Document:

exv4w1

 

Exhibit 4.1

 

CYGNUS, INC.

and

MELLON INVESTOR SERVICES LLC

Rights Agent

Rights Agreement

Dated as of October 17, 2005

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page
	Section 1.

	 	Certain Definitions
	 	 	1	 
	Section 2.

	 	Appointment of Rights Agent
	 	 	6	 
	Section 3.

	 	Issue of Right Certificates
	 	 	7	 
	Section 4.

	 	Form of Right Certificates
	 	 	9	 
	Section 5.

	 	Countersignature and Registration
	 	 	10	 
	Section 6.

	 	Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates
	 	 	11	 
	Section 7.

	 	Exercise of Rights; Purchase Price; Expiration Date of Rights
	 	 	12	 
	Section 8.

	 	Cancellation and Destruction of Right Certificates
	 	 	14	 
	Section 9.

	 	Status and Availability of Preferred Shares
	 	 	15	 
	Section 10.

	 	Preferred Shares Record Date
	 	 	16	 
	Section 11.

	 	Adjustment of Purchase Price, Number of Shares or Number of Rights
	 	 	16	 
	Section 12.

	 	Certificate of Adjustment
	 	 	28	 
	Section 13.

	 	Consolidation, Merger or Sale or Transfer of Assets or Earning Power
	 	 	29	 
	Section 14.

	 	Fractional Rights and Fractional Shares
	 	 	31	 
	Section 15.

	 	Rights of Action
	 	 	33	 
	Section 16.

	 	Agreement of Right Holders
	 	 	34	 
	Section 17.

	 	Right Certificate Holder Not Deemed a Stockholder
	 	 	35	 
	Section 18.

	 	Concerning the Rights Agent
	 	 	35	 
	Section 19.

	 	Merger or Consolidation or Change of Name of Rights Agent
	 	 	37	 
	Section 20.

	 	Duties of Rights Agent
	 	 	38	 
	Section 21.

	 	Change of Rights Agent
	 	 	41	 
	Section 22.

	 	Issuance of New Right Certificates
	 	 	43	 
	Section 23.

	 	Redemption
	 	 	43	 
	Section 24.

	 	Exchange
	 	 	45	 
	Section 25.

	 	Notice of Certain Events
	 	 	47	 
	Section 26.

	 	Notices
	 	 	48	 
	Section 27.

	 	Supplements and Amendments
	 	 	50	 
	Section 28.

	 	Successors
	 	 	51	 
	Section 29.

	 	Benefits of this Agreement
	 	 	51	 
	Section 30.

	 	Severability
	 	 	51	 
	Section 31.

	 	Governing Law
	 	 	51	 
	Section 32.

	 	Counterparts
	 	 	52	 
	Section 33.

	 	Descriptive Headings
	 	 	52	 
	Section 34.

	 	Administration
	 	 	52	 

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RIGHTS AGREEMENT

          Agreement, dated as of October 17, 2005, between Cygnus, Inc., a Delaware corporation (the
“Company”), and Mellon Investor Services LLC (the “Rights Agent”).

          The Board of Directors of the Company has authorized and declared a dividend of one preferred
share purchase right (a “Right”) for each share of Common Stock, par value $0.001 per share, of the
Company (a “Common Share”) outstanding on the Close of Business on October 24, 2005 (the “Record
Date”) and has authorized the issuance of one Right with respect to each additional Common Share
that shall become outstanding between the Record Date and the earliest of the Close of Business on
the Distribution Date, the Redemption Date and the Close of Business on the Final Expiration Date,
and certain additional shares of Common Stock that shall become outstanding after the Distribution
Date as provided in Section 22 of this Agreement, each Right representing the right to purchase one
one-thousandth of a Preferred Share (as hereinafter defined), or such different amount and/or kind
of securities as shall be hereinafter provided.

          Accordingly, 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:

          “Acquiring Person” shall mean any Person who or which, together with all Affiliates and Associates
of such Person, shall be the Beneficial Owner of 4.95% or more of the Common Shares of the Company
then outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii)
any employee benefit plan of the Company or any Subsidiary of

 

 

the Company, and (iv) any entity holding Common Shares for or pursuant to the terms of any such
employee benefit plan. Notwithstanding the foregoing, however, any Person including a member of a
group of Persons that have filed a Schedule 13D with the U.S. Securities and Exchange Commission
prior to the date of the adoption of this Rights Agreement shall not be deemed to be an Acquiring
Person as long as such Person, individually, and, if applicable, such group of Persons,
collectively, are the Beneficial Owners of less than 12.5% of the Common Shares of the Company then
outstanding (any such Person or member, “Grandfathered Stockholders”), and further provided that
any Person who or which is an Affiliate or Associate of a Grandfathered Stockholder and who or
which would also be an Acquiring Person due solely to such affiliation or association shall not be
an Acquiring Person as long as such Person, considered together with the Grandfathered Stockholder
such Person is associated or affiliated with, is the Beneficial Owner of less than 12.5% of the
Common Shares of the Company then outstanding. Notwithstanding the foregoing, (1) no Person shall
become an “Acquiring Person” as the result of an acquisition of Common Shares by the Company which,
by reducing the number of shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 4.95% (or such other percentage as would otherwise result in
such person becoming an Acquiring Person) or more of the Common Shares of the Company then
outstanding; provided, however, that if a Person shall so become the Beneficial
Owner of 4.95% (or such other percentage) or more of the Common Shares of the Company then
outstanding by reason of an acquisition of Common Shares by the Company and shall, after such share
purchases by the Company, become the Beneficial Owner of an additional 1% of the outstanding Common
Shares of the Company, then such Person shall be deemed to be an “Acquiring Person”; and (2) if the
Board of Directors of the Company determines in good faith that a Person

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who would otherwise be an “Acquiring Person,” as defined pursuant to the foregoing provisions of
this paragraph, has become such inadvertently, and such Person divests as promptly as practicable a
sufficient number of Common Shares so that such Person would no longer be an “Acquiring Person,” as
defined pursuant to the foregoing provisions of this paragraph, and donates to charity any profits
realized in such divestiture, then such Person shall not be deemed to have become an “Acquiring
Person” for any purposes of this Agreement.

          “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), as in effect on the date of this Agreement.

          A Person shall be deemed the “Beneficial Owner” of and shall be deemed to “beneficially own”
any securities:

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

               (ii) which such Person or any of such Person’s Affiliates or Associates has (A) the right to
acquire (whether such right is exercisable immediately or only after the passage of time or the
occurrence of conditions) pursuant to any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group members with respect to a bona
fide public offering of securities), written or otherwise, 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 to be the Beneficial Owner of,
or to beneficially own, securities tendered pursuant to a tender or exchange offer made pursuant
to, and in accordance with, the applicable rules and regulations promulgated under the Exchange Act
by or on behalf of such Person or any of such Person’s Affiliates or

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Associates until such tendered securities are accepted for purchase or exchange; or (B) the
right to vote pursuant to any agreement, arrangement or understanding; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own,
any security if the agreement, arrangement or understanding to vote such security (1) arises solely
from a revocable proxy or consent given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules and regulations
promulgated under the Exchange Act and (2) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or

               (iii) which are beneficially owned, directly or indirectly, by any other Person with which
such Person or any of such Person’s Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities), written or otherwise, for the
purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to section
(B) of the immediately preceding paragraph (ii)) or disposing of any securities of the Company.

          Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the
phrase “then outstanding,” when used with reference to a Person’s Beneficial Ownership of
securities of the Company, shall mean the number of such securities then issued and outstanding
together with the number of such securities not then actually issued and outstanding which such
Person would be deemed to own beneficially hereunder.

          “Business Day” shall mean any day other than a Saturday, Sunday, or a day on which banking
institutions in the state of New Jersey are authorized or obligated by law or executive order to
close.

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          “Close of Business” on any given date shall mean 5:00 P.M., New Jersey time, on such date;
provided, however, that if such date is not a Business Day it shall mean 5:00 P.M.,
New Jersey time, on the next succeeding Business Day.

          “Common Shares” when used with reference to the Company shall mean the shares of Common Stock,
par value $.001 per share, of the Company. “Common Shares” when used with reference to any Person
other than the Company shall mean the capital stock (or equity interest) with the greatest voting
power of such other Person or, if such other Person is a Subsidiary of another Person, the Person
or Persons which ultimately control such first-mentioned Person.

          “common stock equivalents” shall have the meaning set forth in Section 11(a)(iii)(B)(3)
hereof.

          “Current Value” shall have the meaning set forth in Section 11(a)(iii)(A)(1) hereof.

          “Distribution Date” shall have the meaning set forth in Section 3(a) hereof.

          “equivalent preferred shares” shall have the meaning set forth in Section 11(b) hereof.

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

          “Final Expiration Date” shall mean October 17, 2015.

          “Person” shall mean any individual, firm, corporation, partnership, limited partnership,
limited liability partnership, business trust, limited liability company, unincorporated
association or other entity, and shall include any successor (by merger or otherwise) of such
entity.

          “Purchase Price” shall have the meaning set forth in Section 7(b) hereof.

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          “Preferred Shares” shall mean shares of Series A Junior Participating Preferred Stock, par
value $0.001 per share, of the Company having such rights and preferences as are set forth in the
form of Certificate of Designation set forth as Exhibit A hereto, as the same may be amended from
time to time.

          “Redemption Date” shall have the meaning set forth in Section 23 hereof.

          “Right Certificate” shall mean a certificate evidencing a Right in substantially the form of
Exhibit B hereto.

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

          “Shares Acquisition Date” shall mean the earlier of the date of (i) the public announcement by
the Company or an Acquiring Person that an Acquiring Person has become such or (ii) the public
disclosure of facts by the Company or an Acquiring Person indicating that an Acquiring Person has
become such.

          “Spread” shall have the meaning set forth in Section 11(a)(iii)(A) hereof.

          “Subsidiary” of any Person shall mean any Person of which a majority of the voting power of
the voting equity securities or equity interest is owned, directly or indirectly, by such Person.

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

          “Summary of Rights” shall mean the Summary of Rights to Purchase Preferred Shares in
substantially the form of Exhibit C hereto.

          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

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Distribution Date also be the holders of the Common Shares) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time
to time appoint such co-Rights Agents as it may deem necessary or desirable.

          Section 3. Issue of Right Certificates.

          (a) Until the earlier of (i) the tenth day after the Shares Acquisition Date or (ii) the tenth
Business Day (or such later date as may be determined by action of the Board of Directors prior to
such time as any Person becomes an Acquiring Person) after the date of the commencement by any
Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company or any entity holding Common Shares for or pursuant to
the terms of any such plan) of, or of the first public announcement of the intention of any Person
(other than any of the Persons referred to in the preceding parenthetical) to commence, a tender or
exchange offer the consummation of which would result in any Person becoming an Acquiring Person
(such date 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 Common Shares registered
in the names of the holders thereof (which certificates shall also be deemed to be Right
Certificates) and not by separate Right Certificates, and (y) the right to receive Right
Certificates will be transferable only in connection with the transfer of Common Shares. As soon
as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent
will countersign, and the Company will send or cause to be sent (and the Rights Agent will, if
requested, at the expense of the Company, send) by first-class, insured, postage-prepaid mail, or
overnight courier, to each record holder of Common Shares as of the Close of Business on the
Distribution Date, at the address of such holder shown on the records of the Company, a Right
Certificate evidencing one Right for each

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Common Share so held. As of the Distribution Date, the Rights will be evidenced solely by
such Right Certificates. The Company shall promptly notify the Rights Agent in writing upon the
occurrence of the Distribution Date. Until such notice is received by the Rights Agent, the Rights
Agent may presume conclusively for all purposes that the Distribution Date has not occurred.

