Prospectus".................................................................4

         Section 1.31.     "Registrable Securities".....................................................4

         Section 1.32.     "Registration Rights Agreement"..............................................4

                                              i
<Page>

                                              TABLE OF CONTENTS
                                                 (CONTINUED)

                                                                                                     PAGE

         Section 1.33.     "Registration Statement".....................................................4

         Section 1.34.     "Regulation D"...............................................................4

         Section 1.35.     "Section 4(2)"...............................................................4

         Section 1.36.     "Securities Act".............................................................4

         Section 1.37.     "Settlement Date"............................................................4

         Section 1.38.     "Shares".....................................................................4

         Section 1.39.     "Threshold Price"............................................................4

         Section 1.40.     "Trading Day"................................................................5

         Section 1.41.     "Underwriter"................................................................5

         Section 1.42.     "VWAP".......................................................................5

         Section 1.43.     "Warrant"....................................................................5

         Section 1.44.     "Warrant Shares".............................................................5

ARTICLE II            PURCHASE AND SALE OF COMMON STOCK.................................................5

         Section 2.01.     Purchase and Sale of Stock...................................................5

         Section 2.02.     Closing......................................................................5

         Section 2.03.     Registration Statement and Prospectus........................................5

         Section 2.04.     Warrant......................................................................5

         Section 2.05.     Blackout Shares..............................................................6

ARTICLE III           DRAW DOWN TERMS...................................................................6

         Section 3.01.     Draw Down Notice.............................................................6

         Section 3.02.     Number of Shares.............................................................6

         Section 3.03.     Limitation on Draw Downs.....................................................6

         Section 3.04.     Trading Cushion..............................................................6

         Section 3.05.     Expiration of Draw Downs.....................................................6

         Section 3.06.     Settlement...................................................................6

         Section 3.07.     Delivery of Shares; Payment of Draw Down Amount..............................7

         Section 3.08.     Threshold Price..............................................................7

         Section 3.09.     Other Issuances..............................................................7

         Section 3.10.     Failure to Deliver Shares....................................................7

ARTICLE IV            REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................................8

         Section 4.01.     Organization, Good Standing and Power........................................8

         Section 4.02.     Authorization; Enforcement...................................................8

                                               ii
<Page>

                                              TABLE OF CONTENTS
                                                 (CONTINUED)

                                                                                                     PAGE

         Section 4.03.     Capitalization...............................................................8

         Section 4.04.     Issuance of Shares...........................................................9

         Section 4.05.     No Conflicts.................................................................9

         Section 4.06.     Commission Documents, Financial Statements..................................10

         Section 4.07.     No Material Adverse Change..................................................10

         Section 4.08.     No Undisclosed Liabilities..................................................10

         Section 4.09.     No Undisclosed Events or Circumstances......................................11

         Section 4.10.     Actions Pending.............................................................11

         Section 4.11.     Compliance with Law.........................................................11

         Section 4.12.     Certain Fees................................................................11

         Section 4.13.     Disclosure..................................................................11

         Section 4.14.     Material Non-Public Information.............................................11

         Section 4.15.     Exemption from Registration; Valid Issuances................................12

         Section 4.16.     No General Solicitation or Advertising in Regard to this Transaction........12

         Section 4.17.     No Integrated Offering......................................................12

         Section 4.18.     Acknowledgment Regarding Investor's Purchase of Shares......................12

ARTICLE V             REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR........................12

         Section 5.01.     Organization and Standing of the Investor...................................12

         Section 5.02.     Authorization and Power.....................................................13

         Section 5.03.     No Conflicts................................................................13

         Section 5.05.     Information.................................................................13

         Section 5.06.     Selling Restrictions........................................................14

ARTICLE VI            COVENANTS OF THE COMPANY.........................................................14

         Section 6.01.     Securities..................................................................14

         Section 6.02.     Reservation of Common Stock.................................................14

         Section 6.03.     Registration and Listing....................................................14

         Section 6.04.     Registration Statement......................................................14

         Section 6.05.     Compliance with Laws........................................................15

         Section 6.06.     Reporting Requirements......................................................15

         Section 6.07.     Other Financing.............................................................15

         Section 6.08.     Prohibited Transactions.....................................................15

                                               iii
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                                              TABLE OF CONTENTS
                                                 (CONTINUED)

                                                                                                     PAGE

         Section 6.09.     Corporate Existence.........................................................16

         Section 6.10.     Non-Disclosure of Non-Public Information....................................16

         Section 6.11.     Notice of Certain Events Affecting Registration; Suspension of Right to
                           Request a Draw Down.........................................................16

         Section 6.12.     Amendments to the Registration Statement....................................16

         Section 6.13.     Prospectus Delivery.........................................................16

         Section 6.14.     Expectations Regarding Draw Downs...........................................16

ARTICLE VII           CONDITIONS TO THE OBLIGATION OF THE INVESTOR TO ACCEPT A DRAW DOWN...............17

         Section 7.01.     Accuracy of the Company's Representations and Warranties....................17

         Section 7.02.     Performance by the Company..................................................17

         Section 7.03.     Compliance with Law.........................................................17

         Section 7.04.     Effective Registration Statement............................................17

         Section 7.05.     No Knowledge................................................................17

         Section 7.06.     No Suspension...............................................................18

         Section 7.07.     No Injunction...............................................................18

         Section 7.08.     No Proceedings or Litigation................................................18

         Section 7.09.     Section 16 Limitation.......................................................18

         Section 7.10.     Sufficient Shares Registered for Resale.....................................18

         Section 7.11.     Warrant.....................................................................18

         Section 7.12.     Opinion of Counsel..........................................................18

ARTICLE VIII          LEGENDS..........................................................................18

         Section 8.01.     Legends.....................................................................19

         Section 8.02.     No Other Legend or Stock Transfer Restrictions..............................20

ARTICLE IX            TERMINATION......................................................................20

         Section 9.01.     Termination by Mutual Consent...............................................20

         Section 9.02.     Other Termination...........................................................20

         Section 9.03.     Effect of Termination.......................................................21

ARTICLE X             INDEMNIFICATION..................................................................21

         Section 10.01.    Indemnification.............................................................21

         Section 10.02.    Notification of Claims for Indemnification..................................22

         Section 10.03.    Dispute Resolution..........................................................23

ARTICLE XI            MISCELLANEOUS....................................................................24

                                               iv
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                                              TABLE OF CONTENTS
                                                 (CONTINUED)

                                                                                                     PAGE

         Section 11.01.    Fees and Expenses...........................................................24

         Section 11.02.    Reporting Entity for the Common Stock.......................................24

         Section 11.03.    Brokerage...................................................................24

         Section 11.04.    Notices.....................................................................24

         Section 11.05.    Assignment..................................................................25

         Section 11.06.    Amendment; No Waiver........................................................26

         Section 11.07.    Entire Agreement............................................................26

         Section 11.08.    Severability................................................................26

         Section 11.09.    Title and Subtitles.........................................................26

         Section 11.10.    Counterparts................................................................26

         Section 11.11.    Choice of Law...............................................................26

         Section 11.12.    Specific Enforcement, Consent to Jurisdiction...............................26

         Section 11.13.    Survival....................................................................27

         Section 11.14.    Publicity...................................................................27

         Section 11.15.    Further Assurances..........................................................27

                                               v
</Table>

<Page>

                         COMMON STOCK PURCHASE AGREEMENT

                                 BY AND BETWEEN

                           KINGSBRIDGE CAPITAL LIMITED

                                       AND

                                   AKSYS, LTD.

                          dated as of October 15, 2002

         This COMMON STOCK PURCHASE AGREEMENT is entered into as of the 15th day
of October (this "AGREEMENT"), by and between Kingsbridge Capital Limited, an
entity organized and existing under the laws of the British Virgin Islands (the
"INVESTOR") and AKSYS, LTD., a corporation organized and existing under the laws
of the State of Delaware (the "COMPANY").

                  WHEREAS, the parties desire that, upon the terms and subject
to the conditions set forth herein, the Company may issue and sell to the
Investor, from time to time as provided herein, and the Investor shall purchase
from the Company, Common Stock (as defined below) for an aggregate of up to $15
million; and

                  WHEREAS, such investments will be made in reliance upon the
provisions of Section 4(2) ("SECTION 4(2)") and Regulation D ("REGULATION D") of
the United States Securities Act of 1933, as amended and the rules and
regulations promulgated thereunder (the "SECURITIES ACT"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments in Common Stock to be
made hereunder; and

                  WHEREAS, in consideration for the Investor's execution and
delivery of, and its performance of its obligations under, this Agreement, the
Company is concurrently issuing to the Investor a Warrant (as defined below)
pursuant to which the Investor may purchase from the Company up to 200,000
shares of Common Stock, upon the terms and subject to the conditions set forth
therein; and

                  WHEREAS, the parties hereto are concurrently entering into a
Registration Rights Agreement (as defined below) pursuant to which the Company
shall register the Common Stock issued and sold to the Investor under this
Agreement and under the Warrant, upon the terms as subject to the conditions set
forth therein;

         NOW, THEREFORE, the parties hereto agree as follows:

<Page>

                                    ARTICLE I

                                   DEFINITIONS

      Section 1.01  "BLACKOUT SHARES" shall have the meaning assigned to such
term in the Registration Rights Agreement.

