Document:

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                                                                   Exhibit 10.14

                         EXECUTIVE EMPLOYMENT AGREEMENT

      THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made and entered
into this 15th day of December, 2002, to be effective as of December 15, 2002
between TASER International, Incorporated (the "Company"), located at 7860 East
McClain Drive, Suite 2, Scottsdale, Arizona 85260 and Douglas E. Klint (the
"Executive"), residing at 165 Gideons Point Road, Tonka Bay, MN 55331

                                    RECITALS:

      WHEREAS, the Company wishes to provide for the employment of Executive as
its Vice President, General Counsel for the term, and on the conditions, set
forth herein; and

      WHEREAS, Executive desires to be assured of certain minimum compensation
from Company for Executive's services during the term hereof and to be
protected, and compensated, in the event of any change in the control affecting
the Company; and,

      WHEREAS, Company desires reasonable protection of Company's confidential
business and technical information which has been developed by the Company in
recent years at substantial expense.

      NOW, THEREFORE, in consideration of the mutual promises contained herein,
the Company and Executive each intend to be legally bound, covenant and agree as
follows:

1. EMPLOYMENT. Upon the terms and conditions set forth in this Agreement,
Company hereby employs Executive as its Vice President General Counsel, and
Executive accepts such employment. Except as expressly provided herein, the
termination of this Agreement by either party shall also terminate Executive's
employment by Company.

2. DUTIES. Executive shall devote his full-time and best efforts to the Company
and shall fulfill the duties of his position which shall include such duties as
may, from time to time, be assigned to him by the Chief Executive or Board of
Directors of the Company, provided such duties are reasonably consistent with
Executive's education, experience and background.

3. TERM. Subject to the provisions of Sections 6 and 11 hereof, Executive's
employment shall commence on the effective date hereof ("Employment Date") and
continue through December 15, 2003, but shall be automatically extended, unless
otherwise terminated in accordance herewith, for additional consecutive one year
term on each December 15, thereafter, unless either party gives written notice
to the other of termination in accordance herewith. In any event, the Agreement
shall automatically
<PAGE>
terminate, without notice, when Executive reaches 70 years of age. If employment
is continued after the age of 70 by mutual agreement, it shall be terminable at
will by either party.

4. COMPENSATION.

      (a) 2002-2003 Annual Base Salary. For services rendered under this
Agreement during the first year (December 15, 2002 through December 14, 2003) of
this Agreement, Company shall pay Executive a minimum Base Salary ("Base
Salary") (Base Salary shall mean regular cash compensation paid on a periodic
basis exclusive of any and all benefits, bonuses or other incentive payments
made or obligated by Company to Executive hereunder) at an annual rate of
$160,000, payable in accordance with existing payroll practices of the Company.
In subsequent years, based upon extensions of this Agreement, Executive's Base
Salary shall be adjusted annually based upon a performance and compensation
review conducted by the Compensation Committee of the Company's Board of
Directors and negotiated and mutually agreed to, in good faith, between
Executive and the Company's Board of Directors. Such review will be based upon
both individual and Company performance and shall be completed by December 15 of
each subsequent year. The foregoing 2002-2003 minimum Base Salary for Executive
shall not prohibit Company's Board of Directors (or the Compensation Committee
of Company's Board of Directors ), to set Executive's Base Salary during such
initial one year term at an annual rate greater than that prescribed above;
however in no instance shall Executive's Base Salary be less than that set forth
above.

      (b) Annual Year-End Cash Bonus. Executive shall also be eligible to earn
an annual year-end cash bonus which shall be determined by a review at the
discretion of the Company's Board of Directors. Executive shall be eligible to
earn a first year annual bonus in the amount of $15,000 payable as follows:

            -     50% upon admission to the Arizona Bar; and

            -     50% upon achievement of Company and individual business
                  objectives to be established by your manager.