          (b) On the Record Date, or as soon as practicable thereafter, the Company will send a copy of
the Summary of Rights by first-class, postage-prepaid mail, to each record holder of Common Shares
as of the Close of Business on the Record Date, at the address of such holder shown on the records
of the Company. With respect to certificates for Common Shares outstanding as of the Record Date,
until the Close of Business on the Distribution Date, the Rights will be evidenced by such
certificates registered in the names of the holders thereof together with a copy of the Summary of
Rights attached thereto. Until the Close of Business on the Distribution Date (or the earlier of
the Redemption Date or the Close of Business on the Final Expiration Date), the surrender for
transfer of any certificate for Common Shares outstanding on the Record Date, with or without a
copy of the Summary of Rights attached thereto, shall also constitute the transfer of the Rights
associated with the Common Shares evidenced thereby.

          (c) Certificates for Common Shares which become outstanding (including, without limitation,
reacquired Common Shares referred to in the last sentence of this paragraph (c)) after the Record
Date but prior to the earliest of the Close of Business on the Distribution Date, the Redemption
Date or the Close of Business on the Final Expiration Date shall have impressed on, printed on,
written on or otherwise affixed to them a legend substantially in the following form:

     This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in a Rights Agreement between

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Cygnus, Inc. and Mellon Investor Services LLC, as Rights Agent,
dated as of October 17, 2005, as it may from time to time be amended
or supplemented pursuant to its terms (the “Rights Agreement”), the
terms of which are hereby incorporated herein by reference and a
copy of which is on file at the principal executive offices of
Cygnus, Inc. 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.
Cygnus, Inc. will mail to the holder of this certificate a copy of
the Rights Agreement without charge after receipt of a written
request therefor. Under certain circumstances, Rights that are or
were acquired or beneficially owned by Acquiring Persons (as defined
in the Rights Agreement) may become null and void.

With respect to such certificates containing the foregoing legend, until the Close of Business on
the Distribution Date, the Rights associated with the Common Shares represented by certificates
shall be evidenced by such certificates alone, and the surrender for transfer of any such
certificate shall also constitute the transfer of the Rights associated with the Common Shares
represented thereby. In the event that the Company purchases or acquires any Common Shares after
the Record Date but prior to the Close of Business on the Distribution Date, any Rights associated
with such Common Shares shall be deemed canceled and retired so that the Company shall not be
entitled to exercise any Rights associated with the Common Shares which are no longer outstanding.

          Section 4. Form of Right Certificates.

          The Right Certificates (and the forms of election to purchase Preferred Shares and of
assignment to be printed on the reverse thereof) shall be substantially the same as Exhibit B
hereto and may have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate (but which do not affect the
rights, duties or obligations of the Rights Agent as set forth in this Agreement) and as are not
inconsistent with the provisions of this Agreement, or as may be required to comply with any

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applicable law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Rights may from time to time be listed, or to conform
to usage. Subject to the other provisions of this Agreement, the Right Certificates shall entitle
the holders thereof to purchase such number of one one-thousandths of a Preferred Share as shall be
set forth therein at the Purchase Price, but the number of one one-thousandths of a Preferred Share
and the Purchase Price shall be subject to adjustment as provided herein.

          Section 5. Countersignature and Registration.

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

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          Following the Distribution Date, and receipt by the Rights Agent of (i) written notice of the
Distribution Date pursuant to Section 3(a) hereof, and (ii) a stockholder list and all relevant
information requested by the Rights Agent, the Rights Agent will keep or cause to be kept, at its
office designated for such purposes, books for registration of the 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.

          Subject to the provisions of Section 14 hereof, at any time after the Close of Business on the
Distribution Date, and prior to the earlier of the Redemption Date or the Close of Business on the
Final Expiration Date, any Right Certificate or Right Certificates (other than Right Certificates
representing Rights that have become void pursuant to Section 11(a)(ii) hereof or that have been
exchanged pursuant to Section 24 hereof) may be transferred, split up, combined or exchanged for
another Right Certificate or Right Certificates, entitling the registered holder to purchase a like
number of one one-thousandths of a Preferred Share as the Right Certificate or Right Certificates
surrendered then entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Right Certificate or Right Certificates shall make such request
in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right
Certificates to be transferred, split up, combined or exchanged at the office of the Rights Agent
designated for such purposes. Thereupon the Rights Agent shall countersign and deliver to the
person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so
requested. The Company may require payment of a sum

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sufficient for any tax or charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates. Neither the Rights Agent nor the Company shall
be obligated to take any action whatsoever with respect to the transfer of any such surrendered
Rights Certificate until the registered holder shall have duly completed and executed the form of
assignment on the reverse side of such Rights Certificate and shall have provided such additional
evidence of the identity of the Beneficial Owner (or such former or proposed Beneficial Owner)
thereof or such Beneficial Owner’s Affiliates or Associates as the Company or the Rights Agent
shall reasonably request. The Rights Agent shall have no duty or obligation to take any action
under any Section of this Agreement which requires the payment by a Rights holder of applicable
taxes and/or charges unless and until the Rights Agent is satisfied that such charges and/or taxes
have been paid in full.

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

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

          (a) The registered holder of any Right Certificate (other than a holder whose Rights have
become void pursuant to Section 11(a)(ii) hereof or have been exchanged pursuant to Section 24
hereof) may exercise the Rights evidenced thereby in whole or in part at any time

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after the Distribution Date upon surrender of the Right Certificate, with the form of election
to purchase on the reverse side thereof duly executed, to the Rights Agent at its office designated
for such purposes, together with payment of the Purchase Price for each one one-thousandth of a
Preferred Share as to which the Rights are exercised, prior to the earliest of (i) the Close of
Business on the Final Expiration Date, (ii) the time at which the right to exercise the Rights
terminates pursuant to Section 23 hereof, or (iii) the time at which the right to exercise the
Rights terminates pursuant to Section 24 hereof.

          (b) The purchase price for each one one-thousandth of a Preferred Share to be purchased upon
the exercise of a Right shall initially be seventy-five cents ($0.75) (the “Purchase Price”), shall be
subject to adjustment from time to time as provided in Sections 11 and 13 hereof and shall be
payable in lawful money of the United States of America in accordance with paragraph (c) below.

          (c) Upon receipt of a Right Certificate representing exercisable Rights, with the form of
election to purchase and certificate duly executed, accompanied by payment of the Purchase Price
for the number of one one-thousandths of a Preferred Share to be purchased and an amount equal to
any applicable transfer tax or charge required to be paid by the holder of such Right Certificate
in accordance with Section 9 hereof by cash, certified check, cashier’s check or money order
payable to the order of the Company, the Rights Agent shall thereupon promptly (i) (A) requisition
from any transfer agent of the Preferred Shares certificates for the number of one one-thousandths
of a Preferred Share to be purchased and the Company hereby irrevocably authorizes its transfer
agent to comply with all such requests, or (B) requisition from any depositary agent for the
Preferred Shares depositary receipts representing such number of one one-thousandths of a Preferred
Share as are to be purchased (in which case certificates for the

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Preferred Shares represented by such receipts shall be deposited by the transfer agent with
the depositary agent) and the Company hereby directs any such depositary agent to comply with such
request, (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional Preferred Shares in accordance with Section 14 hereof, (iii) 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, deliver such cash to or upon
the order of the registered holder of such Right Certificate.

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

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

	 	Section 8.	 	Cancellation and Destruction of Right
Certificates.

          All Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its agents, be

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

          Section 9. Status and Availability of Preferred Shares.

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

          (b) The Company further covenants and agrees that it will pay when due and payable any and all
transfer taxes and charges which may be payable in respect of the issuance or delivery of the Right
Certificates or of any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax or charge which may be payable in respect of any
transfer or delivery of Right Certificates to a person other than, or the issuance or delivery of
certificates or depositary receipts for the Preferred Shares in a name other than that of, the
registered holder of the Right Certificate evidencing Rights surrendered for exercise, or to issue
or to deliver any certificates or depositary receipts for Preferred Shares upon the exercise of any
Rights until any such tax or charge shall have been paid (any such tax or charge being

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

          (c) The Company covenants and agrees that it will cause to be reserved and kept available, out
of its authorized and unissued Preferred Shares or any Preferred Shares held in its treasury, the
number of Preferred Shares that will be sufficient to permit the exercise in full of all
outstanding Rights in accordance with Section 7 hereof.

          Section 10. Preferred Shares Record Date.

          Each person in whose name any certificate for Preferred Shares is issued upon the exercise of
Rights shall for all purposes be deemed to have become the holder of record of the Preferred Shares
represented thereby on, and such certificate shall be dated, the date upon which the Right
Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any
applicable transfer taxes or charges) was made. Prior to the exercise of the Rights evidenced
thereby, the holder of a Right Certificate shall not be entitled to any rights of a holder of
Preferred 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 Purchase Price, Number of Shares or
Number of Rights.

          (a) (i) In the event the Company shall at any time after the date of this Agreement (A)
declare a dividend on the Preferred Shares payable in Preferred Shares, (B) subdivide the
outstanding Preferred Shares, (C) combine the outstanding Preferred Shares into a smaller number of
Preferred Shares, or (D) issue any shares of its capital stock in a

- 16 -

 

reclassification of the Preferred Shares (including any such reclassification in connection
with a consolidation or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in effect at the time of the
record date for such dividend or of the effective date of such subdivision, combination or
reclassification, and 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, he 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 one Right be less than the aggregate par value of the shares of capital stock of the
Company issuable upon exercise of one Right.

          (ii) Subject to the following paragraph of this subparagraph (ii) and to Section 24 of this
Agreement, in the event any Person shall become an Acquiring Person, each holder of a Right shall
thereafter have a right to receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-thousandths of a Preferred Share for which a
Right is then exercisable, in accordance with the terms of this Agreement and in lieu of Preferred
Shares, such number of Common Shares of the Company as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the number of one one-thousandths of a Preferred
Share for which a Right is then exercisable and dividing that product by (y) 50% of the then
current per share market price of the Company’s Common Shares (determined pursuant to Section 11(d)
hereof) on the date such Person became an Acquiring Person. In the event that any Person shall
become an Acquiring Person and the Rights shall then

- 17 -

 

be outstanding, the Company shall not take any action that would eliminate or diminish the benefits
intended to be afforded by the Rights.

          From and after the occurrence of such an event, any Rights that are or were acquired or
beneficially owned by an Acquiring Person (or any Associate or Affiliate of such Acquiring Person)
on or after the earlier of (x) the date of such event and (y) the Distribution Date shall be null
and void and any holder of such Rights shall thereafter have no right to exercise such Rights under
any provision of this Agreement. No Right Certificate shall be issued pursuant to Section 3 that
represents Rights beneficially owned by an Acquiring Person whose Rights would be null and void
pursuant to the preceding sentence or any Associate or Affiliate thereof; no Right Certificate
shall be issued at any time upon the transfer of any Rights to an Acquiring Person whose Rights
would be null and void pursuant to the preceding sentence or any Associate or Affiliate thereof or
to any nominee of such Acquiring Person, Associate or Affiliate; and any Right Certificate
delivered to the Rights Agent for transfer to an Acquiring Person whose Rights would be null and
void pursuant to the preceding sentence or any Associate or Affiliate thereof shall be canceled.