      Section 1.02  "CLOSING DATE" means the date on which this Agreement is
executed and delivered by the Company and the Investor.

      Section 1.03  "COMMISSION" means the United States Securities Exchange
Commission.

      Section 1.04  "COMMISSION DOCUMENTS" shall have the meaning assigned to
such term in Section 4.06 hereof.

      Section 1.05  "COMMITMENT PERIOD" means the period commencing on the
Effective Date and expiring on the earliest to occur of (x) the date on which
the Investor shall have purchased Shares pursuant to this Agreement for an
aggregate purchase price equal to the Maximum Commitment Amount, (y) the date
this Agreement is terminated pursuant to Article IX hereof, and (z) the date
occurring 24 months from the Effective Date.

      Section 1.06  "COMMON STOCK" means the common stock of the Company, $0.01
par value per share.

      Section 1.07  "CONDITION SATISFACTION DATE" shall have the meanin
assigned to such term in Article VII hereof.

      Section 1.08  "DAMAGES" means any loss, claim, damage, liability, costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses and costs and reasonable expenses of expert witnesses and
investigation).

      Section 1.09  "DRAW DOWN" shall have the meaning assigned to such term in
Section 3.01 hereof.

      Section 1.10  "DRAW DOWN AMOUNT" means the actual amount of a Draw Down
paid to the Company.

      Section 1.11  "DRAW DOWN DISCOUNT PRICE" means (i) 90% of the VWAP on
any Trading Day during the Draw Down Pricing Period when the VWAP is equal to
or exceeds $2.00 but is less than $10.00, and (ii) 92% of the VWAP on any
Trading Day during the Draw Down Pricing Period when the VWAP is equal to or
exceeds $10.00.

     Section 1.12  "DRAW DOWN EXERCISE DATE" shall have the meaning assigned to
such term in Section 7.01(a) hereof.

     Section 1.13  "DRAW DOWN NOTICE" shall have the meaning assigned to such
term in Section 3.01 hereof.

     Section 1.14  "DRAW DOWN PRICING PERIOD" shall mean, with respect to each
Draw Down, a period of fifteen (15) consecutive Trading Days beginning on the
first Trading Day

                                       2

<Page>

specified in a Draw Down Notice, or such other period of consecutive Trading
Days as is mutually agreed upon by the Company and the Investor.

     Section 1.15  "EFFECTIVE DATE" means the first Trading Day immediately
following the date on which the Registration Statement is declared effective by
the Commission.

     Section 1.16  "EXCHANGE ACT" means the U.S. Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.

     Section 1.17  "KNOWLEDGE" means the actual knowledge of the Chief Executive
Officer, Chief Financial Officer or any Senior Vice President of the Company.

     Section 1.18  "LEGEND" shall have the meaning specified in Section 8.1.

     Section 1.19  "MAKE WHOLE AMOUNT" shall have the meaning specified in
Section 3.10.

     Section 1.20  "MATERIAL ADVERSE EFFECT" means any effect on the business,
operations, properties or financial condition of the Company and its
consolidated subsidiaries that is material and adverse to the Company and such
subsidiaries, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise interfere with the ability of the Company to
perform any of its obligations under this Agreement, the Registration Rights
Agreement or the Warrant in any material respect; PROVIDED, that either of the
following shall not constitute a "Material Adverse Effect": (i) the effects of
conditions or events that are generally applicable to the capital, financial,
banking or currency markets and (ii) any changes or effects resulting from the
announcement or consummation of the transactions contemplated by this Agreement,
including, without limitation, any changes or effects associated with any
particular Draw Down.

     Section 1.21  "MAXIMUM COMMITMENT AMOUNT" means $15 million in aggregate
Draw Down Amounts.

     Section 1.22  "MAXIMUM DRAW DOWN AMOUNT" means 2.5% of the Company's Market
Capitalization (as defined and calculated in accordance with Annex A) at the
time of the Draw Down; PROVIDED, HOWEVER, that such amount shall not exceed $5
million in respect of any Draw Down.

     Section 1.23  "MINIMUM DRAW DOWN AMOUNT" means $250,000.

     Section 1.24  "NASD" means the National Association of Securities
Dealers, Inc.

     Section 1.25  "OTHER FINANCING" shall have the meaning assigned to such
term in Section 6.07 hereof.

     Section 1.26  "PERMITTED TRANSACTION" shall have the meaning assigned to
such term in Section 6.07 hereof.

     Section 1.27  "PERSON" means any individual, corporation, partnership,
limited liability company, association, trust or other entity or organization,
including any government or political subdivision or an agency or
instrumentality thereof.

                                       3
<Page>

     Section 1.28  "PRINCIPAL MARKET" means the Nasdaq National Market, the
Nasdaq SmallCap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.

     Section 1.29  "PROHIBITED TRANSACTION" shall have the meaning assigned to
such term in Section 6.08 hereof.

     Section 1.30 "PROSPECTUS" as used in this Agreement means the prospectus in
the form included in the Registration Statement, as supplemented from time to
time pursuant to Rule 424(b) of the Securities Act.

     Section 1.31  "REGISTRABLE SECURITIES" means (i) the Shares, (ii) the
Warrant Shares, (iii) any Blackout Shares and (iv) any securities issued or
issuable with respect to any of the foregoing by way of exchange, stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (w) the Registration Statement has been declared
effective by the SEC and such Registrable Securities have been disposed of
pursuant to the Registration Statement, (x) such Registrable Securities have
been sold under circumstances under which all of the applicable conditions of
Rule 144 (or any similar provision then in force) under the Securities Act
("RULE 144") are met, (y) such time as such Registrable Securities have been
otherwise transferred to holders who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive legend
or (z) in the opinion of counsel to the Company such Registrable Securities may
be sold without registration and without any time, volume or manner limitations
pursuant to Rule 144(k) (or any similar provision then in effect) under the
Securities Act.

     Section 1.32  "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement between the Investor and the Company in the form of EXHIBIT A hereto.

     Section 1.33  "REGISTRATION STATEMENT" shall have the meaning assigned to
such term in the Registration Rights Agreement.

     Section 1.34  "REGULATION D" shall have the meaning set forth in the
recitals of this Agreement.

     Section 1.35  "SECTION 4(2)" shall have the meaning set forth in the
recitals of this Agreement.

     Section 1.36  "SECURITIES ACT" means the U.S. Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.

     Section 1.37  "SETTLEMENT DATE" shall have the meaning assigned to such
term in Section 3.06 hereof.

     Section 1.38  "SHARES" means the shares of Common Stock of the Company that
are and/or may be purchased hereunder.

     Section 1.39  "THRESHOLD PRICE" means the lowest "Draw Down Discount Price"
(as specified in a Draw Down Notice) at which the Company will agree to sell
Shares during the

                                       4
<Page>

applicable Draw Down Pricing Period, which price shall not be less than $2.00
per share, unless agreed upon in writing by the Investor.

     Section 1.40  "TRADING DAY" means any day other than a Saturday or a Sunday
on which the Principal Market is open for trading in equity securities.

     Section 1.41  "UNDERWRITER" shall mean any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
the Registration Statement.

     Section 1.42  "VWAP" means the volume weighted average price of the Common
Stock during any Trading Day as reported by Bloomberg, L.P. using the AQR
function.

     Section 1.43  "WARRANT" means the warrant to purchase up to 200,000 shares
of Common Stock first exercisable beginning on the six-month anniversary of the
Closing Date and expiring on the fifth anniversary thereafter issued by the
Company to the Investor on the Closing Date in the form attached hereto as
EXHIBIT B hereto.

     Section 1.44  "WARRANT SHARES" means the shares of Common Stock issuable to
the Investor upon exercise of the Warrant.

                                   ARTICLE II

                        PURCHASE AND SALE OF COMMON STOCK

     Section 2.01  PURCHASE AND SALE OF STOCK. Upon the terms and subject to
the conditions set forth in this Agreement, the Company shall issue and sell
to the Investor and the Investor shall purchase from the Company Common Stock
for an aggregate (in Draw Down Amounts) of up to the Maximum Commitment
Amount, consisting of purchases based on Draw Downs in accordance with Article
III hereof.

     Section 2.02  CLOSING. In consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Company agrees to issue and sell to the Investor, and the Investor agrees to
purchase from the Company, that number of the Shares to be issued in connection
with each Draw Down. The closing of the execution and delivery of this Agreement
(the "CLOSING") shall take place at the offices of Clifford Chance US LLP, 200
Park Avenue, New York, NY 10166 at 11:00 a.m. local time on October __, 2002, or
at such other time and place or on such date as the Investor 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.

     Section 2.03  REGISTRATION STATEMENT AND PROSPECTUS. Promptly after the
Closing, the Company shall prepare and file with the Commission the Registration
Statement (including the Prospectus) in accordance with the provisions of the
Securities Act and the Registration Rights Agreement.

     Section 2.04  WARRANT. On the Closing Date, the Company shall issue and
deliver the Warrant to the Investor.

                                       5
<Page>

     Section 2.05  BLACKOUT SHARES. The Company shall issue and deliver any
Blackout Shares to the Investor in accordance with Section 1(e) of the
Registration Rights Agreement.