      (c) Fringe Benefits. In addition to the compensation and incentive
payments payable to Executive as provided in Sections 4(a) and (b) above:

            (i)   Vacation. Executive shall be entitled to four (4) weeks paid
                  vacation each calendar year. All such paid vacation shall
                  accumulate, so that if Executive's full vacation is not taken
                  in a particular calendar year, any unused portion shall be
                  carried into subsequent years; however, such accumulation
                  shall not exceed an aggregate of four (4) calendar weeks.

            (ii)  Long Term Disability. The Company shall also maintain (so long
                  as such insurance is available at commercially standard rates)
                  long-term disability policy on Executive providing for the
                  payment to age
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                  65 of benefit equivalent to seventy percent (70%) of
                  Executive's annual Base Salary in the event Executive becomes
                  permanently disabled as defined in Section 6(b)(ii).

            (iii) Other Benefits. The Executive shall be entitled to participate
                  in all other benefit programs offered by the Company to its
                  full-time executive employees, including, but not limited to,
                  health, medical, dental and eye care; Southwest Airlines
                  travel benefits; retirement benefits through the Company's
                  pension and/or profit sharing plans; sick leave benefits; and
                  accidental death and dismemberment coverages.

5. BUSINESS EXPENSES. The Company shall, in accordance with, and to the extent
of, its policies in effect from time to time, bear all customary business
expenses (including the advancement of certain expenses) incurred by the
Executive in performing his duties as an executive of the Company, provided that
Executive accounts promptly such expenses to Company in the manner prescribed
from time to time by the Company.

6. TERMINATION. Subject to the respective continuing obligations of the parties
pursuant to Sections 7, 8, 9, 10, 11, 12 and 13, this Agreement may be
terminated prior to the expiration of its then remaining applicable term only as
follows:

      (a)   By the Company. The Company may terminate this Agreement under the
            following circumstances:

            (i)   For "Cause". Company may terminate this Agreement on thirty
                  (30) days written notice to Executive for "cause", including,
                  fraud, misrepresentation, theft or embezzlement of Company
                  assets, material intentional violations of law or Company
                  policies, or a material breach of the provisions of this
                  Agreement, including specifically the repeated failure to
                  perform his duties as required by Section 2 hereof after
                  written notice of such failure from Company; however, in the
                  event of termination related to Executive's performance,
                  Executive's termination shall only be effective upon the
                  expiration of a sixty (60) day cure period following a lack of
                  corrective action having been undertaken by Executive during
                  said cure period.
<PAGE>
            (ii)  Without "Cause". The Company may terminate this Agreement upon
                  six (6) months written notice without "cause." The Base Salary
                  compensation due and owing by the Company to Executive
                  following either of such early terminations of this Agreement
                  shall be paid as set forth at Section 7(a)(iv) hereof.

      (b)   Death and Disability.

            (i)   Death. If Executive should die during the term of this
                  Agreement, this Agreement shall thereupon terminate; provided,
                  however, that the Company shall pay to the Executive's
                  beneficiary or estate the compensation provided in Section
                  7(a)(ii) below.

            (ii)  Permanent Disability. In the event the Executive should become
                  permanently disabled during the term of this Agreement, this
                  Agreement shall also terminate. For the purposes hereof, a
                  permanent disability shall mean that disability resulting from
                  injury, disease or other cause, whether mental or physical,
                  which incapacitates the Executive from performing his normal
                  duties as an employee, appears to be permanent in nature and
                  contemplates the continuous, necessary and substantially
                  complete loss of all management and professional activities
                  for a continuous period of six (6) months.

            (iii) Partial Disability. If the Executive should become partially
                  disabled, he shall be entitled to his salary as provided
                  herein for a period of nine (9) months. At the end of said
                  period of time, if such Executive remains partially disabled,
                  the disabled Executive's salary shall be reduced according to
                  the amount of time the disabled Executive is able to devote to
                  the Company's business.

            (iv)  Temporary Disability. In the event the Executive should become
                  disabled, but such disability is not permanent, as defined
                  above, such disabled Executive shall be entitled to his salary
                  for a period of nine (9) months. If such temporary disability
                  continues longer than said period of time, then the disabled
                  Executive shall be deemed to have become permanently disabled
                  for the purposes of this Agreement at the end of said nine (9)
                  month period.
<PAGE>
7. COMPENSATION PAYABLE FOLLOWING EARLY TERMINATION.