          (iii) In the event that the number of Common Shares which are authorized by the Company’s
certificate of incorporation and not outstanding or subscribed for, or reserved or otherwise
committed for issuance for purposes other than upon exercise of the Rights, are not sufficient to
permit the holder of each Right to purchase the number of Common Shares to which he would be
entitled upon the exercise in full of the Rights in accordance with the foregoing subparagraph (ii)
of paragraph (a) of this Section 11, or should the Board of Directors so elect, the Company shall:
(A) determine the excess of (1) the value of the Common Shares issuable upon the exercise of a
Right (calculated as provided in the last sentence of this

- 18 -

 

subparagraph (iii)) pursuant to Section 11(a)(ii) hereof (the “Current Value”) over (2) the
Purchase Price (such excess, the “Spread”), and (B) with respect to each Right, make adequate
provision to substitute for such Common Shares, upon payment of the applicable Purchase Price, any
one or more of the following having an aggregate value determined by the Board of Directors to be
equal to the Current Value: (1) cash, (2) a reduction in the Purchase Price, (3) Common Shares or
other equity securities of the Company (including, without limitation, shares, or units of shares,
of preferred stock which the Board of Directors of the Company has determined to have the same
value as Common Shares (such shares of preferred stock, “common stock equivalents”)), (4) debt
securities of the Company, or (5) other assets; provided, however, if the Company
shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty
(30) days following the first occurrence of an event triggering the rights to purchase Common
Shares described in Section 11(a)(ii) (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 Purchase Price, Common Shares (to the extent available) and then, if necessary,
cash, which shares and 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 Common
Shares could be authorized for issuance upon exercise in full of the Rights, the thirty (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 stockholder approval
for the authorization of such additional shares (such period, as it may be extended, 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 and the last

- 19 -

 

paragraph of Section 11(a)(ii) 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 make a public announcement,
and shall deliver to the Rights Agent a statement, stating that the exercisability of the Rights
has been temporarily suspended. At such time as the suspension is no longer in effect, the Company
shall make another public announcement, and deliver to the Rights Agent a statement so stating.
For purposes of this Section 11(a)(iii), the value of the Common Shares shall be the current per
share market price (as determined pursuant to Section 11(d)(i) hereof) of the Common Shares on the
Section 11(a)(ii) Trigger Date and the value of any common stock equivalent shall be deemed to have
the same value as the Common Shares on such date.

          (b) In case the Company shall fix a record date for the issuance of rights, options or
warrants to all holders of Preferred Shares entitling them (for a period expiring within 45
calendar days after such record date) to subscribe for or purchase Preferred Shares (or shares
having the same rights, privileges and preferences as the Preferred Shares (“equivalent preferred
shares”)) or securities convertible into Preferred Shares or equivalent preferred shares at a price
per Preferred Share or equivalent preferred share (or having a conversion price per share, if a
security convertible into Preferred Shares or equivalent preferred shares) less than the then
current per share market price of the Preferred Shares (as defined in Section 11(d)) on such record
date, the Purchase Price to be in effect after such record date shall be adjusted by multiplying
the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of
which shall be the number of Preferred Shares outstanding on such record date plus

- 20 -

 

the number of Preferred Shares which the aggregate offering price of the total number of
Preferred Shares and/or equivalent preferred shares so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase at such current
market price and the denominator of which shall be the number of Preferred Shares outstanding on
such record date plus the number of additional Preferred Shares and/or equivalent preferred shares
to be offered for subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company issuable upon exercise of one 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 as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a written statement filed with
the Rights Agent. Preferred Shares owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment shall be made
successively whenever such a record date is fixed; and in the event that such rights, options or
warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.

          (c) In case the Company shall fix a record date for the making of a distribution to all
holders of the Preferred Shares (including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing or surviving corporation) of
evidences of indebtedness or assets (other than a regular quarterly cash dividend or a dividend
payable in Preferred Shares) or subscription rights or warrants (excluding those referred to in
Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be

- 21 -

 

determined by multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the then current per share market price of the
Preferred Shares on such record date, less the fair market value (as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in a written
statement filed with the Rights Agent) of the portion of the assets or evidences of indebtedness so
to be distributed or of such subscription rights or warrants applicable to one Preferred Share and
the denominator of which shall be such current per share market price of the Preferred Shares;
provided, however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of capital stock of the
Company to be issued upon exercise of one 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
Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if
such record date had not been fixed.

          (d) (i) For the purpose of any computation hereunder, the “current per share market price” of
any security (a “Security”) for the purpose of this Section 11(d)(i) on any date shall be deemed to
be the average of the daily closing prices per share of such Security for the 30 consecutive
Trading Days (as such term is hereinafter defined) immediately prior to such date;
provided, however, that in the event that the current per share market price of the
Security is determined during a period following the announcement by the issuer of such Security of
(A) a dividend or distribution on such Security payable in shares of such Security or securities
convertible into such shares, or (B) any subdivision, combination or reclassification of such
Security and prior to the expiration of 30 Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination or reclassification,

- 22 -

 

then, and in each such case, the current per share market price shall be appropriately
adjusted to reflect the current market price per share equivalent of such Security. The closing
price for each day shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Security is not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal national securities
exchange on which the Security is listed or admitted to trading or, if the Security is not listed
or admitted to trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc. Automated Quotations System
(“NASDAQ”) or such other system then in use, or, if on any such date the Security is not quoted by
any such organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Security selected by the Board of Directors of the
Company. The term “Trading Day” shall mean a day on which the principal national securities
exchange on which the Security is listed or admitted to trading is open for the transaction of
business or, if the Security is not listed or admitted to trading on any national securities
exchange, a Business Day.

          (ii) For the purpose of any computation hereunder, the “current per share market price” of the
Preferred Shares shall be determined in accordance with the method set forth in Section 11(d)(i).
If the Preferred Shares are not publicly traded, the “current per share market price” of the
Preferred Shares shall be conclusively deemed to be the current per

- 23 -

 

share market price of the Common Shares as determined pursuant to Section 11(d)(i) (appropriately
adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date
hereof), multiplied by 1,000. If neither the Common Shares nor the Preferred Shares are publicly
held or so listed or traded, “current per share market price” shall mean the fair value per share
as determined in good faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent.

          (e) No adjustment in the Purchase Price shall be required unless such adjustment would require
an increase or decrease of at least 1% in the Purchase Price; provided, however,
that any adjustments 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 ten-millionth of a Preferred
Share or one ten-thousandth of any other share or security as the case may be. Notwithstanding the
first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no
later than three years from the date of the transaction which requires such adjustment.

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

- 24 -

 

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

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

          (i) The Company may elect on or after the date of any adjustment of the Purchase Price to
adjust the number of Rights (with prompt written notice thereof to the Rights Agent) in
substitution for any adjustment in the number of one one-thousandths of a Preferred Share
purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of
the number of Rights shall be exercisable for the number of one one-thousandths of a Preferred
Share for which a Right was exercisable immediately prior to such adjustment. Each Right held of
record prior to such adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one hundred-thousandth) obtained by dividing the Purchase Price in
effect immediately prior to adjustment of the Purchase Price by the Purchase Price in

- 25 -

 

effect immediately after adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating the record date for the
adjustment, and, if known at the time, the amount of the adjustment to be made. This record date
may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been distributed, shall be at least 10 days later than the date of the public
announcement. If Right Certificates have been distributed, 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 to be so distributed shall be issued, executed
and countersigned in the manner provided for herein and shall be registered in the names of the
holders of record of Right Certificates on the record date specified in the public announcement.

          (j) Irrespective of any adjustment or change in the Purchase Price or the number of one
one-thousandths of a Preferred Share issuable upon the exercise of the Rights, the Right
Certificates theretofore and thereafter issued may continue to express the Purchase Price and the
number of one one-thousandths of a Preferred Share which were expressed in the initial Right
Certificates issued hereunder.

          (k) Before taking any action that would cause an adjustment reducing the Purchase Price below
one one-thousandth of the then par value of the Preferred Shares issuable

- 26 -

 

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 non-assessable Preferred Shares at such adjusted Purchase Price.

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

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

- 27 -

 

          (n) In the event that at any time after the date of this Agreement and prior to the
Distribution Date, the Company shall (i) declare or pay any dividend on the Common Shares payable
in Common Shares or (ii) effect a subdivision, combination or consolidation of the Common Shares
(by reclassification or otherwise other than by payment of dividends in Common Shares) into a
greater or lesser number of Common Shares, then in any such case (i) the number of one
one-thousandths of a Preferred Share purchasable after such event upon proper exercise of each
Right shall be determined by multiplying the number of one one-thousandths of a Preferred Share so
purchasable immediately prior to such event by a fraction, the numerator of which is the number of
Common Shares outstanding immediately before such event and the denominator of which is the number
of Common Shares outstanding immediately after such event, and (ii) each Common Share outstanding
immediately after such event shall have issued with respect to it that number of Rights which each
Common Share outstanding immediately prior to such event had issued with respect to it. The
adjustments provided for in this Section 11(n) shall be made successively whenever such a dividend
is declared or paid or such a subdivision, combination or consolidation is effected.

          Section 12. Certificate of Adjustment.

          Whenever an adjustment is made or any event affecting the Rights or their exercisability
(including, without limitation, an event which causes Rights to become null and void occurs as
provided in Sections 11 and 13 hereof, the Company shall promptly (a) prepare a certificate setting
forth such adjustment, and a brief statement of the facts and calculations accounting for such
adjustment or describing such event, (b) file with the Rights Agent and with each transfer agent
for the Common Shares or the Preferred Shares a copy of such certificate, and (c) if such
adjustment occurs following a Distribution Date, mail a brief summary thereof to

- 28 -

 

each holder of a Right Certificate in accordance with Section 25 hereof. The Rights Agent
shall be fully protected in relying on any such certificate and on any adjustment therein contained
and shall not be obligated or responsible for calculating any adjustment nor shall it be deemed to
have knowledge of such an adjustment unless and until it shall have received such certificate.

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

          In the event that, at any time after a Person becomes an Acquiring Person, directly or
indirectly, (i) the Company shall consolidate with, or merge with and into, any other Person, (ii)
any Person shall consolidate with the Company, or merge with and into the Company and the Company
shall be the continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for stock or other
securities of any other Person (or the Company) or cash or any other property, or (iii) the Company
shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating 50% or more of the
assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person
other than the Company or one or more of its wholly-owned Subsidiaries, then, and in each such
case, proper provision shall be made so that (A) each holder of a Right (except as otherwise
provided herein) shall thereafter have the right to receive, upon the exercise thereof at a price
equal to the then current Purchase Price multiplied by the number of one one-thousandths of a
Preferred Share for which a Right is then exercisable, in accordance with the terms of this
Agreement and in lieu of Preferred Shares, such number of Common Shares of such other Person
(including the Company as successor thereto or as the surviving corporation) as shall equal the
result obtained by (x) multiplying the then current Purchase Price by the number of one
one-thousandths of a Preferred Share for which a Right is then exercisable and dividing

- 29 -

 

that product by (y) 50% of the then current per share market price of the Common Shares of
such other Person (determined pursuant to Section 11(d) hereof) on the date of consummation of such
consolidation, merger, sale or transfer; (B) the issuer of such Common Shares shall thereafter be
liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the
obligations and duties of the Company pursuant to this Agreement; (C) the term “Company” shall
thereafter be deemed to refer to such issuer; and (D) such issuer shall take such steps (including,
but not limited to, the reservation of a sufficient number of its Common Shares in accordance with
Section 9 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
the Common Shares thereafter deliverable upon the exercise of the Rights. The Company covenants
and agrees that it shall not consummate any such consolidation, merger, sale or transfer unless
prior thereto the Company and such issuer shall have executed and delivered to the Rights Agent a
supplemental agreement so providing. The Company shall not enter into any transaction of the kind
referred to in this Section 13 if at the time of such transaction there are any rights, warrants,
instruments or securities outstanding or any agreements or arrangements which, as a result of the
consummation of such transaction, would eliminate or substantially diminish the benefits intended
to be afforded by the Rights. The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers. For purposes hereof, the
“earning power” of the Company and its Subsidiaries shall be determined in good faith by the
Company’s Board of Directors on the basis of the operating earnings of each business operated by
the Company and its Subsidiaries during the three fiscal years preceding the date of such
determination (or, in the case of any business not operated by the Company or any

- 30 -

 

Subsidiary during three full fiscal years preceding such date, during the period such business
was operated by the Company or any Subsidiary).