                                  ARTICLE III

                                 DRAW DOWN TERMS

         Subject to the satisfaction of the conditions hereinafter set forth in
this Agreement, the parties agree as follows:

         Section 3.01 DRAW DOWN NOTICE. The Company, may, in its sole
discretion, issue a Draw Down Notice with respect to a Draw Down up to a Draw
Down Amount equal to the Maximum Draw Down Amount (each, a "DRAW DOWN") during
the Commitment Period, which Draw Down the Investor will be obligated to accept.
The Company shall inform the Investor via facsimile transmission, with a copy to
the Investor's counsel, as to the Draw Down Amount the Company wishes to
exercise before commencement of trading on the first Trading Day of any Draw
Down Pricing Period (the "DRAW DOWN NOTICE"). In addition to the Draw Down
Amount, each Draw Down Notice shall specify the Threshold Price in respect of
the applicable Draw Down and shall designate the first Trading Day of the Draw
Down Pricing Period. In no event shall any Draw Down Amount be less than the
Minimum Draw Down Amount or exceed the Maximum Draw Down Amount. Each Draw Down
Notice shall be accompanied by a certificate, signed by the Chief Executive
Officer or Chief Financial Officer dated, as of the date of such Draw Down
Notice, in the form of EXHIBIT C hereof.

     Section 3.02  NUMBER OF SHARES. 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 Draw Down
Discount Price equals or exceeds the Threshold Price) of one fifteenth (1/15th)
of the Draw Down Amount divided by the applicable Draw Down Discount Price.

     Section 3.03  LIMITATION ON DRAW DOWNS. Only one Draw Down shall be
permitted for each Draw Down Pricing Period.

     Section 3.04  TRADING CUSHION. There shall be a minimum of five (5) Trading
Days between the expiration of any Draw Down Pricing Period and the beginning of
the next succeeding Draw Down Pricing Period.

     Section 3.05  EXPIRATION  OF DRAW DOWNS. Each Draw Down will expire on the
last Trading Day of each Draw Down Pricing Period.

     Section 3.06  SETTLEMENT. The number of Shares purchased by the Investor
with respect to each Draw Down shall be determined and settled on a periodic
basis in respect of the applicable Draw Down Pricing Period. Settlement in
respect of each determination shall be made no later than the third Trading Day
after the fifth, tenth and fifteenth day of the Draw Down Pricing Period, and,
in the event that the Investor elects to extend any Draw Down Pricing Period in
accordance with Section 3.08, the third Trading Day after the end of such
extended Draw Down Pricing Period. Each date on which settlement of the purchase
and sale of Shares occurs hereunder being referred to as a "SETTLEMENT DATE."
The Investor shall provide the Company with delivery instructions for the Shares
to be issued at each Settlement Date at least two Trading Days in advance of
such Settlement Date (except to the extent previously provided). The number of
Shares actually issued shall be rounded to the nearest whole number of Shares.

                                       6
<Page>

     Section 3.07  DELIVERY OF SHARES; PAYMENT OF DRAW DOWN AMOUNT. On each
Settlement Date, the Company shall deliver the Shares purchased by the Investor
to the Investor or its designees via book-entry through the Depositary Trust
Company to an account designated by the Investor, and upon receipt of the
Shares, the Investor shall cause payment therefor to be made to the Company's
designated account by wire transfer of immediately available funds, if the
Shares are received by the Investor no later than 1:00 p.m. (Eastern Time), or
next day available funds, if the Shares are received thereafter.

     Section 3.08  THRESHOLD PRICE. For each Trading Day during a Draw Down
Pricing Period that the Draw Down Discount Price is less than the Threshold
Price, no Shares shall be purchased or sold on such Trading Day and the total
amount of the Draw Down Amount in respect of such Draw Down Pricing Period shall
be reduced by one fifteenth (1/15th); PROVIDED, HOWEVER, that the Investor may
elect prior to each respective Settlement Date during such Draw Down Pricing
Period, in its sole discretion, to either (i) purchase Shares in respect of any
such Trading Day at a price equal to the Threshold Price or (ii) extend such
Draw Down Pricing Period for the number of Trading Days during such Draw Down
Pricing Period that the Draw Down Discount Price was less than the Threshold
Price. At no time shall the Threshold Price be set below $2.00 unless agreed
upon by the Company and the Investor. If trading in the Company's Common Stock
is suspended for any reason for more than three (3) consecutive or
non-consecutive hours during any Trading Day during a Draw Down Pricing Period,
the Investor may elect in its sole discretion, to either (i) deem the Draw Down
Discount Price to be less than the Threshold Price for that Trading Day or (ii)
extend such Draw Down Pricing Period for an additional Trading Day in respect of
such Trading Day.

     Section 3.09  OTHER ISSUANCES. If during any Draw Down Pricing Period, the
Company (with the consent of the Investor pursuant to Section 6.07 or 6.08
hereof, if applicable) shall issue any shares of Common Stock to any Person
other than the Investor (other than shares of Common Stock issued in connection
with a Permitted Transaction), the Investor may in its sole discretion (i)
purchase up to the Draw Down Amount of shares of Common Stock at the applicable
Draw Down Discount for such Draw Down Pricing Period in accordance with the
terms of this Agreement, or (ii) elect not to purchase any Shares during such
Draw Down Pricing Period. The Investor shall notify the Company of its election
not later than the Trading Day preceding the third Settlement Date in respect of
such Draw Down Pricing Period. In the event that the Investor elects not to
purchase any Shares in respect of such a Draw Down Pricing Period and one or
more Settlement Dates have occurred, the Investor shall promptly return to the
Company any and all Shares transferred to the Investor in respect of such
Settlement Date(s) and the Company shall promptly thereafter pay to the Investor
by wire transfer of immediately available funds to an account designated by the
Investor that portion of the applicable Draw Down Amount paid to the Company in
respect of such Settlement Date(s).

     Section 3.10  FAILURE TO DELIVER SHARES. If on any Settlement Date, the
Company fails to deliver the Shares to be purchased by the Investor, and such
failure is not cured within ten (10) Trading Days following the date on which
the Investor delivered payment for such Shares, the Company shall pay to the
Investor on demand in cash by wire transfer of immediately available funds to an
account designated by the Investor the "MAKE WHOLE AMOUNT;" PROVIDED, HOWEVER,
that in the event that the Company is prevented from delivering Shares in
respect of any such Settlement Date in a timely manner by any fact or
circumstance that is reasonably within the control of, or directly attributable
to, the Investor, then such ten (10) Trading Day period shall be automatically
extended until such time as such fact or circumstance is cured. As used herein,
the Make Whole Amount shall be an amount equal to the sum of (i) the Draw Down
Amount actually paid by the Investor in respect of such Shares plus (ii) an
amount equal to actual loss suffered by

                                       7
<Page>

the Investor in respect of sales of such Shares to subsequent purchasers, which
shall be based upon documentation reasonably satisfactory to the Company
demonstrating the difference (if greater than zero) between (A) the price per
share paid by the Investor to purchase such number of shares of Common Stock
necessary for the Investor to meet its share delivery obligations to such
subsequent purchasers minus (B) the average Draw Down Discount Price during the
applicable Draw Down Pricing Period. In the event that the Make Whole Amount is
not paid within two (2) Trading Days following a demand therefor from the
Investor, the Make Whole Amount shall accrue interest compounded daily at a rate
of five percent (5%) per annum up to and including the date on which the Make
Whole Amount is actually paid. Notwithstanding anything to the contrary set
forth in this Agreement, in the event that the Company pays the Make Whole
Amount (plus interest, if applicable) in respect of any Settlement Date in
accordance with this Section 3.10, such payment shall be the Investor's sole
remedy in respect of the Company's failure to deliver Shares in respect of such
Settlement Date.

                                   ARTICLE IV

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company hereby makes the following representations and warranties to
the Investor:

     Section 4.01  ORGANIZATION, GOOD STANDING AND POWER. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite power and authority to own, lease
and operate its properties and to carry on its business as now being conducted.
Except as set forth in the Commission Documents (as defined below), the Company
does not own more than fifty percent (50%) of the outstanding capital stock of
or control any other business entity, other than any wholly-owned subsidiary
that is not "significant" within the meaning of Regulation S-X promulgated by
the Commission. The Company 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, other than those in which the failure so to qualify or be in good
standing would not have a Material Adverse Effect.

     Section 4.02  AUTHORIZATION; ENFORCEMENT. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Registration Rights Agreement and the Warrant and to issue
the Shares, the Warrant, the Warrant Shares and any Blackout Shares (except to
the extent that the number of Blackout Shares required to be issued exceeds the
number of authorized shares of Common Stock under the Certrificate); (ii) the
execution and delivery of this Agreement and the Registration Rights Agreement,
and the execution, issuance and delivery of the Warrant, by the Company and
the consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required (other than as contemplated by Section 6.05); and (iii) each of this
Agreement and the Registration Rights Agreement has been duly executed and
delivered, and the Warrant has been duly executed, issued and delivered, by the
Company and constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application.