      (a)   In the event of any termination pursuant to Section 6, Executive's
            Base Salary shall be paid as follows:

            (i)   In the event of termination pursuant to Section 6(a)(i) (for
                  "cause"), Executive's Base Salary shall continue to be paid on
                  a semi-monthly basis for sixty (60) days from the effective
                  date of such termination and Executive shall also be entitled
                  to continue to participate in those benefit programs provided
                  by subsections 4(e)(iv-viii) (inclusive), for twelve (12)
                  months following such termination, at Executive's expense;

            (ii)  In the event of termination of this Agreement by reason of
                  Executive's death, Executive's Base Salary shall terminate as
                  of the end of the eighteenth (18th) month following the
                  Executive's death;

            (iii) In the event of termination of this Agreement by reason of
                  disability, Executive's Base Salary shall be terminated as of
                  the end the eighteenth (18th) month period following
                  Executive's inability to perform his duties occurs; and

            (iv)  In the event of any termination by the Company pursuant to
                  Section 6(a)(ii) (without "cause"), Executive's Base Salary
                  shall be continued to be paid on a semi-monthly basis, but
                  shall terminate at the end of the six (6) month period
                  following such written notice of termination by the Company.
                  In lieu of such continued semi-monthly Base Salary, the
                  Company and Executive may agree to a lump-sum distribution to
                  Executive pursuant to such termination in a form, substance
                  and manner mutually acceptable to Company and Executive,
                  pursuant to a written Severance Agreement then mutually
                  negotiated between the Company and Executive in connection
                  with such termination.

      (b)   In the event of termination by reason of Executive's death,
            disability, termination without cause, or any Change in Control, as
            defined at Section 11:
<PAGE>
            (i)   Executive shall receive a pro rata portion (prorated through
                  the last day Base Salary is payable pursuant to clauses
                  (a)(ii), (a)(iii) and (a)(iv), respectively) of any bonus or
                  incentive payment (for the year in which death, disability or
                  termination occurred), to which he would have been entitled
                  had he remained continuously employed for the full fiscal year
                  in which death, disability or termination occurred and
                  continued to perform his duties in the same manner as they
                  were performed immediately prior to the death, disability or
                  termination;

            (ii)  The right to exercise any unexpired and non-vested stock
                  options previously granted Executive shall immediately vest
                  and accelerate; and

            (iii) Any and all payments owing to Executive arising from a
                  termination of this Agreement resulting from a permanent or
                  partial disability of Executive shall first be provided and
                  paid pursuant to the Company's existing disability policy, as
                  then in effect, but shall be further supplemented to the
                  extent provided by this Agreement but all such payments due
                  and owing to Executive arising from such permanent or partial
                  disability shall not be cumulative or aggregated.

8. CONFIDENTIAL INFORMATION.

      (a)   For purposes of this Section 8, the term "Confidential Information"
            means information which is not generally known and which is
            proprietary to Company, including: (i) trade secret information
            about Company and its services; and (ii) information relating to the
            business of Company as conducted at any time within the previous two
            (2) years or anticipated to be conducted by Company, and to any of
            its past, current or anticipated products, including, without
            limitation, information about Company's research, development,
            services, purchasing, accounting, engineering, marketing, selling,
            leasing or servicing. All information which Executive has a
            reasonable basis to consider Confidential Information or which is
            treated by Company as being Confidential Information shall be
            presumed to be Confidential Information, whethis originated by
            Executive, or by others, and without regard to the manner in which
            Executive obtains access to such information.

      (b)   Executive will not during the term of this Agreement and
<PAGE>
            following expiration or termination of this Agreement, use or
            disclose any Confidential Information to any person not employed by
            Company without the prior authorization of Company and will use
            reasonably prudent care to safeguard, protect and to prevent the
            unauthorized disclosure of, all of such Confidential Information.