          Section 14. Fractional Rights and Fractional Shares.

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

- 31 -

 

Rights on such date as determined in good faith by the Board of Directors of the Company shall
be used.

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

- 32 -

 

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

          (d) Whenever a payment for fraction Rights or fractional shares is to be made by the Rights
Agent, the Company shall (i) promptly prepare and deliver to the Rights Agent a certificate setting
forth in reasonable detail the facts related to such payments and the prices and/or formulas
utilized in calculating such payments, and (ii) provide sufficient monies to the Rights Agent in
the form of fully collected funds to make such payments. The Rights Agent shall be fully protected
in relying upon such a certificate and shall have no duty with respect to, and shall not be deemed
to have knowledge of any payment for fractional Rights or fractional shares under any Section of
this Agreement relating to the payment of fractional Rights or fractional shares unless and until
the Rights Agent shall have received such a certificate and sufficient monies.

          Section 15. Rights of Action.

          All rights of action in respect of this Agreement, excepting the rights of action given to the
Rights Agent under Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the Common Shares);
and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the
Common Shares) may, 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 Shares), on his own behalf and for
his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the
Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by
such Right Certificate in the manner provided in such Right Certificate

- 33 -

 

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

     Notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights
Agent shall have any liability to any holder of a Right or other Person as a result of its
inability to perform any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, judgment, decree or ruling (whether interlocutory or final)
issued by a court or by a governmental, regulatory, self-regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or enacted by any
governmental authority, prohibiting or otherwise restraining performance of such obligation.

          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, the Rights will be transferable only in connection with
the transfer of the Common Shares;

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

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

          Section 17. Right Certificate Holder Not Deemed a
Stockholder.

          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 Preferred Shares or any other securities of the Company
which may at any time be issuable on the exercise of the Rights represented thereby nor shall
anything contained herein or in any Right Certificate be construed to confer upon the holder of any
Right Certificate, as such, any of the rights of a stockholder of the Company or any right to vote
for the election of directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in Section 25 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.

          Section 18. Concerning the Rights Agent.

          The Company agrees to pay to the Rights Agent reasonable compensation for all services
rendered by it hereunder and, from time to time, on demand of the Rights Agent, its

- 35 -

 

reasonable expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties hereunder. The
Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability, or expense, (including without limitation, the reasonable fees and expenses of legal
counsel) incurred without gross negligence, bad faith or willful misconduct on the part of the
Rights Agent (which gross negligence, bad faith or willful misconduct must be determined by a
final, non-appealable order, judgment, decree or ruling of a court of competent jurisdiction), for
any action taken, suffered or omitted by the Rights Agent in connection with the acceptance,
administration, exercise and performance of its duties under this Agreement, including the costs
and expenses of defending against any claim or liability in connection therewith and the costs and
expenses in enforcing this indemnification right. The indemnification provided for hereunder shall
survive the expiration of the Rights and the termination of this Agreement. The costs and expenses
of enforcing this right of indemnification shall also be paid by the Company.

          The Rights Agent may conclusively rely upon and shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in connection with its
administration of this Agreement in reliance upon any Right Certificate or certificate for
Preferred Shares or for other securities of the Company, instrument of assignment or transfer,
power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper person or persons. Notwithstanding
anything in this Agreement to the contrary, in no event shall the Rights Agent be liable for
special, indirect or consequential loss or damage of any kind whatsoever (including but not limited
to lost profits), even if the Rights Agent has been advised of the likelihood of such loss or
damage and

- 36 -

 

regardless of the form of the action. Notwithstanding anything in this Agreement to the
contrary, the liability of the Rights Agent under this Agreement shall be limited to the cumulative
amount of annual fees paid by the Company to the Rights Agent.

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

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

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

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countersigned, the Rights Agent may countersign such Right Certificates either in its prior
name or in its changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.

          Section 20. Duties of Rights Agent.

          The Rights Agent undertakes the duties and obligations expressly set forth in this Agreement
and no implied duties or obligations shall be read into this Agreement against the Rights Agent.
The Rights Agent shall perform those duties and obligations 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) Before the Rights Agent acts or refrains from acting, it may consult with legal counsel
(who may be legal counsel for the Company), and the advice or opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action taken or omitted by
it in accordance with such advice or opinion.

          (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem
it necessary or desirable that any fact or matter be proved or established by the Company prior to
taking, suffering or omitting any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chief Executive Officer, the President or the Secretary
of the Company and delivered to the Rights Agent; and such certificate shall be full and complete
authorization and protection to the Rights Agent and the Rights Agent shall incur no liability for
or in respect of any action taken, suffered or omitted by it under the provisions of this Agreement
in reliance upon such certificate.

- 38 -

 

          (c) The Rights Agent shall be liable hereunder to the Company and any other Person only for
its own gross negligence, bad faith or willful misconduct (which gross negligence, bad faith or
willful misconduct must be determined by a final, non-appealable order, judgment, decree or ruling
of a court of competent jurisdiction).

          (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 as to its
countersignature thereof) or be required to verify the same, but all such statements and recitals
are and shall be deemed to have been made by the Company only.

          (e) The Rights Agent shall not be under any responsibility in respect of the validity of this
Agreement or the execution and delivery hereof (except the due execution hereof by the Rights
Agent) or in respect of the validity or execution of any 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 adjustment required under the provisions of Sections 11 or 13 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 actual notice of any such adjustment); nor shall it by
any act hereunder be deemed to make any representation or warranty as to the authorization or
reservation of any shares of Preferred Shares to be issued pursuant to this Agreement or any Right
Certificate or as to whether any Preferred Shares 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,

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instruments and assurances as may reasonably be required by the Rights Agent for the carrying
out or performing by the Rights Agent of the provisions of this Agreement.

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

          (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent
may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested, or

- 40 -

 

contract with or lend money to the Company or otherwise act as fully and freely as though it
were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.

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

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

          Section 21. Change of Rights Agent.

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          The Rights Agent or any successor Rights Agent may resign and be discharged from its duties
under this Agreement upon 30 days’ notice in writing mailed to the Company and to each transfer
agent of the Common Shares and the Preferred Shares by registered or certified mail. The Company
may remove the Rights Agent or any successor Rights Agent upon 30 days’ notice in writing, mailed
to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of
the Common Shares and the Preferred Shares by registered or certified mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (who shall, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be a Person formed or organized and doing
business under the laws of the United States or of any state of the United States, in good
standing, which is authorized under such laws to exercise corporate trust powers or stock transfer
powers and is subject to supervision or examination by federal or state authority and which has at
the time of its appointment as Rights Agent a combined capital and surplus of at least $50 million.
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

- 42 -

 

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
Shares and the Preferred Shares. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.

          Section 22. Issuance of New Right Certificates.

          Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be
approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and
the number or kind or class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of Common Stock following the Distribution Date and prior to the earlier
of the Redemption Date and the Close of Business on the Final Expiration Date, the Company may with
respect to shares of Common Stock so issued or sold pursuant to (i) the exercise of stock options,
(ii) under any employment plan or arrangement, (iii) upon the exercise, conversion or exchange of
securities, notes or debentures issued by the Company, or (iv) a contractual obligation of the
Company, in each case existing prior to the Distribution Date, issue Right Certificates
representing the appropriate number of Rights in connection with such issuance or sale.

          Section 23. Redemption.

          (a) The Board of Directors of the Company may, at its option, at any time prior to such time
as any Person becomes an Acquiring Person, redeem all but not less than all the then

- 43 -

 

outstanding Rights at a redemption price of $0.001 per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after the date hereof
(such redemption price being hereinafter referred to as the “Redemption Price”). The redemption of
the Rights by the Board of Directors may be made effective at such time, on such basis and subject
to such conditions as the Board of Directors in its sole discretion may establish.

     (b) Immediately upon the time of the effectiveness of the redemption of the Rights pursuant to
paragraph (a) of this Section 23 or such earlier time as may be determined by the Board of
Directors of the Company in the action ordering such redemption (although not earlier than the time
of such action) (such time the “Redemption Date”), and without any further action and without any
notice, the right to exercise the Rights shall terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall promptly give public
notice of any such redemption; provided, however, that the failure to give, or any
defect in, any such notice shall not affect the validity of such redemption. Within 10 days after
such action of the Board of Directors ordering the redemption of the Rights pursuant to paragraph
(a), the Company shall mail a notice of redemption to all the holders of the then outstanding
Rights 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 Shares. Any
notice which is mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. If the payment of the Redemption Price is not included with such
notice, each such notice shall 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

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specifically set forth in this Section 23 or in Section 24 hereof, other than in connection
with the purchase of Common Shares prior to the Distribution Date.

          Section 24. Exchange.

          (a) The Board of Directors of the Company may, at its option, at any time after any Person
becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become null and void pursuant to the provisions of
Section 11(a)(ii) hereof) for Common Shares at an exchange ratio of one Common Share per Right
(such exchange ratio being hereinafter referred to as the “Exchange Ratio”). Notwithstanding the
foregoing, the Board of Directors shall not be empowered to effect such exchange at any time after
any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the
Company or any such Subsidiary, or any entity holding Common Shares for or pursuant to the terms of
any such plan), together with all Affiliates and Associates of such Person, becomes the Beneficial
Owner of a majority of the Common Shares then outstanding.

          (b) Immediately upon the action of the Board of Directors of the Company ordering the exchange
of any Rights pursuant to subsection (a) of this Section 24 and without any further action and
without any notice, the right to exercise such Rights shall terminate and the only right thereafter
of a holder of such Rights shall be to receive that number of Common Shares equal to the number of
such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give
public notice of any such exchange (and provide a prompt written notice to the Rights Agent);
provided, however, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Company promptly shall mail a notice of any such
exchange to all of the holders of such Rights at their last addresses as they

- 45 -

 

appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the notice. Each such
notice of exchange will state the method by which the exchange of the Common Shares for Rights will
be effected and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number of
Rights (other than Rights which have become void pursuant to the provisions of Section 11(a)(ii)
hereof) held by each holder of Rights.

          (c) In any exchange pursuant to this Section 24, the Company, at its option, may substitute
Preferred Shares or common stock equivalents for Common Shares exchangeable for Rights, at the
initial rate of one one-thousandth of a Preferred Share (or an appropriate number of common stock
equivalents) for each Common Share, as appropriately adjusted to reflect adjustments in the voting
rights of the Preferred Shares pursuant to the terms thereof, so that the fraction of a Preferred
Share delivered in lieu of each Common Share shall have the same voting rights as one Common Share.

          (d) In the event that there shall not be sufficient Common Shares, Preferred Shares or common
stock equivalents authorized by the Company’s certificate of incorporation and not outstanding or
subscribed for, or reserved or otherwise committed for issuance for purposes other than upon
exercise of Rights, 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
Common Shares, Preferred Shares or common stock equivalents for issuance upon exchange of the
Rights.