     Section 4.03  CAPITALIZATION. The authorized capital stock of the Company
and the shares thereof issued and outstanding as of September 30, 2002 are set
forth on SCHEDULE 4.03

                                       8
<Page>

attached. All of the outstanding shares of the Common Stock have been duly and
validly authorized and issued, and are fully paid and non-assessable. Except as
set forth in this Agreement or on SCHEDULE 4.03 attached hereto, 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 or exchangeable for or giving any
right to subscribe for, any shares of capital stock of the Company. Except as
set forth in this Agreement or on SCHEDULE 4.03, 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 or exchangeable
for or giving any right to subscribe for any shares of capital stock of the
Company. Except as set forth on SCHEDULE 4.03, 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. Except as set forth on
SCHEDULE 4.03, as of the date hereof 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
during the twenty-four month period immediately 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 that could reasonably be
expected to have a Material Adverse Effect. The Company has furnished or made
available to the Investor true and correct copies of the Company's Restated
Certificate of Incorporation, as amended and in effect on the date hereof (the
"CERTIFICATE"), and the Company's Bylaws, as amended and in effect on the date
hereof (the "BYLAWS").

     Section 4.04  ISSUANCE OF SHARES. The Shares, the Warrant and the Warrant
Shares have been, and any Blackout Shares will be, duly authorized by all
necessary corporate action (except to the extent that the number of Blackout
Shares required to be issued exceeds the number of authorized shares of Common
Stock under the Certificate) and, when issued and paid for in accordance with
the terms of this Agreement, the Registration Rights Agreement and the Warrant,
the Shares and the Warrant Shares shall be validly issued and outstanding, fully
paid and non-assessable, and the Investor shall be entitled to all rights
accorded to a holder of shares of Common Stock.

     Section 4.05  NO CONFLICTS. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Warrant and any other document
or instrument contemplated hereby or thereby, by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not: (i) violate any provision of the Certificate 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, for such conflicts, defaults, terminations,
amendments, accelerations, 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

                                       9
<Page>

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, the
Registration Rights Agreement or the Warrant, or issue and sell the Shares, the
Warrant Shares or the Blackout Shares (except to the extent that the number of
Blackout Shares required to be issued exceeds the number of authorized shares of
Common Stock under the Certificate) in accordance with the terms hereof and
thereof (other than any filings that may be required to be made by the Company
with the Commission, the NASD/Nasdaq or state securities commissions subsequent
to the Closing, and, any registration statement (including any amendment or
supplement thereto) which may be filed pursuant hereto); PROVIDED that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Investor herein.

     Section 4.06  COMMISSION DOCUMENTS, FINANCIAL STATEMENTS. The Common Stock
is registered pursuant to Section 12(b) or 12(g) of the Exchange Act and the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the 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 maintained all requirements for the
continued listing or quotation of its Common Stock, and such Common Stock is
currently listed or quoted on the Nasdaq National Market. The Company has made
available to the Investor true and complete copies of the Commission Documents
filed with the Commission since December 31, 2001 and prior to the Closing Date.
The Company has not provided to the Investor 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. As of its date, the Company's Form
10-K for the year ended December 31, 2001 complied in all material respects with
the requirements of the Exchange Act and the rules and regulations of the
Commission promulgated thereunder applicable to such document, and, as of its
date, after giving effect to the information disclosed and incorporated by
reference therein, such 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. As of their respective dates, the
financial statements of the Company included in the Commission Documents filed
with the Commission since December 31, 2001 complied as to form and substance 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).

     Section 4.07  NO MATERIAL ADVERSE CHANGE. Except as disclosed in the
Commission Documents, since December 31, 2001 no event or series of events has
or have occurred that would, individually or in the aggregate, have a Material
Adverse Effect on the Company.

     Section 4.08  NO UNDISCLOSED LIABILITIES. Neither the Company nor any of
its subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated,

                                      10
<Page>

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 and are not disclosed in
the Commission Documents, other than those incurred in the ordinary course of
the Company's or its subsidiaries respective businesses since December 31, 2001
and which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company.

     Section 4.09  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, 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 on the Company.

     Section 4.10  ACTIONS PENDING. There is no action, suit, claim,
investigation or proceeding pending or, to the Knowledge of the Company,
threatened against the Company or any subsidiary which questions the validity
of this Agreement or the transactions contemplated hereby or any action taken or
to be taken pursuant hereto or thereto. Except as set forth in the Commission
Documents or on SCHEDULE 4.10, there is no action, suit, claim, investigation or
proceeding pending or, to the Knowledge of the Company, threatened, against or
involving the Company, any subsidiary or any of their respective properties or
assets that could be reasonably expected to have a Material Adverse Effect
on the Company. Except as set forth in the Commission Documents or on
SCHEDULE 4.10, no judgment, order, writ, injunction or decree or award has been
issued by or, so far as is known by the Company, requested of any court,
arbitrator or governmental agency which might result in a Material Adverse
Effect.

     Section 4.11  COMPLIANCE WITH LAW. The businesses of the Company and its
subsidiaries have been and are presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Commission Documents or such that would
not reasonably be expected to cause a Material Adverse Effect. The Company and
each of its subsidiaries have all franchises, permits, licenses, consents and
other governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it, except for such
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals, the failure to possess which, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect.

     Section 4.12  CERTAIN FEES. Except as expressly set forth in this
Agreement, no brokers, finders or financial advisory fees or commissions will be
payable by the Company or any of its subsidiaries in respect of the transactions
contemplated by this Agreement.

     Section 4.13  DISCLOSURE. To the best of the Company's Knowledge, neither
this Agreement nor the Schedules hereto nor any other documents, certificates or
instruments furnished to the Investor by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit 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.

     Section 4.14  MATERIAL NON-PUBLIC INFORMATION. Except for this Agreement
and the transactions contemplated hereby, neither the Company nor its agents
have disclosed to the Investor, any material non-public information that,
according to applicable law, rule or regulation,

                                      11
<Page>

should have been disclosed publicly by the Company prior to the date hereof but
which has not been so disclosed.

     Section 4.15  EXEMPTION FROM REGISTRATION; VALID ISSUANCES. The issuance
and sale of the Shares, the Warrant, the Warrant Shares and any Blackout Shares
in accordance with the terms and on the bases of the representations and
warranties set forth in this Agreement, may and shall be properly issued
pursuant to Section 4(2), Regulation D and/or any other applicable federal and
state securities laws. Neither the sales of the Shares, the Warrant, the Warrant
Shares or any Blackout Shares pursuant to, nor the Company's performance of its
obligations under, this Agreement, the Registration Rights Agreement, or the
Warrant shall (i) result in the creation or imposition of any liens, charges,
claims or other encumbrances upon the Shares, the Warrant Shares, any Blackout
Shares or any of the assets of the Company, or (ii) entitle the holders of any
outstanding shares of capital stock of the Company to preemptive or other rights
to subscribe to or acquire the shares of Common Stock or other securities of the
Company. The Shares, the Warrant Shares and any Blackout Shares shall not
subject the Investor to personal liability by reason of the ownership thereof.

     Section 4.16  NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor any of its affiliates or any person acting
on its or their behalf (i) has conducted any general solicitation (as that term
is used in Rule 502(c) of Regulation D) or general advertising with respect to
any of the Shares, the Warrant, the Warrant Shares or any Blackout Shares or
(ii) has made any offers or sales of any security or solicited any offers to buy
any security under any circumstances that would require registration of the
Shares under the Securities Act.

     Section 4.17  NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement and employee benefit
plans, under circumstances that would require registration under the Securities
Act of shares of the Common Stock issuable hereunder with any other offers or
sales of securities of the Company.

     Section 4.18  ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF SHARES. The
Company acknowledges and agrees that the Investor is acting solely in the
capacity of an arm's length Investor with respect to this Agreement and the
transactions contemplated hereunder. The Company further acknowledges that the
Investor 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 Investor or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereunder is merely incidental to the Investor's purchase of
the Shares.

                                   ARTICLE V

            REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR

     The Investor hereby makes the following representations, warranties and
covenants to the Company:

     Section 5.01  ORGANIZATION AND STANDING OF THE INVESTOR. The Investor is an
entity duly organized, validly existing and in good standing under the laws of
the British Virgin Islands.

                                      12
<Page>

     Section 5.02  AUTHORIZATION AND POWER. The Investor has the requisite power
and authority to enter into and perform its obligations under this Agreement,
the Registration Rights Agreement and the Warrant and to purchase the Shares in
accordance with the terms hereof. The execution, delivery and performance of
this Agreement by Investor 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 Investor, its Board of Directors
or stockholders is required. This Agreement has been duly executed and delivered
by the Investor and constitutes a valid and binding obligation of the Investor
enforceable against the Investor 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.

     Section 5.03  NO CONFLICTS. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Warrant and any other document
or instrument contemplated hereby, by the Investor and the consummation of the
transactions contemplated thereby do not (i) violate any provision of the
Investor's charter documents 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 Investor is a party, (iii) create or impose a lien, charge or
encumbrance on any property of the Investor under any agreement or any
commitment to which the Investor is a party or by which the Investor 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 Investor or by which any property or asset of the
Investor are bound or affected, except in all cases, for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, prohibit or otherwise interfere
with the ability of the Investor to enter into and perform its obligations under
this Agreement in any material respect. The Investor 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 to purchase the Shares in accordance with
the terms hereof, PROVIDED that, for purposes of the representation made in this
sentence, the Investor is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.