9. INVENTIONS.

      (a)   For purposes of this Section 9, the term "Inventions" means
            discoveries, improvements and ideas (whethis or not in writing or
            reduced to practice) and works of authorship, whethis or not
            patentable or copyrightable: (1) which relate directly to the
            business of Company, or to Company's actual or demonstrably
            anticipated research or development; (2) which result from any work
            performed by Executive for Company; (3) for which equipment,
            supplies, facilities or trade secret information of Company is
            utilized; or (4) which were conceived or developed during the time
            Executive was obligated to perform the duties described in Section
            2.

      (b)   Executive agrees that all Inventions made, authored or conceived by
            Executive, either solely or jointly with others, during Executive's
            employment with Company (except as otherwise provided above), shall
            be the sole and exclusive property of Company. Upon termination of
            this Agreement, Executive shall turn over to a designated
            representative of Company all property in Executive's possession and
            custody belonging to Company. Executive shall not retain any copies
            or reproductions of correspondence, memoranda, reports, notebooks,
            drawings, photographs or other documents relating in any way to the
            affairs of Company which came into Executive's possession at any
            time during the term of this Agreement.

      Executive is hereby notified that this Agreement does not apply to any
invention for which no equipment, supplies, facility, or trade secret
information of Company was used and which was developed initially on the
Executive's own time and: (1) which does not relate: (a) directly to the
business of Company; or (b) to Company's actual or demonstrably anticipated
research or development; or (2) which does not result from any work performed by
Executive for the Company.

10. NON-COMPETITION. Executive agrees that for a period of eighteen (18) months
following termination of this Agreement for any reason (except in the case of
termination of this Agreement pursuant to Section 11 because of a Change
<PAGE>
in Control or any Business Combination or any termination of this Agreement
without cause), he will not directly or indirectly, alone or as a partner,
officer, director, or shareholder of any other firm or entity, engage in any
commercial activity in the United States in competition with any part of
Company's business: (a) that was under the Executive's management or supervision
during the last year of employment by Company; or (b) with respect to which
Executive has Confidential Information as defined in Section 8 of this
Agreement.

11. "BUSINESS COMBINATION" OR "CHANGE IN CONTROL".

      (a)   Change in Control. For purposes of this Section 11, a "Business
            Combination" or "Change in Control" with respect to, or concerning,
            the Company shall mean the following:

            (i)   the sale, lease, exchange or other transfer, directly or
                  indirectly of all or substantially all of the assets of the
                  Company (in one transaction or in a series of related
                  transactions) to a person or entity that is not controlled by
                  the Company;

            (ii)  the approval by the shareholders of the Company of any plan or
                  proposal for the liquidation or dissolution of the Company;

            (iii) a merger or consolidation to which the Company is a party if
                  the shareholders of the Company immediately prior to effective
                  date of such merger or consolidation have "beneficial
                  ownership" (as defined in Rule 13d-3 under the Securities
                  Exchange Act of 1934, as amended (the "Exchange Act")),
                  immediately following the effective date of such merger or
                  consolidation, of securities of the surviving corporation
                  representing: (A) more than 50%, but not more than 80%, of the
                  combined voting power of the surviving corporation's then
                  outstanding securities ordinarily having the right to vote at
                  elections of directors, unless such merger or consolidation
                  has been approved in advance by the Incumbent Directors; or
                  (B) 50% or less of the combined voting power of the surviving
                  corporation's then outstanding securities ordinarily having
                  the right to vote at elections of directors (regardless of any
                  approval by the Incumbent Directors);

            (iv)  any person becomes after the effective date of this
<PAGE>
                  Agreement the "beneficial owner" (as defined in Rule 13d-3 of
                  the Exchange Act), directly or indirectly, of: (A) 20% or
                  more, but not 50% or more, of the combined voting power of the
                  Company's outstanding securities ordinarily having the right
                  to vote at elections of directors, unless the transaction
                  resulting in such ownership has been approved in advance by
                  the Incumbent Directors; or (B) 50% or more of the combined
                  voting power of the Company's outstanding securities
                  ordinarily having the right to vote at elections of directors
                  (regardless of any approval by the Incumbent Directors);

            (v)   the Incumbent Directors cease, for any reason, to constitute
                  at least a majority of the Company's Board; or

            (vi)  a change in control of the Company of a nature that would be
                  required to be reported pursuant to Section 13 or 15(d) of the
                  Exchange Act, whethis or not the Company is then subject to
                  such reporting requirements.