          (e) The Company shall not be required to issue fractions of Common Shares or to distribute
certificates which evidence fractional Common Shares. In lieu of such fractional

- 46 -

 

Common Shares, the Company shall pay to the registered holders of the Right Certificates with
regard to which such fractional Common Shares would otherwise be issuable an amount in cash equal
to the same fraction of the current per share market value of a whole Common Share. For the
purposes of this paragraph (e), the current per share market value of a whole Common Share shall be
the closing price of a Common Share (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 after the Distribution Date propose (i) to pay any dividend
payable in stock of any class to the holders of its Preferred Shares or to make any other
distribution to the holders of its Preferred Shares (other than a regular quarterly cash dividend),
(ii) to offer to the holders of its Preferred Shares rights or warrants to subscribe for or to
purchase any additional Preferred Shares or shares of stock of any class or any other securities,
rights or options, (iii) to effect any reclassification of its Preferred Shares (other than a
reclassification involving only the subdivision of outstanding Preferred Shares), (iv) to effect
any consolidation or merger into or with, or to effect any sale or other transfer (or to permit one
or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of
50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole)
to, any other Person, (v) to effect the liquidation, dissolution or winding up of the Company, or
(vi) to declare or pay any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by reclassification or otherwise
than by payment of dividends in Common Shares), then, in each such case, the Company shall give to
each holder of a Right Certificate, in accordance with Section 26 hereof, a

- 47 -

 

notice of such proposed action, which shall specify the record date for the purposes of such
stock dividend, or distribution of rights or warrants, or the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and
the date of participation therein by the holders of the Common Shares and/or Preferred Shares, if
any such date is to be fixed, and such notice shall be so given in the case of any action covered
by clause (i) or (ii) above at least 10 days prior to the record date for determining holders of
the Preferred Shares for purposes of such action, and in the case of any such other action, at
least 10 days prior to the date of the taking of such proposed action or the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, whichever shall be the
earlier.

          (b) In case any event set forth in Section 11(a)(ii) hereof shall occur, then the Company
shall as soon as practicable thereafter give to each holder of a Right Certificate, in accordance
with Section 26 hereof, a notice of the occurrence of such event, which notice shall describe such
event and the consequences of such event to holders of Rights under 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, addressed (until another address is filed in writing
with the Rights Agent) as follows:

Mellon Investor Services LLC

P.O. Box 3316

So. Hackensack, NJ 07606

Attention: Relationship Manager

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Copy to:

Mellon Investor Services LLC

Newport Office Ceter VII

480 Washington Blvd.

Jersey City, New Jersey 07310

Attention: General Counsel

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

Cygnus, Inc.

88 Kearny Street, 4th Floor

San Francisco, CA 94108

Attention: Corporate Secretary

Copy to:

Morris, Nichols, Arsht & Tunnell

1201 N. Market Street

Wilmington, DE 19899

Attention: Frederick H. Alexander

Copy to:

Irell & Manella LLP

1800 Avenue of the Stars

Suite 900

Los Angeles, CA 90067-4276

Attention: Ashok W. Mukhey

- 49 -

 

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

          Section 27. Supplements and Amendments.

          The Company may from time to time, and the Rights Agent shall, subject to the other terms and
conditions of this Agreement, if the Company so directs, supplement or amend this Agreement without
the approval of any holders of Right Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any change to or delete any provision hereof or to adopt any other
provisions with respect to the Rights which the Company may deem necessary or desirable;
provided, however, that from and after such time as any Person becomes an Acquiring
Person after the Close of Business on the date hereof, this Agreement shall not be amended or supplemented in any manner which would adversely
affect the interests of the holders of Rights (other than an Acquiring Person and its Affiliates
and Associates). Any supplement or amendment authorized by this Section 27 will be evidenced by a
writing signed by the Company and the Rights Agent. Upon delivery of a certificate from an
appropriate officer of the Company and, if requested by the Rights Agent, an opinion of counsel,
that states that the proposed supplement or amendment is in compliance with the terms of this
Section 27, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything
contained in this agreement to the contrary, the Rights Agent may, but shall not be obligated to,
enter into any supplement or amendment that affects the Rights Agent’s own rights, duties,
obligations or immunities under this Agreement.

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          Section 28. Successors.

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

          Section 29. Benefits of this Agreement.

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

          Section 30. Severability.

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

          Section 31. Governing Law. 

          This Agreement 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
performed entirely within such State; except that all provisions regarding the rights, duties and
obligations of the Rights Agent shall be governed by and construed in accordance

- 51 -

 

with the law of the State of New York applicable to contracts made and to be performed
entirely within such State.

          Section 32. Counterparts.

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

          Section 33. Descriptive Headings.

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

          Section 34. Administration.

          The Board of Directors of the Company, or any Committee of the Board of Directors designated
by the Board of Directors, shall have the exclusive power and authority to administer the
provisions of this Agreement and to exercise all rights and powers specifically granted to the
Board of Directors or the Company or as may be necessary or advisable in the administration of this
Agreement, including without limitation the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations and calculations deemed necessary or advisable for the
administration of this Agreement. All such actions, calculations, determinations and
interpretations which are done or made by the Board of Directors in good faith shall be final,
conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other
parties and shall not subject the Board of Directors to any liability to the holders of the Rights.
Unless otherwise notified, the Rights Agent shall always be entitled to

- 52 -

 

assume that the Board of Directors of the Company acted in good faith and the Rights Agent
shall be fully protected and shall incur no liability in reliance thereon.

- 53 -

 

          IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement to be duly executed
and their respective corporate seals to be hereunder affixed, all as of the day and
year first above written.

	 	 	 	 	 
	 	 	CYGNUS, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Barbara G. McClung
	 

	 	 	 	 
	 

	 	 	 	  Barbara G. McClung
	 

	 	 	 	  Chief Legal Officer and Corporate Secretary
	 
	 	 	 	 
	 	 	MELLON INVESTOR SERVICES LLC,
	 	 	as Rights Agent
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Kerri Altig
	 

	 	 	 	 
	 

	 	 	 	  Kerri Altig
	 

	 	 	 	  Vice President

- 54 -

 

EXHIBIT A

FORM

of

CERTIFICATE OF DESIGNATION

of

SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

of

CYGNUS, INC.

 

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

 

          Cygnus, Inc., a corporation organized and existing under the General Corporation Law of the
State of Delaware (hereinafter called the “Corporation”), hereby certifies that the following
resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of
the General Corporation Law at a meeting duly called and held on October 17, 2005:

          RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of
this Corporation (hereinafter called the “Board of Directors” or the “Board”) in accordance with
the provisions of the Restated Certificate of Incorporation of the Corporation (the “Certificate of
Incorporation”), the Board of Directors hereby creates a series of Preferred Stock, par value
$0.001 per share (the “Preferred Stock”), of the Corporation and hereby states the designation and
number of shares, and fixes the relative rights, preferences, and limitations thereof as follows:

          Section 1. Designation and Amount. The shares of this series shall be designated as
“Series A Junior Participating Preferred Stock” (the “Series A Preferred Stock”) and the number of
shares constituting the Series A Preferred Stock shall be 95,000. Such number of shares may be
increased or decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number less than the number of
shares then outstanding plus the number of shares reserved for

 

 

issuance upon the exercise of outstanding options, rights or warrants or upon the conversion
of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock.

          Section 2. Dividends and Distributions.

               (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or
any other stock) ranking prior and superior to the Series A Preferred Stock with respect to
dividends, the holders of shares of Series A Preferred Stock shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of March, June, September and December in each year (each
such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount (if any) per share (rounded to the nearest cent), subject to
the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions, other than a dividend payable in shares of Common
Stock, par value $0.001 per share (the “Common Stock”), of the Corporation 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 A Preferred Stock. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or 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 to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under 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.

               (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock
as provided in paragraph (A) of this Section immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable in shares of Common Stock).

               (C) Dividends due pursuant to paragraph (A) of this Section shall begin to accrue and be
cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issue of such shares, unless the date of issue of such shares is
prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series A Preferred 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

- A-2 -

 

on the shares of Series A Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix
a record date for the determination of holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.

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

               (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A
Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote
of the stockholders of the Corporation. In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or 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 number of votes per share to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.

               (B) Except as otherwise provided in the Certificate of Incorporation, including any other
Certificate of Designations creating a series of Preferred Stock or any similar stock, or by law,
the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any
other capital stock of the 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 set forth herein, or as otherwise required by law, holders of Series A 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 quarterly dividends or other dividends or distributions payable on the Series A
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 A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:

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

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

- A-3 -

 

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; or

                    (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for shares of any stock of the Corporation
ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series A
Preferred Stock.

               (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 paragraph (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 A Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled
promptly after the acquisition thereof. The Corporation shall take all such actions as are
necessary to cause all such shares to become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock subject to the conditions and
restrictions on issuance set forth herein or in the Certificate of Incorporation, including any
Certificate of Designations creating a series of Preferred Stock or any similar stock, or as
otherwise required by law.

          Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution
or winding up of the Corporation the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to
holders of shares of Common Stock plus an amount equal to any accrued and unpaid dividends. In the
event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or 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 to which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under 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.

          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 each share of Series A Preferred Stock shall at the same time be similarly exchanged
or changed into an amount per share, subject to the provision for adjustment hereinafter set forth,
equal to 1,000 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

- A-4 -

 

Common Stock is changed or exchanged. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or 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 A 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. Amendment. The Certificate of Incorporation shall not be amended in any
manner, including in a merger or consolidation, which would alter, change, or repeal the powers,
preferences or special rights of the Series A Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of at least two-thirds of the outstanding shares of
Series A Preferred Stock, voting together as a single class.

          Section 9. Rank. The Series A Preferred Stock shall rank, with respect to the payment
of dividends and upon liquidation, dissolution and winding up, junior to all series of Preferred
Stock.

          IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Corporation
by its duly authorized officer this 17th day of October, 2005.

	 	 	 	 	 
	 	CYGNUS, INC.

 	 
	 	By:  	 	 
	 	 	Barbara G. McClung 	 
	 	 	Chief Legal Officer and Corporate Secretary 	 

- A-5 -

 

	 	 	 	 	 

EXHIBIT B

Form of Right Certificate

			
	Certificate No. R-___
	 	___Rights

NOT EXERCISABLE AFTER OCTOBER 17, 2015 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS.
THE RIGHTS ARE SUBJECT TO REDEMPTION AT $0.001 PER RIGHT AND TO EXCHANGE ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS THAT
ARE OR WERE ACQUIRED OR BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR ANY ASSOCIATES
OR AFFILIATES THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR ANY
SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID.

Right Certificate

CYGNUS, INC.

This certifies that                     , or registered assigns, is the registered owner of
the number of Rights set forth above, each of which entitles the owner thereof, subject to the
terms, provisions and conditions of the Rights Agreement, dated as of October 17, 2005 (the “Rights
Agreement”), between Cygnus, Inc., a Delaware corporation (the “Company”), and Mellon Investor
Services LLC (the “Rights Agent”), to purchase from the Company at any time after the Distribution
Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M., pacific time, on
October 17, 2015, at the office of the Rights Agent designated for such purposes, or at the office
of its successor as Rights Agent, one one-thousandth of a fully paid non-assessable share of Series
A Junior Participating Preferred Stock, par value $0.001 per share (the “Preferred Shares”), of the
Company, at a purchase price of $0.75 per one one-thousandth of a Preferred Share (the
“Purchase Price”), upon presentation and surrender of this Right Certificate with the certification
and the Form of Election to Purchase duly executed. The number of Rights evidenced by this Right
Certificate (and the number of one one-thousandths of a Preferred Share which may be purchased upon
exercise hereof) set forth above, and the Purchase Price set forth above, are the number and
Purchase Price as of October 17, 2005, based on the Preferred Shares as constituted at such date.
As provided in the Rights Agreement, the Purchase Price and the number of one one-thousandths of a
Preferred Share 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.