     Section 5.04  FINANCIAL CAPABILITY The Investor has the financial
capability to perform all of its obligations under this Agreement, including the
capability to purchase the Shares in accordance with the terms hereof.

     Section 5.05  INFORMATION. The Investor 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 Investor. The Investor and its advisors, if any, have
been afforded the opportunity to ask questions of the Company. The Investor 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. The Investor 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.

                                      13
<Page>

     Section 5.06  SELLING RESTRICTIONS. The Investor covenants that during the
Commitment Period, neither the Investor nor any of its affiliates nor any entity
managed by the Investor will ever (i) be in a short position with respect to
shares of the Common Stock in any accounts directly or indirectly managed by the
Investor or any affiliate of the Investor or any entity managed by the Investor
or (ii) engage in any transaction intended to reduce the economic risk of
ownership of shares of Common Stock (including, without limitation, the purchase
of any option or contract to sell) that would, directly or indirectly, have an
effect substantially equivalent to selling short such shares of Common Stock
that are subject to, underlie or may be deliverable in satisfaction of such
transaction or otherwise may be reasonably be expected to adversely affect the
market price of the Common Stock. Notwithstanding the foregoing, the Investor
shall have the right during any Draw Down Pricing Period to sell shares of the
Company's Common Stock equal in number to the aggregate number of the Shares to
be purchased pursuant to the applicable Draw Down Notice.

                                   ARTICLE VI

                            COVENANTS OF THE COMPANY

     The Company covenants with the Investor as follows, which covenants are
for the benefit of the Investor and its permitted assignees (as defined herein):

     Section 6.01  SECURITIES. The Company shall notify the Commission and the
Principal Market, if and as applicable, in accordance with their rules and
regulations, of the transactions contemplated by this Agreement, and shall use
commercially reasonable efforts to 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, the Warrant Shares
and the Blackout Shares, if any, to the Investor.

     Section 6.02  RESERVATION OF COMMON STOCK. As of the date hereof, the
Company has available and the Company shall reserve and keep available at all
times, free of preemptive rights and other similar contractual rights of
stockholders, shares of Common Stock for the purpose of enabling the Company to
satisfy any obligation to issue the Shares in connection with all Draw Downs
contemplated hereunder and the Warrant Shares. The number of shares so reserved
from time to time, as theretofore increased or reduced as hereinafter provided,
may be reduced by the number of shares actually delivered hereunder.

     Section 6.03  REGISTRATION AND LISTING. During the Commitment Period, the
Company shall use commercially reasonable efforts: (i) to take all action
necessary to cause its Common Stock to continue to be registered under Section
12(b) or 12(g) of the Exchange Act, (ii) to comply in all respects with its
reporting and filing obligations under the Exchange Act, (iii) to prevent the
termination or suspension such registration, or the termination or suspension of
its reporting and filing obligations under the Exchange Act or Securities Act
(except as expressly permitted herein). The Company shall use commercially
reasonable efforts necessary to maintain the listing and trading of its Common
Stock and the listing of the Shares purchased by Investor hereunder on the
Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all material respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the NASD
and the Principal Market.

     Section 6.04  REGISTRATION STATEMENT. Without the prior written consent of
the Investor, the Registration Statement shall be used solely in connection with
the transactions between the Company and the Investor contemplated hereby.

                                      14
<Page>

     Section 6.05  COMPLIANCE WITH LAWS.

            (a) The Company shall comply, and cause each subsidiary to comply
with all applicable laws, rules, regulations and orders, noncompliance with
which could, in the commercially reasonable judgment of the Company, be expected
to have a Material Adverse Effect.

            (b) Without the consent of its stockholders in accordance with NASD
rules, the Company will not be obligated to issue, and the Investor will not be
obligated to purchase, any Shares which would result in the issuance under this
Agreement of Shares representing more than the applicable percentage under the
rules of the NASD that would require stockholder approval of the issuance
thereof.

     Section 6.06  REPORTING REQUIREMENTS. Upon reasonable written request of
the Investor during the Commitment Period, the Company shall furnish copies of
the following to the Investor within three Trading Days of such request (but not
sooner than filed with or submitted to the Commission):

            (a)   Quarterly Reports on Form 10-Q;

            (b)   Annual Reports on Form 10-K;

            (c)   Periodic Reports on Form 8-K; and

            (d)   any other documents publicly furnished or submitted to the
                  Commission.

     Section 6.07  OTHER FINANCING. During the term of this Agreement, the
Company shall not enter into any other financing agreement for the issuance,
sale or other disposition of equity or equity-linked securities, including,
without limitation, any securities or other instruments that are convertible
into or exchangeable for Common Stock or Preferred Stock ("OTHER FINANCING")
without the prior written consent of the Investor, which consent will not be
unreasonably withheld, conditioned or delayed; PROVIDED, HOWEVER, that without
the prior written consent of the Investor the Company may (i) establish stock
option or award plans or agreements (for directors, employees, consultants
and/or advisors) and amend such plans or agreements, including increasing the
number of shares available thereunder, (ii) use equity securities to finance the
acquisition of other companies, equipment, technologies or lines of business,
(iii) issue shares of Common Stock and/or Preferred Stock in connection with the
Company's option or award plans, stock purchase plans, rights plans, warrants or
options, (iv) issue shares of Common Stock and/or Preferred Stock in connection
with the acquisition of products, licenses, equipment or other assets and
strategic partnerships or joint ventures (the primary purpose of which is not to
raise equity capital); (v) issue shares of Common and/or Preferred Stock to
consultants and/or advisors as consideration for services rendered, (vi) issue
and sell shares in an underwritten public offering of Common Stock, and (vii)
issue shares of Common Stock to the Investor under any other agreement entered
into between the Investor and the Company (each a "PERMITTED TRANSACTION").

     Section 6.08  PROHIBITED TRANSACTIONS. During the term of this Agreement,
the Company shall not enter into any Prohibited Transaction without the prior
written consent of the Investor, which consent may be withheld at the sole
discretion of the Investor. For the purposes of this Agreement, the term
"PROHIBITED TRANSACTION" shall refer to the issuance by the Company of any
"future priced securities," which shall be deemed to mean the issuance of shares
of Common Stock or securities of any type whatsoever that are, or may become,
convertible or

                                      15
<Page>

exchangeable into shares of Common Stock where the purchase, conversion or
exchange price for such Common Stock is determined using any floating or
otherwise adjustable discount to the market price of Common Stock, including,
without limitation, pursuant to any equity line or other financing that is
substantially similar to the financing provided for under this Agreement.

     Section 6.09  CORPORATE EXISTENCE. The Company shall take all steps
necessary to preserve and continue the corporate existence of the Company.

     Section 6.10  NON-DISCLOSURE OF NON-PUBLIC INFORMATION. None of the
Company, its officers, directors, employees nor agents shall disclose material
non-public information to the Investor, its advisors or representatives.

     Section 6.11  NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION
OF RIGHT TO REQUEST A DRAW DOWN. Notwithstanding the provisions of SECTION 6.10,
the Company shall immediately notify the Investor upon the occurrence of any of
the following events in respect of the Registration Statement or the Prospectus
related to the offer, issuance and sale of the Shares, the Warrant Shares and
any Blackout Shares hereunder: (i) receipt of any request for additional
information by the Commission or any other federal or state governmental
authority during the period of effectiveness of the Registration Statement for
amendments or supplements to the Registration Statement or the Prospectus; (ii)
the issuance by the Commission or any other federal or state governmental
authority of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose; and (iii)
receipt of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose. The Company shall not request a Draw Down during the continuation of
any of the foregoing events.

     Section 6.12  AMENDMENTS TO THE REGISTRATION STATEMENT. When the
Registration Statement is declared effective by the Commission, the Company
shall not (i) file any amendment to the Registration Statement or make any
amendment or supplement to the Prospectus of which the Investor shall not
previously have been advised or to which the Investor shall reasonably object
after being so advised or (ii) so long as, in the reasonable opinion of counsel
for the Investor, a Prospectus is required to be delivered in connection with
sales of the Shares by the Investor, file any information, documents or reports
pursuant to the Exchange Act without delivering a copy of such information,
documents or reports to the Investor promptly following such filing.

     Section 6.13  PROSPECTUS DELIVERY. From time to time for such period as in
the opinion of counsel for the Investor a prospectus is required by the
Securities Act to be delivered in connection with sales by the Investor, the
Company will expeditiously deliver to the Investor, without charge, as many
copies of the Prospectus (and of any amendment or supplement thereto) as the
Investor may reasonably request. 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 state securities laws in connection with
the offering and sale of the Shares, the Warrant Shares and the Blackout Shares,
if any, 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, the
Warrant Shares and any Blackout Shares.

     Section 6.14  EXPECTATIONS REGARDING DRAW DOWNS. Within ten (10) calendar
days after the commencement of each calendar quarter occurring subsequent to the
date hereof, the Company shall notify the Investor as to its reasonable
expectations as to the dollar amount it

                                      16
<Page>

intends to raise during such calendar quarter, if any, through the issuance of
Draw Down Notices. Such notification shall constitute only the Company's good
faith estimate with respect to such calendar quarter and shall in no way
obligate the Company to raise such amount during such calendar quarter or
otherwise limit its ability to deliver Draw Down Notices during such calendar
quarter. The failure by the Company to comply with this provision can be cured
by the Company's notifying the Investor at any time as to its reasonable
expectations with respect to the current calendar quarter.