      (b)   Incumbent Directors. For purposes of this Section 11, the term
            "Incumbent Directors" shall mean any individual who is a member of
            the Board of the Company on the effective date of this Agreement, as
            well as any individual who subsequently becomes a member of the
            Board whose election, or nomination for election by the Company's
            shareholders, was approved by a vote of at least a majority of the
            then Incumbent Directors (either by specific vote or by approval of
            the Proxy Statement of the Company in which such individual is named
            as a nominee for director without objection to such nomination).

      (c)   Executive's Option to Terminate This Agreement. It is expressly
            recognized by the parties that a Business Combination would
            necessarily result in material alteration or diminishment of
            Executive's position and responsibilities. Therefore, if, during the
            term of this Agreement, there shall occur, with or without the
            consent of Company, any Business Combination or Change in Control,
            Executive shall have an exclusive option to terminate this Agreement
            on twenty (20) calendar days' notice to the Company.

      (d)   Compensation Payable to Executive Upon Termination Following a
            Change in Control. It is expressly recognized that Executive's
<PAGE>
            position with Company and agreement to be bound by the terms of this
            Agreement represent a commitment in terms of Executive's personal
            and professional career which cannot be reduced to monetary terms,
            and thus, necessarily constitutes a forbearance of options now and
            in the future open to Executive in Company's areas of endeavor.
            Accordingly, in the event Executive elects to terminate this
            Agreement in connection with any Business Combination or Change in
            Control under this Section 11:

            (i) Executive shall be under no obligation whatever to seek other
            employment opportunities during any period between termination of
            this Agreement under this Section 11 and the expiration of
            Executive's then unexpired term of this Agreement as it existed at
            the time of termination, or twenty-four (24) months, whichever is
            longer, and Executive shall not be obligated to accept any other
            employment opportunity which may be offered to Executive during such
            period;

            (ii) During such unexpired term of this Agreement, or for six (6)
            months thereafter, whichever is longer, Executive shall continue to
            receive on a semimonthly basis, Executive's Base Salary then in
            effect upon the date of such notice to the Company hereunder;

            (iii) In lieu of the continued cash compensation provided in Section
            11(d)(ii) above, Executive may elect, in writing, to receive from
            the Company a lump sum cash settlement in an amount equal to 199% of
            Executive's then existing Base Salary for six (6) months (at the
            rate in effect immediately prior to such Business Combination);
            provided, however, Executive's election to receive a lump sum cash
            settlement from the Company, in lieu of the semi-monthly payments
            specified above, shall occur and be paid within 90 days of the
            termination of this Agreement arising from any such Business
            Combination or any Change in Control.

            (iv) Executive's termination of this Agreement by reason of a Change
            in Control described in this Section 11 and the receipt by Executive
            of any amounts pursuant to subsection 11(d), shall not preclude
            Executive' continued employment with Company, or the surviving
            entity in any Business Combination, on such terms as shall then be
            mutually negotiated between Company (or any such surviving entity)
            and Executive following such termination;
<PAGE>
            (v) The right to exercise all unexpired and non-vested stock options
            in favor of Executive shall immediately vest and accelerate;

            (vi) Executive shall be entitled to continue to participate in those
            benefit programs and perquisites provided by subsection 4(c) hereof,
            for six (6) months following termination, at the Company's expense;
            and