          From and after the occurrence of an event described in Section 11(a)(ii) of the Rights
Agreement, if the Rights evidenced by this Right Certificate are or were at any time on or after
the earlier of (x) the date of such event and (y) the Distribution Date (as such term is defined in
the Rights Agreement) acquired or beneficially owned by an Acquiring Person or an

 

 

Associate or Affiliate of an Acquiring Person (as such terms are defined in the Rights
Agreement), such Rights shall become void, and any holder of such Rights shall thereafter have no
right to exercise such Rights.

          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. Copies of the Rights Agreement are
on file at the principal executive offices of the Company and the offices of the Rights Agent.

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

          Subject to the provisions of the Rights Agreement, at the Company’s option, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a redemption price of $0.001
per Right or (ii) may be exchanged in whole or in part for shares of the Company’s Common Stock,
par value $0.001 per share, or Preferred Shares.

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

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

          WITNESS the facsimile signature of the proper officers of the Company and its corporate seal.
Dated as of October 17, 2005.

- B-2 -

 

	 	 	 	 	 	 	 
	Attest:	 	CYGNUS, INC.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 	 	 	 	 
	Name:	 	 	 	Name:
	Title:	 	 	 	Title:
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Countersigned:

	 	 	 	 
	 
	 	 	 	 	 	 
	MELLON INVESTOR SERVICES LLC,	 	 	 	 
	Rights Agent	 	 	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 

- B-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.

Date: ______________ __, _______

	 	 	 
	 

	 	 
	 

	 	Signature

     Signature Guaranteed:

          Signatures should be guaranteed by an eligible guarantor institution (bank, stock broker or
savings and loan association with membership in an approved signature medallion program).

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

	 	 	 
	 

	 	 
	 

	 	Signature

- B-4 -

 

Form of
Reverse Side of Right Certificate — continued

FORM OF ELECTION TO PURCHASE

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

To: CYGNUS, INC.:

          The undersigned hereby irrevocably elects to exercise                      Rights
represented by this Right Certificate to purchase the Preferred Shares issuable upon the
exercise of such Rights and requests that certificates for such Preferred Shares be issued
in the name of:

Please insert social security

or other identifying number

 

(Please print name and address)

 

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

Please insert social security

or other identifying number

 

(Please print name and address)

 

Dated: _____________ __, ______

	 	 	 
	 

	 	 
	 

	 	Signature

Signature Guaranteed:

          Signatures should be guaranteed by an eligible guarantor institution (bank, stock broker or
savings and loan association with membership in an approved signature medallion program).

- B-5 -

 

Form of Reverse Side of Right Certificate — continued

          The undersigned hereby certifies that the Rights evidenced by this Right Certificate are not
and were not, at any time on or after the earlier of the event described in Section 11(a)(ii) of
the Rights Agreement or the Distribution Date (as such term is defined in the Rights Agreement)
acquired or beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement).

	 	 	 
	 

	 	 
	 

	 	Signature

NOTICE

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

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

- B-6 -

 

EXHIBIT C

SUMMARY OF RIGHTS TO PURCHASE

PREFERRED SHARES

          On October 17, 2005, the Board of Directors of Cygnus, Inc. (the “Company”) declared a
dividend of one preferred share purchase right (a “Right”) for each outstanding share of Common
Stock, par value $0.001 per share (the “Common Shares”) outstanding on October 24, 2005 (the
“Record Date”) to the stockholders of record on that date. Each Right entitles the registered
holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating
Preferred Stock, par value $0.001 per share (the “Preferred Shares”), of the Company, at a price of
$0.75 per one one-thousandth of a Preferred Share (the “Purchase Price”), subject to adjustment.
The description and terms of the Rights are set forth in a Rights Agreement (the “Rights
Agreement”) between the Company and Mellon Investor Services, as Rights Agent (the “Rights Agent”).

          Until the earlier to occur of (i) 10 days following a public announcement that a person or a group
of affiliated or associated persons has acquired beneficial ownership of 4.95% or more of the
outstanding Common Shares (or 12.5% in the case of any Person or a member of a group of Persons
that have filed a Schedule 13D with the Securities and Exchange Commission prior to the date of the
adoption of the Rights Agreement (any such Person or member, “Grandfathered Stockholders”) or an
Affiliate or Associate of a Grandfathered Stockholder who or which would also be an Acquiring
Person due solely to such affiliation or association when considered together with the
Grandfathered Stockholder such Person is associated or affiliated with) (any such Person, an
“Acquiring Person”) or (ii) 10 business days (or such later date as may be determined by action of
the Board of Directors prior to such time as any Person becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in any Person becoming an Acquiring Person (the earlier of such
dates being called the “Distribution Date”), the Rights will be evidenced, with respect to any of
the Common Share certificates outstanding as of the Record Date, by such Common Share certificate
with a copy of this Summary of Rights attached thereto.

          The Rights Agreement provides that, until the Distribution Date, the Rights will be
transferred with and only with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued after the Record Date
or upon transfer or new issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the
Rights), the surrender for transfer of any certificates for Common Shares outstanding as of the
Record Date, even without such notation or a copy of this Summary of Rights being attached thereto,
will also constitute the transfer of the Rights associated with the Common Shares represented by
such certificate. As soon as practicable following the Distribution Date, separate certificates
evidencing the Rights (“Right Certificates”) will be mailed to holders of record of the Common
Shares as of the Close of Business on the Distribution Date and such separate Right Certificates
alone will evidence the Rights.

 

 

          The Rights are not exercisable until the Distribution Date. The Rights will expire on October
17, 2015 (the “Final Expiration Date”), unless the Final Expiration Date is extended or unless the
Rights are earlier redeemed by the Company, in each case, as described below.

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

          The number of outstanding Rights and the number of one one-thousandths of a Preferred Share
issuable upon exercise of each Right are also subject to adjustment in the event of a stock split
of the Common Shares or a stock dividend on the Common Shares payable in Common Shares or
subdivisions, consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.

          Preferred Shares purchasable upon exercise of the Rights will not be redeemable. Each
Preferred Share will be entitled to a quarterly dividend payment of 1,000 times the dividend
declared per Common Share. In the event of liquidation, the holders of the Preferred Shares will
be entitled to an aggregate payment of 1,000 times the aggregate payment made per Common Share.
Each Preferred Share will have 1,000 votes, voting together with the Common Shares. In the event
of any merger, consolidation or other transaction in which Common Shares are exchanged, each
Preferred Share will be entitled to receive 1,000 times the amount received per Common Share.
These rights are protected by customary antidilution provisions.

          Because of the nature of the Preferred Shares’ dividend, liquidation and voting rights, the
value of the one one-thousandth interest in a Preferred Share purchasable upon exercise of each
Right should approximate the value of one Common Share.

          From and after the time any Person becomes an Acquiring Person, if the Rights evidenced by
this Right Certificate are or were at any time on or after the earlier of (x) the date of such
event and (y) the Distribution Date (as such term is defined in the Rights Agreement) acquired or
beneficially owned by an Acquiring Person or an Associate or Affiliate of an Acquiring Person (as
such terms are defined in the Rights Agreement), such Rights shall become void, and any holder of
such Rights shall thereafter have no right to exercise such Rights.

          In the event that, at any time after a Person becomes an Acquiring Person, the Company is
acquired in a merger or other business combination transaction or 50% or more of its consolidated
assets or earning power are sold, proper provision will be made so that each holder of a Right will
thereafter have the right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company which at the time of
such transaction will have a market value of two times the exercise

- C-2 -

 

price of the Right. In the event that any person becomes an Acquiring Person, proper
provision shall be made so that each holder of a Right, other than Rights beneficially owned by the
Acquiring Person and its Affiliates and Associates (which will thereafter be void), will thereafter
have the right to receive upon exercise that number of Common Shares having a market value of two
times the exercise price of the Right. If the Company does not have sufficient Common Shares to
satisfy such obligation to issue Common Shares, or if the Board of Directors so elects, the Company
shall deliver upon payment of the exercise price of a Right an amount of cash or securities
equivalent in value to the Common Shares issuable upon exercise of a Right; provided that, if the
Company fails to meet such obligation within 30 days following the date a Person becomes an
Acquiring Person, the Company must deliver, upon exercise of a Right but without requiring payment
of the exercise price then in effect, Common Shares (to the extent available) and cash equal in
value to the difference between the value of the Common Shares otherwise issuable upon the exercise
of a Right and the exercise price then in effect. The Board of Directors may extend the 30-day
period described above for up to an additional 60 days to permit the taking of action that may be
necessary to authorize sufficient additional Common Shares to permit the issuance of Common Shares
upon the exercise in full of the Rights.

          At any time after any Person becomes an Acquiring Person and prior to the acquisition by any
person or group of a majority of the outstanding Common Shares, the Board of Directors of the
Company may exchange the Rights (other than Rights owned by such person or group which have become
void), in whole or in part, at an exchange ratio of one Common Share per Right (subject to
adjustment).

          With certain exceptions, no adjustment in the Purchase Price will be required until cumulative
adjustments require an adjustment of at least 1% in such Purchase Price. No fractional Preferred
Shares will be issued (other than fractions which are integral multiples of one one-thousandth of a
Preferred Share, which may, at the election of the Company, be evidenced by depositary receipts)
and in lieu thereof, an adjustment in cash will be made based on the market price of the Preferred
Shares on the last trading day prior to the date of exercise.

          At any time prior to the time any Person becomes an Acquiring Person, the Board of Directors
of the Company may redeem the Rights in whole, but not in part, at a price of $0.001 per Right (the
“Redemption Price”). The redemption of the Rights may be made effective at such time, on such
basis and with such conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption Price.

          The terms of the Rights may be amended by the Board of Directors of the Company without the
consent of the holders of the Rights, except that from and after such time as any person becomes an
Acquiring Person after the close of business on the date of adoption
of the Rights Agreement no such amendment may adversely affect the interests of the holders of the Rights
(other than the Acquiring Person and its Affiliates and Associates).

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

- C-3 -

 

          A copy of the Agreement has been filed with the Securities and Exchange Commission as an
Exhibit to a Current Report on Form 8-K dated October 17, 2005. This summary description
of the Rights does not purport to be complete and is qualified in its entirety by reference to the
Agreement, which is hereby incorporated herein by reference.

- C-4 -<PAGE>
                                                                     Exhibit 4.2

                                                                  EXECUTION COPY

                           ALTUS PHARMACEUTICALS INC.

               AMENDED AND RESTATED STOCKHOLDERS' VOTING AGREEMENT

This Amended and Restated Stockholders' Voting Agreement (this "Agreement")
dated as of May 21, 2004 is entered into by and among Altus Pharmaceuticals
Inc., a Delaware corporation (the "Company") (f/k/a "Altus Biologics Inc."),
Nomura International plc ("Nomura"), U.S. Venture Partners VIII, L.P. ("USVP"),
USVP VIII Affiliates Fund, L.P., USVP Entrepreneur Partners Fund VIII-A, L.P.,
USVP Entrepreneur Partners Fund VIII-B, L.P. (collectively, the "USVP
Affiliates"), and the other persons and entities listed on Exhibit A hereto
(each individually, a "Purchaser" and collectively, the "Purchasers"), and
Vertex Pharmaceuticals Incorporated, a Massachusetts corporation ("Vertex"), and
amends and restates that certain Stockholders' Voting Agreement among the
Company and the parties thereto, dated as of September 26, 2001, as amended as
of December 7, 2001 (the "Prior Agreement"). Each of Nomura, USVP and the USVP
Affiliates is one of the entities listed on Exhibit A and is therefore included
within the definition of "Purchaser" and "Purchasers." The Purchasers and Vertex
are sometimes referred to in this Agreement collectively as the "Stockholders."