                                   ARTICLE VII

       CONDITIONS TO THE OBLIGATION OF THE INVESTOR TO ACCEPT A DRAW DOWN

The obligation of the Investor hereunder to accept a Draw Down Notice and to
acquire and pay for the Shares in accordance therewith is subject to the
satisfaction or waiver, at each Condition Satisfaction Date, of each of the
conditions set forth below. The conditions are for the Investor's sole benefit
and may be waived by the Investor at any time in its sole discretion. As used in
this Agreement, the term "CONDITION SATISFACTION DATE" shall mean, with respect
to each Draw Down, the date on which the applicable Draw Down Notice is
delivered to the Investor and each Settlement Date in respect of the applicable
Draw Down Pricing Period.

     Section 7.01  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 as though made at that
time, except for representations and warranties that are expressly made as of a
particular date.

     Section 7.02  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, the Registration Rights Agreement and
the Warrant to be performed, satisfied or complied with by the Company.

     Section 7.03  COMPLIANCE WITH LAW. The Company shall have complied in all
material respects with all applicable federal, state and local governmental
laws, rules, regulations and ordinances in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby.

     Section 7.04  EFFECTIVE REGISTRATION STATEMENT. Upon the terms and subject
to the conditions as set forth in the Registration Rights Agreement, the
Registration Statement shall have previously become effective and shall remain
effective and (i) neither the Company nor the Investor shall have received
notice that the Commission has issued or intends to issue a stop order with
respect to the Registration Statement or that the Commission otherwise has
suspended or withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
Commission's concerns have been addressed and the Investor is reasonably
satisfied that the Commission no longer is considering or intends to take such
action), and (ii) no other suspension of the use or withdrawal of the
effectiveness of the Registration Statement or the Prospectus shall exist.

     Section 7.05  NO KNOWLEDGE. The Company shall have no Knowledge of any
event more likely than not to have the effect of causing the Registration
Statement with respect to the resale of the Registrable Securities by the
Investor to be suspended or otherwise ineffective

                                      17
<Page>

(which event is more likely than not to occur within fifteen Trading Days
following the Trading Day on which a Draw Down Notice is delivered).

     Section 7.06  NO SUSPENSION. Trading in the Company's Common Stock shall
not have been suspended by the Commission, the Principal Market or the NASD and
trading in securities generally as reported on the Principal Market shall not
have been suspended or limited.

     Section 7.07  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.

     Section 7.08  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 subsidiary, or any of the officers, directors or
affiliates of the Company or any subsidiary seeking to enjoin, prevent or change
the transactions contemplated by this Agreement.

     Section 7.09  SECTION 16 LIMITATION. On each Settlement Date, the number of
Shares then to be purchased by the Investor shall not exceed the number of such
shares that, when aggregated with all other Registrable Securities then owned by
the Investor beneficially or deemed beneficially owned by the Investor, would
result in the Investor owning more than 9.9% of all of such Common Stock as
would be outstanding on such Settlement Date, as determined in accordance with
Section 16 of the Exchange Act. For purposes of this Section 7.09, in the event
that the amount of Common Stock outstanding as determined in accordance with
Section 16 of the Exchange Act and the regulations promulgated thereunder is
greater on a Settlement Date than on the date upon which the Draw Down Notice
associated with such Settlement Date is given, the amount of Common Stock
outstanding on such Settlement Date shall govern for purposes of determining
whether the Investor, when aggregating all purchases of Common Stock made
pursuant to this Agreement and, if any, Warrant Shares and Blackout Shares,
would own more than 9.9% of the Common Stock following such Settlement Date.

     Section 7.10  SUFFICIENT SHARES REGISTERED FOR RESALE. The Company shall
have sufficient Shares, calculated using the closing trade price of the Common
Stock as of the Trading Day immediately preceding such Draw Down Notice,
registered under the Registration Statement to issue and sell such Shares in
accordance with such Draw Down Notice.

     Section 7.11  WARRANT. The Warrant shall have been duly executed, delivered
and issued to the Investor, and the Company shall not be in default in any
material respect under any of the provisions thereof, PROVIDED that any refusal
by or failure of the Company to issue and deliver Warrant Shares in respect of
any exercise (in whole or in part) thereof shall be deemed to be material for
the purposes of this Section 7.11.

     Section 7.12   OPINION OF COUNSEL. The Investor shall have received an
opinion of counsel to the Company, dated as of the Effective Date, in form and
substance reasonably satisfactory to the Investor and its counsel.

                                      18
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                                  ARTICLE VIII

                                     LEGENDS

     Section 8.01  LEGENDS. Each of the Warrant and, unless otherwise provided
below, each certificate representing Registrable Securities will bear the
following legend (the "Legend"):

         THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
         ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN
         RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
         SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY
         NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
         ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
         DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
         UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT
         FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS
         CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY
         SET FORTH IN A PRIVATE EQUITY LINE AGREEMENT BETWEEN AKSYS, LTD. AND
         KINGSBRIDGE CAPITAL LIMITED DATED AS OF OCTOBER 15, 2002. A COPY OF THE
         PORTION OF THE AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE
         OBTAINED FROM THE COMPANY'S EXECUTIVE OFFICES.

As soon as practicable after the execution and delivery hereof, but in any event
within five (5) Trading Days hereafter, the Company shall issue to the transfer
agent for its Common Stock (and to any substitute or replacement transfer agent
for its Common Stock upon the Company's appointment of any such substitute or
replacement transfer agent) instructions, with a copy to the Investor. Such
instructions shall be irrevocable by the Company from and after the date hereof
or from and after the issuance thereof to any such substitute or replacement
transfer agent, as the case may be, except as otherwise expressly provided in
the Registration Rights Agreement. It is the intent and purpose of such
instructions, as provided therein, to require the transfer agent for the Common
Stock from time to time upon transfer of Registrable Securities by the Investor
to issue certificates evidencing such Registrable Securities free of the Legend
during the following periods and under the following circumstances and without
consultation by the transfer agent with the Company or its counsel and without
the need for any further advice or instruction or documentation to the transfer
agent by or from the Company or its counsel or the Investor, unless an opinion
of Investor's counsel is reasonably required by the Transfer Agent or the
Company:

            (a) At any time after the Effective Date to the extent accompanied
by a notice requesting the issuance of certificates free of the Legend; provided
that (i) the Company is reasonably able to confirm to the transfer agent that
the Registration Statement shall then be effective and (ii) if reasonably
requested by the transfer agent the Investor confirms to the transfer agent that
the Investor has complied with the prospectus delivery requirement under the
Securities Act.

            (b) At any time upon any surrender of one or more certificates
evidencing Registrable Securities that bear the Legend, to the extent
accompanied by a notice requesting the

                                      19
<Page>

issuance of new certificates free of the Legend to replace those surrendered and
containing representations that (i) the Investor is permitted to dispose of such
Registrable Securities without limitation as to amount or manner of sale
pursuant to Rule 144(k) under the Securities Act and there is no requirement for
the Investor to deliver a prospectus or (ii) the Investor has sold, pledged or
otherwise transferred or agreed to sell, pledge or otherwise transfer such
Registrable Securities in a manner other than pursuant to an effective
registration statement, to a transferee who shall upon such transfer be entitled
to freely tradeable securities.

     Section 8.02  NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend
other than the one specified in Section 8.1 has been or shall be placed on the
share certificates representing the Common Stock issued to the Investor
and no instructions or "stop transfer orders," so called "stock transfer
restrictions," or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto other than as expressly set forth
in this Article VIII.

                                   ARTICLE IX

                                   TERMINATION

     Section 9.01  TERMINATION BY MUTUAL CONSENT. This Agreement shall terminate
upon expiration of the Commitment Period. This Agreement may be terminated at
any time by mutual written consent of the parties.

     Section 9.02  OTHER TERMINATION.

                  (a) The Investor may terminate this Agreement upon (x) one
(1) day's notice if the Company enters into any Other Financing as set forth in
Section 6.08 or any Prohibited Transaction as set forth in Section 6.09 without
the Investor's prior written consent, or (y) one (1) day's notice within ten
(10) Trading Days after the Investor obtains actual knowledge that an event
resulting in a Material Adverse Effect has occurred; PROVIDED, HOWEVER, that the
Investor shall be deemed to possess such actual knowledge within five (5)
Trading Days after such event has been publicly disclosed by the Company in
accordance with its periodic reporting requirements under the Exchange Act.

            (b) The Investor may terminate this Agreement upon one (1) day's
notice to the Company at any time in the event that the Registration Statement
is not declared effective in accordance with the Registration Rights Agreement.

            (c) The Company may terminate this Agreement upon one (1) day's
notice; PROVIDED, HOWEVER, that the Company shall not terminate this Agreement
pursuant to this SECTION 9.02(c) effective during any Draw Down Pricing Period;
PROVIDED FURTHER; that, in the event of any termination of this Agreement by the
Company hereunder, so long as the Investor owns Shares purchased hereunder,
Blackout Shares issued under the Registration Rights Agreement and/or Warrant
Shares, unless all of such shares of Common Stock may be resold by the Investor
without registration and without any time, volume or manner limitations pursuant
to Rule 144(k) (or any similar provision then in effect) under the Securities
Act, the Company shall not suspend or withdraw the Registration Statement or
otherwise cause the Registration Statement to become ineffective, or delist the
Common Stock from the Principal Market.