            (vii) Notwithstanding any other provisions of this Agreement, or any
            other agreement, contract or understanding heretofore, or hereafter,
            entered into between the Company and Executive, if any "payments"
            (including without limitation, any benefits or transfers of property
            or the acceleration of the vesting of any benefits) and the nature
            of compensation under any arrangement that is considered contingent
            on a change in control for purpose of Section 2800 of the Internal
            Revenue Code of 1986, as amended (the "Code"), togethis with any
            other payments that Executive has the right to receive from the
            Company, or any corporation that is a member of an "affiliated
            group" (as defined in Section 1504A of the Code without regard to
            Section 1504B of the Code), of which the Company is a member, would
            constitute a "parachute payment" (as defined in Section 2800 of the
            Code), the aggregate amount of such payments shall be reduced to
            equal the largest amount as would result in no portion of such
            payments being subject to the excise tax imposed by Section 4999 of
            the Code; provided however, Executive shall be entitled to designate
            and select among such payments that will be reduced, and/or
            eliminated, in order to comply with the forgoing provision of the
            Code.

12. NO ADEQUATE REMEDY. The parties declare that is impossible to measure in
money the damages which will accrue to either party by reason of a failure to
perform any of the obligations under this Agreement. Therefore, if either party
shall institute any action or proceeding to enforce the provisions hereof, such
person against whom such action or proceeding is brought hereby waives the claim
or defense that such party has an adequate remedy at law, and such person shall
not urge in any such action or proceeding the claim or defense that such party
has an adequate remedy at law.

13. MISCELLANEOUS.

      (a)   Successors and Assigns. This Agreement shall be binding upon and
            inure to the benefit of all successors and assigns of the
<PAGE>
            Company, whether by way of merger, consolidation, operation of law,
            assignment, purchase or other acquisition of substantially all of
            the assets or business of Company and shall only be assignable under
            the foregoing circumstances and shall be deemed to be materially
            breached by Company if any such successor or assign does not
            absolutely and unconditionally assume all of Company's obligations
            to Executive hereunder. Any such successor or assign shall be
            included in the term "Company" as used in this Agreement.

      (b)   Notices. All notices, requests and demands given to, or made,
            pursuant hereto shall, except as otherwise specified hisein, be in
            writing and be delivered or mailed to any such party at its address
            which:

            (i)   In the case of Company shall be:

                  TASER International, Incorporated
                  7339 East Evans Road
                  Scottsdale, Arizona 85260

                  With a copy to:

                  Thomas P. Palmer, Esq.
                  Tonkon Torp, LLP
                  1600 Pioneer Tower
                  888 SW Fifth Avenue
                  Portland, Oregon 97204

            (ii)  In the case of the Executive shall be:

                  Douglas E. Klint
                  165 Gideons Point Road
                  Tonka Bay, MN 55331

      Either party may, by notice hereunder, designate a change of address. Any
notice, if mailed properly addressed, postage prepaid, registered or certified
mail, shall be deemed dispatched on the registered date or that stamped on the
certified mail receipt, and shall be deemed received within the fifth business
day thereafter, or when it is actually received, whichever is sooner.

      (c)   Captions. The various headings or captions in this Agreement are for
            convenience only and shall not affect the meaning or interpretation
            of this Agreement.
<PAGE>
      (d)   Governing Law. The validity, construction and performance of this
            Agreement shall be governed by the laws of the State of Arizona. Any
            dispute involving or affecting this agreement, or the services to be
            performed shall be determined and resolved by binding arbitration in
            the County of Maricopa, State of Arizona, in accordance with the
            Commercial Arbitration Rules of the American Arbitration
            Association.

      (e)   Construction. Wherever possible, each provision of this Agreement
            shall be interpreted in such manner as to be effective and valid
            under applicable law, but if any provision of this Agreement shall
            be prohibited by or invalid under applicable law, such provision
            shall be ineffective only to the extent of such prohibition or
            invalidity without invalidating the remainder of such provision or
            the remaining provisions of this Agreement.

      (f)   Waivers. No failure on the part of either party to exercise, and no
            delay in exercising, any right or remedy hereunder shall operate as
            a waiver thereof, nor shall any single or partial exercise of any
            right or remedy hereunder preclude any other or further exercise
            thereof or the exercise of any right or remedy granted hereby or by
            any related document or by law.