                                    Recitals:

     1. Vertex owns certain outstanding shares of common stock, $.01 par value
per share, of the Company (the "Common Stock"), warrants to purchase shares of
Common Stock, shares of Series A Convertible Preferred Stock, $.01 par value per
share, of the Company (the "Series A Preferred Stock"), and shares of Redeemable
Preferred Stock, $.01 par value per share, of the Company;

     2. Certain of the Purchasers are purchasing, concurrently herewith, shares
of Series C Convertible Preferred Stock, $.01 par value per share, of the
Company (the "Series C Preferred Stock") and warrants to purchase shares of
Series C Preferred Stock pursuant to the Series C Convertible Preferred Stock
and Warrant Purchase Agreement of even date herewith by and among the Company
and such Purchasers (the "Purchase Agreement");

     3. The Company, Vertex and certain of the Purchasers are parties to the
Prior Agreement;

     4. The undersigned parties represent the necessary voting power in order to
amend the Prior Agreement as set forth in Section 7(e) thereof; and

     5. The Purchasers and Vertex wish to provide for their continuing
representation on the Board of Directors of the Company (the "Board") in the
manner set forth below.

     In consideration of the mutual covenants contained herein and the
consummation of the sale and purchase of shares of capital stock of the Company
pursuant to the Purchase Agreement, and for other valuable consideration,
receipt of which is hereby acknowledged, the parties hereto agree as follows:
<PAGE>
     1. Voting of Shares.

               (a) In any and all elections of directors of the Company (whether
     at a meeting or by written consent in lieu of a meeting), each Stockholder
     shall vote or cause to be voted all Shares (as defined in Section 2 below)
     owned by him, her or it, or over which he, she or it has voting control,
     and otherwise use his, her or its respective best efforts, so as to fix the
     number of directors of the Company at nine (9) and to elect to the Board as
     directors (i) one (1) member designated by Nomura, (ii) one (1) member
     designated by USVP, (iii) one (1) member designated by Vertex, (iv) two (2)
     members designated by the holders of a majority of the outstanding shares
     of Series C Preferred Stock, (v) the Company's Chief Executive Officer and
     (vi) three (3) members, who shall not be employed by the Company,
     designated by not less than 3 of the Series B Directors and Series C
     Directors (as defined below) (the "Outside Directors"). The directors
     designated by the holders of a majority of the outstanding shares of Series
     C Preferred Stock shall be the Series C Directors (as defined in the
     Company's Third Amended and Restated Certificate of Incorporation, as
     amended (the "Charter")), the directors designated by Nomura and USVP shall
     be the Series B Directors (as defined in the Charter) and the director
     designated by Vertex shall be the Series A Director (as defined in the
     Charter). As of the date hereof, the directors designated by the holders of
     a majority of the outstanding shares of Series C Preferred Stock shall be
     Stewart Hen and Jonathan Leff, the director designated by Nomura shall be
     John Richard, the director designated by USVP shall be Jonathan Root, the
     director designated by Vertex shall be Lynne Brum, the Company's Chief
     Executive Officer is Peter Lanciano, and the three (3) Outside Directors
     shall be Manuel Navia, Richard Aldrich and Michael Wyzga.

               (b) In the event that any director designated in the manner set
     forth in Section 1(a) above is unable to serve, or once having commenced to
     serve, is removed or withdraws from the Board (a "Withdrawing Director"),
     such Withdrawing Director's replacement (the "Substitute Director") will be
     designated by the Stockholder or Stockholders or members of the Board, as
     the case may be, with the right to designate the Withdrawing Director or
     Directors being replaced; provided, however, in the case of the Company's
     Chief Executive Officer, the Substitute Director shall be the successor to
     the Company's Chief Executive Officer. Each Stockholder agrees to take all
     action within its respective power, including, but not limited to, the
     voting of all Shares owned by him, her or it, (i) to cause the election of
     such Substitute Director promptly following his or her nomination pursuant
     to this Section 1(b), and (ii) upon the written request of the Stockholder
     or Stockholders or members of the Board, as the case may be, with the right
     to designate a director or directors pursuant to Section 1(a) above, to
     remove, with or without cause, the respective director or directors
     designated by such Stockholder or Stockholders or members of the Board, as
     the case may be.

               (c) The Stockholders shall not vote to remove any director
     designated pursuant to Section 1(a)(i)-(iv) above without the consent of
     the Stockholder or Stockholders with the right to designate such director,
     except in the case of removal for bad faith or willful misconduct. No
     Stockholders shall vote to remove (i) the Company's Chief Executive Officer
     as director so long as such person holds such position with the Company or
     (ii) any Outside Director without the consent of not less than three (3) of
     the

                                       2
<PAGE>
     Series B Directors and Series C Directors, excluding the director or
     directors subject to removal, except, in both instances, in the case of
     removal for bad faith or willful misconduct.

               (d) The Company shall provide a written notice (a "Designating
     Party Notice") to the Stockholders at least 30 days prior to sending a
     notice to stockholders for a meeting at which directors are to be elected
     (an "Election Notice"). A Designating Party Notice shall state the date
     (the "Mailing Date") upon which the respective Election Notice is to be
     mailed to stockholders. The Mailing Date shall be a date that is at least
     15 days after the date the Designation Party Notice is delivered to the
     Stockholders. The holders of a majority of the outstanding shares of Series
     C Preferred Stock, Nomura, USVP, Vertex and the Board shall each give
     written notice to all other parties to this Agreement, no later than five
     (5) days prior to the Mailing Date, of the persons designated pursuant to
     Section 1(a) as nominees for election as directors; provided, however, so
     long as a Stockholder, initially to be Warburg Pincus Private Equity VIII,
     L.P. ("Warburg Pincus") (together with its affiliates), holds a majority of
     the outstanding shares of Series C Preferred Stock, such Stockholder shall
     provide all such notices on behalf of the holders of a majority of the
     outstanding Series C Preferred Stock as may be required by this Section
     1(d). The Company agrees to nominate and recommend for election as
     directors only those individuals designated, or to be designated, pursuant
     to Section 1(a) above. If Nomura, USVP, Vertex or the holders of a majority
     of the outstanding shares of Series C Preferred Stock shall fail to give
     notice to the Company as provided above, the designees of such Stockholders
     who failed to give such notice then serving as directors shall be deemed
     the designees for reelection.

               (e) In the event that the member designated by Nomura is unable
     to attend any duly noticed meeting of the Board, the Company shall allow an
     observer designated by Nomura to attend such meeting.

               (f) For so long as he serves as an officer of the Company, Alexey
     Margolin shall have the right to receive due notice of all meetings of the
     Board and to attend all such meetings as an observer.

     2. Shares. "Shares" shall mean and include any and all shares of Common
Stock and/or shares of capital stock of the Company, by whatever name called,
which carry voting rights (including voting rights which arise by reason of
default or by receipt of a proxy from another shareholder of the Company) and
shall include any such shares now owned or subsequently acquired by a
Stockholder, however acquired, including without limitation stock splits and
stock dividends.

     3. Termination.

               (a) All rights and obligations of Nomura under this Agreement
     shall terminate on the date on which Nomura no longer holds at least thirty
     percent (30%) of the shares of the Company's Series B Convertible Preferred
     Stock, $.01 par value per share (the "Series B Preferred Stock"), purchased
     by Nomura in accordance with the Series B Convertible Preferred Stock and
     Warrant Purchase Agreement dated September

                                       3
<PAGE>
     26, 2001, by and among the Company and certain Purchasers, as amended (the
     "Series B Purchase Agreement") (subject to appropriate adjustment for stock
     splits, stock dividends, recapitalizations and other similar events).

               (b) All rights and obligations of USVP under this Agreement shall
     terminate on the date on which USVP and the USVP Affiliates, in the
     aggregate, no longer hold at least thirty percent (30%) of the shares of
     the Series B Preferred Stock purchased by USVP and the USVP Affiliates in
     accordance with the terms of the Series B Purchase Agreement (subject to
     appropriate adjustment for stock splits, stock dividends, recapitalizations
     and other similar events).

               (c) All rights and obligations of Vertex under this Agreement
     shall terminate on the date on which Vertex no longer holds at least thirty
     percent (30%) of the shares of Series A Preferred Stock held by Vertex on
     the date of this Agreement (subject to appropriate adjustment for stock
     splits, stock dividends, recapitalizations and other similar events).

               (d) All rights and obligations of the holders of a majority of
     the outstanding shares of Series C Preferred Stock under this Agreement
     shall terminate on the date on which less than thirty-five percent (35%) of
     the total number of shares of Series C Preferred Stock purchased pursuant
     to the Purchase Agreement remains outstanding (subject to appropriate
     adjustment for stock splits, stock dividends, recapitalizations and other
     similar events).

               (e) This Agreement shall terminate in its entirety on the
     earliest of (i) the closing of the Company's initial firm commitment
     underwritten public offering of shares of Common Stock pursuant to an
     effective registration statement under the Securities Act of 1933, as
     amended (the "Act"), resulting in at least $50 million of net proceeds to
     the Company at a minimum price to the public of $6.4721037 per share
     (subject to appropriate adjustment for stock splits, stock dividends,
     recapitalizations and other similar events) (a "Qualified Public
     Offering"), or (ii) the sale of all or substantially all of the assets or
     business of the Company, by merger, sale of assets or otherwise.

     4. No Revocation. The voting agreements contained herein are coupled with
an interest and may not be revoked, except by an amendment, modification or
termination effected in accordance with Section 3 or 7(f) hereof. Nothing in
this Section 4 shall be construed as limiting the provisions of Section 3 or
7(f) hereof.

     5. Restrictive Legend. All certificates representing Shares owned or
hereafter acquired by the Stockholders or any transferee of the Stockholders
bound by this Agreement shall have affixed thereto a legend substantially in the
following form:

          "The shares of stock represented by this certificate are subject to
          certain voting agreements as set forth in an Amended and Restated
          Stockholders' Voting Agreement, as amended from time to time, by and
          among the registered owner of this certificate, the Company and
          certain other stockholders of the Company, a copy of which is

                                       4
<PAGE>
          available for inspection at the offices of the Secretary of the
          Company."

     6. Transfers of Rights. Any transferee to whom Shares are transferred by a
Stockholder, whether voluntarily or by operation of law, shall be bound by the
voting obligations imposed upon the transferor under this Agreement, to the same
extent as if such transferee were a Stockholder hereunder and no Stockholder
shall transfer any Shares unless the transferee agrees in writing to be bound by
this Agreement.

     7. General.

               (a) Severability. The invalidity or unenforceability of any
     provision of this Agreement shall not affect the validity or enforceability
     of any other provision of this Agreement.

               (b) Rights of Purchasers. Each Purchaser shall have the absolute
     right to exercise or refrain from exercising any right or rights that such
     Purchaser may have by reason of this Agreement including without
     limitation, the right to consent to the waiver of any obligation of the
     Company and to enter into an agreement with the Company for the purpose of
     modifying this Agreement. Each such Purchaser shall not incur any liability
     to any other Purchaser with respect to exercising or refraining from
     exercising any such right or rights that such Purchaser may have by reason
     of this Agreement.

               (c) Specific Performance. In addition to any and all other
     remedies that may be available at law in the event of any breach of this
     Agreement, each Purchaser shall be entitled to specific performance of the
     agreements and obligations of the Stockholders hereunder and to such other
     injunctive or other equitable relief as may be granted by a court of
     competent jurisdiction.

               (d) Governing Law. This Agreement shall be governed by and
     construed in accordance with the internal laws of the State of Delaware
     (without reference to the conflicts of law provisions thereof).