            (d) Each of the parties hereto may terminate this Agreement upon
one (1) day's notice if the other party has breached a material representation,
warranty or covenant to this

                                      20
<Page>

Agreement and such breach is not remedied within ten (10) Trading Days after
notice of such breach is delivered to the breaching party.

            (e) The obligation of the Investor to purchase shares of Common
Stock shall terminate permanently in the event that there shall occur any stop
order or suspension of effectiveness of the Registration Statement for an
aggregate of thirty (30) calendar days during the Commitment Period.

     Section 9.03  EFFECT OF TERMINATION. In the event of termination by the
Company or the Investor, 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 9.01 or 9.02 herein, this Agreement shall
become void and of no further force and effect, except as provided in Section
11.13. Nothing in this Section 9.03 shall be deemed to release the Company or
the Investor from any liability for any breach under this Agreement, or to
impair the rights of the Company and the Investor to compel specific performance
by the other party of its obligations under this Agreement.

                                   ARTICLE X

                                 INDEMNIFICATION

     Section 10.01  INDEMNIFICATION.

            (a) Except as otherwise provided in this Article X, unless disputed
as set forth in Section 10.02, the Company agrees to indemnify, defend and hold
harmless the Investor and its affiliates and their respective officers,
directors, agents, employees, subsidiaries, partners, members and controlling
persons (each, an "INVESTOR INDEMNIFIED PARTY"), to the fullest extent permitted
by law from and against any and all Damages directly resulting from or directly
arising out of any breach of any representation or warranty, covenant or
agreement by the Company in this Agreement, the Registration Rights Agreement or
the Warrant; PROVIDED, HOWEVER, that the Company shall not be liable under this
Article X to an Investor Indemnified Party to the extent that such Damages
resulted or arose from the breach by an Investor Indemnified Party of any
representation or warranty of an Investor Indemnified Party contained in this
Agreement or the gross negligence, recklessness, willful misconduct or bad faith
of an Investor Indemnified Party. The parties intend that any Damages subject to
indemnification pursuant to this Article X will be net of insurance proceeds.
Accordingly, the amount which the Company is required to pay to any Investor
Indemnified Party hereunder (a "COMPANY INDEMNITY PAYMENT") will be reduced by
any insurance proceeds actually recovered by or on behalf of any Investor
Indemnified Party in reduction of the related Damages. In addition, if an
Investor Indemnified Party receives a Company Indemnity Payment required by this
Article X in respect of any Damages and subsequently receives any such insurance
proceeds, then the Investor Indemnified Party will pay to the Company an amount
equal to the Company Indemnity Payment received less the amount of the Company
Indemnity Payment that would have been due if the insurance proceeds had been
received, realized or recovered before the Company Indemnity Payment was made.

            (b) Except as otherwise provided in this Article X, unless disputed
as set forth in Section 10.02, the Investor agrees to indemnify, defend and hold
harmless the Company and its affiliates and their respective officers,
directors, agents, employees, subsidiaries, partners, members and controlling
persons (each, a "COMPANY INDEMNIFIED PARTY"), to the fullest extent permitted
by law from and against any and all Damages directly resulting from or directly
arising out of any breach of any representation or warranty, covenant or
agreement by the Investor in this

                                      21
<Page>

Agreement; PROVIDED, HOWEVER, that the Investor shall not be liable under this
Article X to a Company Indemnified Party to the extent that such Damages
resulted or arose from the breach by a Company Indemnified Party of any
representation or warranty of a Company Indemnified Party contained in this
Agreement or gross negligence, recklessness, willful misconduct or bad faith of
a Company Indemnified Party. The parties intend that any Damages subject to
indemnification pursuant to this Article X will be net of insurance proceeds.
Accordingly, the amount which the Investor is required to pay to any Company
Indemnified Party hereunder (a "INVESTOR INDEMNITY PAYMENT") will be reduced by
any insurance proceeds theretofore actually recovered by or on behalf of any
Company Indemnified Party in reduction of the related Damages. In addition, if a
Company Indemnified Party receives a Investor Indemnity Payment required by this
Article X in respect of any Damages and subsequently receives insurance such
proceeds, then the Company Indemnified Party will pay to the Investor an amount
equal to the Investor Indemnity Payment received less the amount of the Investor
Indemnity Payment that would have been due if the insurance proceeds had been
received, realized or recovered before the Investor Indemnity Payment was made.

     Section 10.02  NOTIFICATION OF CLAIMS FOR INDEMNIFICATION. Each party
entitled to indemnification under this Article X (an "INDEMNIFIED PARTY") shall,
promptly after the receipt of notice of the commencement of any claim against
such Indemnified Party in respect of which indemnity may be sought from the
party obligated to indemnify such Indemnified Party under this Article X (the
"INDEMNIFYING PARTY"), notify the Indemnifying Party in writing of the
commencement thereof. Any such notice shall describe the claim in reasonable
detail. The failure of any Indemnified Party to so notify the Indemnifying Party
of any such action shall not relieve the Indemnifying Party from any liability
which it may have to such Indemnified Party (a) other than pursuant to this
Article X or (b) under this Article X unless, and only to the extent that, such
failure results in the Indemnifying Party's forfeiture of substantive rights or
defenses or the Indemnifying Party is prejudiced by such delay. The procedures
listed below shall govern the procedures for the handling of indemnification
claims.

            (a) Any claim for indemnification for Damages that do not result
from a Third Party Claim as defined in the following paragraph, shall be
asserted by written notice given by the Indemnified Party to the Indemnifying
Party. Such Indemnifying Party shall have a period of thirty (30) days after the
receipt of such notice within which to respond thereto. If such Indemnifying
Party does not respond within such thirty (30) day period, such Indemnifying
Party shall be deemed to have refused to accept responsibility to make payment
as set forth in Section 10.01. If such Indemnifying Party does not respond
within such thirty (30) day period or rejects such claim in whole or in part,
the Indemnified Party shall be free to pursue such remedies as specified in this
Agreement, including the dispute resolution provisions set forth in Section
10.03 below.

            (b) If an Indemnified Party shall receive notice or otherwise learn
of the assertion by a person or entity not a party to this Agreement of any
threatened legal action or claim (collectively a "THIRD PARTY CLAIM"), with
respect to which an Indemnifying Party may be obligated to provide
indemnification, the Indemnified Party shall give such Indemnifying Party
written notice thereof within twenty (20) days after becoming aware of such
Third Party Claim.

            (c) An Indemnifying Party may elect to defend (and, unless the
Indemnifying Party has specified any reservations or exceptions, to seek to
settle or compromise) at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, any Third Party Claim. Within thirty (30) days
after the receipt of notice from an Indemnified Party (or sooner if the nature
of such Third Party Claim so requires), the Indemnifying Party shall notify

                                      22
<Page>

the Indemnified Party whether the Indemnifying Party will assume responsibility
for defending such Third Party Claim, which election shall specify any
reservations or exceptions. If such Indemnifying Party does not respond within
such thirty (30) day period or rejects such claim in whole or in part, the
Indemnified Party shall be free to pursue such remedies as specified in this
Agreement, including the dispute resolution provisions set forth in Section
10.03 below. In case any such Third Party Claim shall be brought against any
Indemnified Party, and it shall notify the Indemnifying Party of the
commencement thereof, the Indemnifying Party shall be entitled to assume the
defense thereof at its own expense, with counsel satisfactory to such
Indemnified Party in its reasonable judgment; provided, however, that at any
Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense at its own expense. Notwithstanding the foregoing,
in any claim in which both the Indemnifying Party, on the one hand, and an
Indemnified Party, on the other hand, are, or are reasonably likely to become, a
party, such Indemnified Party shall have the right to employ separate counsel
and to control its own defense of such claim if, in the reasonable opinion of
counsel to such Indemnified Party, either (x) one or more defenses are available
to the Indemnified Party that are not available to the Indemnifying Party or (y)
a conflict or potential conflict exists between the Indemnifying Party, on the
one hand, and such Indemnified Party, on the other hand, that would make such
separate representation advisable; PROVIDED, HOWEVER, that the Indemnifying
Party (i) shall not be liable for the fees and expenses of more than one counsel
to all Indemnified Parties and (ii) shall reimburse the Indemnified Parties for
such reasonable fees and expenses of such counsel incurred in any such action
between the Indemnifying Party and the Indemnified Parties or between such
Indemnified Parties and any third party, as such expenses are incurred. The
Indemnifying Party agrees that it will not, without the prior written consent of
the Indemnified Party, settle, compromise or consent to the entry of any
judgment in any pending or threatened claim relating to the matters contemplated
hereby (if any Indemnified Party is a party thereto or has been actually
threatened to be made a party thereto) unless such settlement, compromise or
consent includes an unconditional release of such Indemnified Party from all
liability arising or that may arise out of such claim. The Indemnifying Party
shall not be liable for any settlement of any claim effected against an
Indemnified Party without the Indemnifying Party's written consent, which
consent shall not be unreasonably withheld, conditioned or delayed. The rights
accorded to an Indemnified Party hereunder shall be in addition to any rights
that any Indemnified Party may have at common law, by separate agreement or
otherwise; PROVIDED, HOWEVER, that notwithstanding the foregoing or anything to
the contrary contained in this Agreement, nothing in this Article X (other than
Section 10.03) shall restrict or limit any rights that any Indemnified Party may
have to seek equitable relief.

     Section 10.03 DISPUTE RESOLUTION. Any dispute under this Agreement, the
Registration Rights Agreement or the Warrant shall be submitted to arbitration
(including, without limitation, pursuant to this Article X) and shall be finally
and conclusively determined by the decision of a board of arbitration consisting
of three (3) members (the "BOARD OF ARBITRATION") selected as hereinafter
provided. Each of the Indemnified Party and the Indemnifying Party shall select
one (1) member and the third member shall be selected by mutual agreement of the
other members, or if the other members fail to reach agreement on a third member
within twenty (20) days after their selection, such third member shall
thereafter be selected by the American Arbitration Association upon application
made to it for such purpose by the Indemnified Party. The Board of Arbitration
shall meet on consecutive business days in Chicago, Illinois or such other place
as a majority of the members of the Board of Arbitration determines more
appropriate, and shall reach and render a decision in writing (concurred in by a
majority of the members of the Board of Arbitration) with respect to the amount,
if any, which the Indemnifying Party is required to pay to the Indemnified Party
in respect of a claim filed by the Indemnified Party. In connection with
rendering its decisions, the Board of Arbitration shall adopt and follow such
rules and procedures

                                      23
<Page>

as a majority of the members of the Board of Arbitration deems necessary or
appropriate. To the extent practical, decisions of the Board of Arbitration
shall be rendered no more than thirty (30) calendar days following commencement
of proceedings with respect thereto. The Board of Arbitration shall cause its
written decision to be delivered to the Indemnified Party and the Indemnifying
Party. Any decision made by the Board of Arbitration (either prior to or after
the expiration of such thirty (30) calendar day period) shall be final, binding
and conclusive on the Indemnified Party and the Indemnifying Party and entitled
to be enforced to the fullest extent permitted by law and entered in any court
of competent jurisdiction. Each party to any arbitration shall bear its own
expense in relation thereto, including but not limited to such party's
attorneys' fees, if any, and the expenses and fees of the Board of Arbitration
shall be divided between the Indemnifying Party and the Indemnified Party in the
same proportion as the portion of the related claim determined by the Board of
Arbitration to be payable to the Indemnified Party bears to the portion of such
claim determined not to be so payable.

                                   ARTICLE XI

                                  MISCELLANEOUS

     Section 11.01  FEES AND EXPENSES. Each party hereto shall be responsible
for its own fees and expenses; PROVIDED, HOWEVER, that the Company shall be
solely responsible for: (i) all reasonable attorneys fees and expenses incurred
by the Investor in connection with the preparation, negotiation, execution and
delivery of this Agreement, the Registration Rights Agreement (and any
registration contemplated thereunder) and the Warrant up to an aggregate maximum
of $70,000, (ii) all reasonable fees and expenses incurred by the Investor in
connection with any amendments, modifications or waivers of this Agreement or
incurred in connection with the Investor's enforcement of this Agreement,
including, without limitation, all reasonable attorneys fees and expenses, (C)
all reasonable due diligence expenses incurred by the Investor during the term
of this Agreement up to aggregate maximum amount of $10,000 per calendar
quarter, and (iv) all stamp or other similar taxes and duties, if any, levied in
connection with issuance of the Shares pursuant hereto.

     Section 11.02  REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.

     Section 11.03  BROKERAGE. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party. The
Company on the one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other harmless from any and all liabilities to
any Persons claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.

     Section 11.04  NOTICES. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written

                                      24
<Page>

notice given in accordance herewith. Any notice or other communication required
or permitted to be given hereunder shall be deemed effective (a) upon hand
delivery or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, 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:

                  Aksys, Ltd.
                  Two Marriott Drive
                  Lincolnshire, Illinois  60069
                  Telephone:  (847) 229 2020
                  Facsimile:  (847) 229 2080
                  Attention:  Chief Financial Officer

with a copy (which shall not constitute notice) to:

                  Kirkland & Ellis
                  200 East Randolph Drive
                  Chicago, Illinois  60601
                  Telephone:  (312) 861 2000
                  Facsimile:  (312) 861 2200
                  Attention:  Keith S. Crow, P.C.

if to the Investor:

                  Kingsbridge Capital Limited/ c/o Kingsbridge Corporate
                  Services Limited
                  Main Street
                  Kilcullen, County Kildare
                  Republic of Ireland
                  Telephone: 011-353-45-481-811
                  Facsimile: 011-353-45-482-003
                  Attention: Adam Gurney, Director

with a copy (which shall not constitute notice) to:

                  Earl S. Zimmerman, Esq. and Keith M. Andruschak, Esq.
                  Clifford Chance Rogers & Wells LLP
                  200 Park Avenue, 52nd Floor
                  New York, NY  10166
                  Telephone: (212) 878-8000
                  Facsimile: (212) 878-8375

Either party hereto may from time to time change its address or facsimile number
for notices under this Section by giving at least ten (10) days' prior written
notice of such changed address or facsimile number to the other party hereto.

     Section 11.05  ASSIGNMENT. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
Person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable

                                      25
<Page>

by, any private transferee of any of the Common Stock purchased or acquired by
the Investor hereunder with respect to the Common Stock held by such Person, and
(b) the Investor's interest in this Agreement may be assigned at any time, in
whole or in part, to any other Person or entity (including any affiliate of the
Investor) upon the prior written consent of the Company, which consent shall not
to be unreasonably withheld.

     Section 11.06  AMENDMENT; NO WAIVER. No party shall be liable or bound to
any other party in any manner by any warranties, representations or covenants
except as specifically set forth in this Agreement or therein. Except as
expressly provided in this Agreement, neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated other than by a written
instrument signed by both parties hereto. The failure of the either party to
insist on strict compliance with this Agreement, or to exercise any right or
remedy under this Agreement, shall not constitute a waiver of any rights
provided under this Agreement, nor estop the parties from thereafter demanding
full and complete compliance nor prevent the parties from exercising such a
right or remedy in the future.

     Section 11.07  ENTIRE AGREEMENT. This Agreement, the Registration Rights
Agreement and the Warrant set forth the entire agreement and understanding of
the parties relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written, relating to the subject matter hereof.

     Section 11.08  SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; PROVIDED that, such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.

     Section 11.09  TITLE AND SUBTITLES. The titles and subtitles used in this
Agreement are used for the convenience of reference and are not to be considered
in construing or interpreting this Agreement.

     Section 11.10  COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.

     Section 11.11  CHOICE OF LAW. This Agreement shall be construed under the
laws of the State of New York.

     Section 11.12  SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.

            (a) The Company and the Investor 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) Subject to Section 10.03, each of the Company and the Investor
(i) hereby irrevocably submits to the jurisdiction of the United States District
Court and other courts

                                      26
<Page>

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 Investor 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 11.13  SURVIVAL. The representations and warranties of the Company
and the Investor contained in Articles IV and V and the covenants contained in
Article V and Article VI 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 IX and Article X of this Agreement shall survive
the execution and delivery hereof and the Closing hereunder.

     Section 11.14  PUBLICITY. Prior to the Closing, neither the Company nor the
Investor shall 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. In the event the Company is required
by law, based upon an opinion of the Company's counsel, to issue a press release
or otherwise make a public statement or announcement with respect to this
Agreement prior to the Closing, the Company shall consult with the Investor on
the form and substance of such press release. Promptly after the Closing, each
party may issue a press release or otherwise make a public statement or
announcement with respect to this Agreement or the transactions contemplated
hereby or the existence of this Agreement; PROVIDED that, prior to issuing any
such press release, making any such public statement or announcement, the party
wishing to make such release, statement or announcement consults and cooperates
in good faith with the other party in order to formulate such press release,
public statement or announcement in form and substance reasonably acceptable to
both parties.

     Section 11.15  FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of the Investor or the Company, each of the Company
and the Investor shall execute and deliver such instruments, 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.

                [Remainder of this page intentionally left blank]

                                      27
<Page>

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

                                      KINGSBRIDGE CAPITAL LIMITED

                                      By: /s/    VALENTINE O'DONOGHUE
                                          --------------------------------------
                                          Name:  Valentine O'Donoghue
                                          Title: Director

                                      AKSYS, LTD.

                                      By: /s/    LAWRENCE DAMRON
                                          --------------------------------------
                                          Name:  Lawrence Damron
                                          Title: Chief Financial Officer

                                      28
<Page>

                                     ANNEX A

                              MARKET CAPITALIZATION

     The market capitalization of Aksys, Ltd. shall be calculated on the
Trading Day preceding the first Trading Day of the Draw Down Pricing Period and
shall be based upon the product of (x) the closing bid price of the Company's
Common Stock as reported by Bloomberg L.P. using the AQR function, (y) the
number of outstanding shares of Common Stock of the Company as reported by
Bloomberg L.P. using the DES function (such product, the "MARKET
CAPITALIZATION").

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