               (e) Notices. All notices, requests, consents, and other
     communications under this Agreement shall be in writing and shall be deemed
     delivered (i) two (2) business days after being sent by registered or
     certified mail, return receipt requested, postage prepaid or (ii) one (1)
     business day after being sent via a reputable nationwide overnight courier
     service guaranteeing next business day delivery, in each case to the
     intended recipient as set forth below:

     If to the Company, at 125 Sidney Street, Cambridge, Massachusetts 02139,
Attention: President, or at such other address or addresses as may have been
furnished in writing by the Company to the Purchasers and Vertex, with a copy to
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial Center,
Boston, Massachusetts 02111, Attention: Jonathan L. Kravetz, Esq.; or

     If to a Purchaser, at the address set forth on Exhibit A for such
Purchaser, or at such other address or addresses as may have been furnished to
the Company and Vertex in writing by such

                                       5
<PAGE>
Purchaser. If the Purchaser is a holder of Series B Preferred Stock, a copy of
such notice shall be delivered to Tomlinson Zisko LLP, 200 Page Mill Road,
Second Floor, Palo Alto, California 94306, Attention: Jill E. Fishbein, Esq.,
and if the Purchaser is a holder of Series C Preferred Stock, a copy of such
notice shall be delivered to Willkie Farr & Gallagher LLP, 787 Seventh Avenue,
New York, New York 10019, Attention: Steven J. Gartner, Esq.; or

     If to Vertex, at 130 Waverly Street, Cambridge, Massachusetts 02139,
Attention: General Counsel, or at such other address or addresses as may have
been furnished in writing by Vertex to the Company and the Purchasers.

     Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended. Any party may change the address to which
notices, requests, consents or other communications hereunder are to be
delivered by giving the other parties notice in the manner set forth in this
Section.

               (f) Complete Agreement; Amendments. This Agreement constitutes
     the entire agreement and understanding of the parties hereto with respect
     to the subject matter hereof, and supersedes all prior agreements and
     understandings relating to such subject matter. No amendment or termination
     of, or waiver under, any provision of this Agreement shall be valid unless
     in writing and signed by Stockholders holding at least fifty-five percent
     (55%) of the voting power of the Shares (on an as converted basis) then
     held by all Stockholders and the Company, and any such amendment,
     termination or waiver shall be binding on all parties hereto even if they
     do not execute such consent; provided, however, if any such amendment would
     affect the rights of a Stockholder or Stockholders or their respective
     directors to designate a director pursuant to Section 1 hereof, then in
     addition to the aforementioned consent described above, the written consent
     of such affected Stockholder or Stockholders shall also be required to
     enforce such amendment against such Stockholder or it or his designated
     director; provided further, that if any such amendment would otherwise
     affect the rights of the holders of any class or series of the Company's
     capital stock in a fashion different from the holders of any other class or
     series of the Company's capital stock, then, in addition to the
     aforementioned consent of fifty-five percent (55%) of the voting power of
     the Shares (on an as converted basis), the written consent of the holders
     of a majority of the voting power (on an as converted basis) of such class
     or series of the Company's capital stock held by such affected Stockholder
     or Stockholders shall also be required to enforce such amendment against
     such Stockholder. The Company shall give prompt written notice of any
     amendment or termination hereof or waiver hereunder to any party hereto
     that did not consent in writing to such amendment, termination or waiver.
     Solely for the purposes of this Section 7(f), Shares shall not include
     Common Stock issuable pursuant to either Article FOURTH, Section E.1.(c) or
     Section F.1.(c) of the Company's Certificate of Incorporation, as amended
     from time to time.

                                       6
<PAGE>
               (g) Pronouns. Whenever the context may require, any pronouns used
     in this Agreement shall include the corresponding masculine, feminine or
     neuter forms, and the singular form of nouns and pronouns shall include the
     plural, and vice versa.

               (h) Counterparts; Facsimile Signatures. This Agreement may be
     executed in any number of counterparts, each of which shall be deemed to be
     an original, and all of which together shall constitute one and the same
     document. This Agreement may be executed by facsimile signatures.

               (i) Section Headings. The section headings are for the
     convenience of the parties and in no way alter, modify, amend, limit or
     restrict the contractual obligations of the parties.

               (j) Attorney's Fees. If any action at law or in equity (including
     arbitration) is instituted to enforce or interpret the terms of this
     Agreement, the prevailing party shall be entitled to reasonable attorney's
     fees, costs and necessary disbursements in addition to any other relief to
     which such party may be entitled.

                  [Remainder of Page Intentionally Left Blank]

                                       7
<PAGE>
Executed as of the date first written above.

                                       COMPANY:

                                       ALTUS PHARMACEUTICALS INC.

                                       By: /s/ Peter L. Lanciano
                                           -------------------------------------
                                       Name: Peter L. Lanciano
                                       Title: President and CEO

                                       VERTEX PHARMACEUTICALS INCORPORATED

                                       By: /s/ Kenneth S. Boger
                                           -------------------------------------
                                       Name: Kenneth S. Boger
                                             -----------------------------------
                                       Title: Sr. Vice President and General
                                              Counsel
                                              ----------------------------------

                                       NOMURA INTERNATIONAL PLC

                                       By: /s/ Denise Pollard-Knight
                                           -------------------------------------
                                       Name: Denise Pollard-Knight
                                             -----------------------------------
                                       Title: Head of Nomura Phase 4 Ventures
                                              ----------------------------------

                                       U.S. VENTURE PARTNERS VIII, L.P.
                                       USVP VIII AFFILIATES FUND, L.P.
                                       USVP ENTREPRENEUR PARTNERS VIII-A, L.P.
                                       USVP ENTREPRENEUR PARTNERS VIII-B, L.P.

                                       By Presidio Management Group VIII, L.L.C.
                                       The General Partner of Each

                                       By: /s/ Michael P. Maher
                                           -------------------------------------
                                       Name: Michael P. Maher
                                       Title: Attorney In-Fact

                                       CMEA VENTURES LIFE SCIENCES 2000, L.P

                                       By: /s/ Thomas R. Baruch
                                           -------------------------------------
                                       Name: Thomas R. Baruch
                                       Title: General Partner

              [Amended and Restated Stockholders Voting Agreement]
<PAGE>
                                       CMEA VENTURES LIFE SCIENCES 2000,
                                       CIVIL LAW PARTNERSHIP

                                       By: /s/ Thomas R. Baruch
                                           -------------------------------------
                                       Name: Thomas R. Baruch
                                       Title: General Partner

              [Amended and Restated Stockholders Voting Agreement]
<PAGE>
                                       P/S BI BIOMEDICINSK VENTURE III

                                       By:        /s/ Jesper Zeuthen
                                           -------------------------------------
                                       Name:          Jesper Zeuthen
                                             -----------------------------------
                                       Title: Managing Director

                                       CLARIDEN BANK

                                       By:        /s/ Eric Bernhardt
                                           -------------------------------------
                                       Name: Eric Bernhardt
                                       Title: Senior Vice President

              [Amended and Restated Stockholders Voting Agreement]
<PAGE>
                                    EXHIBIT A

                                   Purchasers

WARBURG PINCUS PRIVATE EQUITY VIII, L.P.
466 Lexington Avenue
New York, NY 10017
Attention: Stewart Hen

U.S. VENTURE PARTNERS VIII, L.P.
2735 Sand Hill Road
Menlo Park, CA 94025
Attention: Michael Maher

USVP VIII AFFILIATES FUND, L.P.
2735 Sand Hill Road
Menlo Park, CA 94025
Attention: Michael Maher

USVP ENTREPRENEUR PARTNERS VIII-A, L.P.
2735 Sand Hill Road
Menlo Park, CA 94025
Attention: Michael Maher

USVP ENTREPRENEUR PARTNERS VIII-B, L.P.
2735 Sand Hill Road
Menlo Park, CA 94025
Attention: Michael Maher

NOMURA PHASE4 VENTURES LP
c/o Nomura International plc
Nomura House
1 St. Martin's-le-Grand
London EC1A 4NP
United Kingdom
Attention: Charles Sermon

P/S BI BIOMEDICINSK VENTURE III
Sundkrogsgade 7
P.O. Box 2672
DK-2100 Copenhagen
Denmark
Attention: Jens W. Kindtler
<PAGE>
CLARIDEN BANK
Claridenstrasse 26
CH-8022 Zurich
Switzerland
Attention: Eric Bernhardt

CMEA VENTURES LIFE SCIENCES 2000, L.P.
One Embarcadero Center, Suite 3250
San Francisco, CA 94111
415.352.1520 ext. 200 (voice)
415.352.1524 (fax)
Attention: David Collier and Meryl Schreibstein

CMEA VENTURES LIFE SCIENCES 2000, CIVIL LAW PARTNERSHIP
One Embarcadero Center, Suite 3250
San Francisco, CA 94111
415.352.1520 ext. 200 (voice)
415.352.1524 (fax)
Attention: David Collier and Meryl Schreibstein

KIM FENNEBRESQUE
c/o SG Cowen & Co.
1221 Avenue of the Americas, 10th Floor
New York, NY 10020
(212) 278-4000 (office)
(212) 278-1641 (fax)

DAVID M. MALCOLM
460 Long Ridge
Bedford, NY 10530
(212) 278-4000 (office)
(212) 278-5599 (fax)

STELIOS PAPADOPOULOS
3 Summerset Drive South
Great Neck, NY 11020
(516) 487-5654 (home)
(516) 487-0245 (fax)

PETER REIKES
200 East 64th Street, #23A
New York, NY 10021
(212) 278-4000 (office)
(212) 278-4289 (fax)
<PAGE>
SENGAL M. SELASSIE
187 Gates Avenue
Montclair, NJ 01042
(973) 744-7525 (home)
(973) 744-7569 (fax)
(212) 278-4000 (office)
(212) 278-5454 (fax)

CHRISTOPHER A. WHITE
247 West 87th Street, #18F
New York, NY 10024
(212) 278-4000 (office)
(212) 278-5454 (fax)

NOMURA INTERNATIONAL PLC
Nomura House
1 St. Martin's-le-Grand
London EC1A 4NP
United Kingdom
Attention: Charles Sermon

SG COWEN VENTURES I, L.P.
1221 Avenue of the Americas
New York, NY 10020

PAUL J. LEACH
1134 Federal Avenue East
Seattle, WA 98102

ML INVESTMENTS LLC
One Financial Center
Boston, MA 02111

CHINA DEVELOPMENT INDUSTRIAL BANK INCORPORATED
125, Nanking East Road, Section 5
Taipei 105
Taiwan, R.O.C.
Attn: James Yen

PALLADIN OPPORTUNITY FUND LLC
195 Maplewood Avenue
Maplewood, NJ 07040
Attn: Ira Leiderman
<PAGE>
CDIB BIOTECH USA INVESTMENT, CO.
21 North Skokie Highway, Suite 104
Lake Bluff, IL 60044
Attn:Geoffrey Bonn

BAOTUNG VENTURE CAPITAL CORPORATION
10F, 261, Sung-Chiang Road
Taipei
Taiwan, R.O.C.
Attn: Joyce Lee, Ph. D.

WANTUNG VENTURE CAPITAL CORPORATION
10F, 261, Sung-Chiang Road
Taipei
Taiwan, R.O.C.
Attn: Joyce Lee, Ph. D.

CHUNG-SHAN VENTURE CAPITAL CORPORATION
10F, 261, Sung-Chiang Road
Taipei
Taiwan, R.O.C.
Attn: Joyce Lee, Ph. D.

CHUNG-SHAN II VENTURE CAPITAL CORPORATION
10F, 261, Sung-Chiang Road
Taipei
Taiwan, R.O.C.
Attn: Joyce Lee, Ph. D.

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