      (g)   Modification. This Agreement may not be, and shall not be, modified
            or amended except by a written instrument signed by both parties
            hereto.

      (h)   No Conflicting Business. Executive agrees that he will not, during
            the term of this Agreement, transact business with the Company
            personally, or as an agent, owner, partner, shareholder of any other
            entity; provided, however, Executive may enter into any business
            transaction that is, in the opinion of the Company's Board of
            Directors, reasonable, prudent or beneficial to the Company, so long
            as any such business transaction is at arms-length as though between
            independent and prudent individuals and is ratified and approved by
            the designated members of the Company's Board of Directors.

      (i)   Entire Agreement. This Agreement constitutes the entire Agreement
            and understanding between the parties hereto in reference to all the
            matters herein agreed upon; provided, however, that this Agreement
            shall not deprive Executive of any other rights Executive may have
            now, or in the future,
<PAGE>
            pursuant to law or the provisions of Company benefit plans.

      (j)   Counterparts. This Agreement shall be executed in at least two
            counterparts, each of which shall constitute an original, but both
            of which, when taken together, will constitute one in the same
            instrument.

      (k)   Amendment. This Agreement may be modified only by written agreement
            executed by both parties hereto.

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

                        TASER INTERNATIONAL, INCORPORATED

                        /s/ Patrick W. Smith
                         -------------------------
                        Its: Chief Executive Officer
                         -------------------------

                        EXECUTIVE

                        /s/ Douglas E. Klint
                        --------------------------
                        Douglas E. KlintExhibit 4.1

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

                                    XOMA LTD.

                                       and

                          MELLON INVESTOR SERVICES LLC

                                 as Rights Agent

                          Shareholder Rights Agreement

                          Dated as of February 26, 2003

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

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

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

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

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

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

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

Section 6.        Transfer, Split Up, Combination and Exchange of Right
                      Certificates; Mutilated, Destroyed, Lost or Stolen
                      Right Certificates.....................................10

Section 7.        Exercise of Rights; Exercise Price; Expiration
                      Date of Rights.........................................11

Section 8.        Cancellation and Destruction of Right Certificates.........14

Section 9.        Reservation and Availability of Preference Shares..........14

Section 10.       Preference Share Record Date...............................15

Section 11.       Adjustment of Exercise Price, Number and Kind of Shares
                      or Number of Rights....................................16

Section 12.       Certificate of Adjusted Exercise Price or Number of
                      Shares.................................................25

Section 13.       Consolidation, Amalgamation, Merger or Sale or Transfer
                      of Assets or Earning Power.............................25

Section 14.       Fractional Rights and Fractional Shares....................28

Section 15.       Rights of Action...........................................29

Section 16.       Agreement of Right Holders.................................29

Section 17.       Holder of Rights Not Deemed a Shareholder..................30

Section 18.       Concerning the Rights Agent................................31

Section 19.       Merger or Consolidation or Change of Name of Rights
                      Agent..................................................31

                                      -i-
<PAGE>
                                                                            Page
                                                                            ----

Section 20.       Duties of Rights Agent.....................................32

Section 21.       Change of Rights Agent.....................................35

Section 22.       Issuance of New Right Certificates.........................36

Section 23.       Redemption and Termination.................................37

Section 24.       Exchange...................................................38

Section 25.       Notice of Certain Events...................................40

Section 26.       Notices....................................................40

Section 27.       Supplements and Amendments.................................41

Section 28.       Successors.................................................42

Section 29.       Determinations and Actions by the Board of Directors.......42

Section 30.       Benefits of This Agreement.................................43

Section 31.       Severability...............................................43

Section 32.       Governing Law..............................................43

Section 33.       Descriptive Headings.......................................44

Exhibit A     --      Form of Resolutions Regarding Preferences and Rights
                      of Series A Preference Shares

Exhibit B     --      Form of Right Certificate

Exhibit C     --      Deed of Covenant

                                      -ii-
<PAGE>

                          SHAREHOLDER RIGHTS AGREEMENT

     Agreement, dated as of February 26, 2003, between XOMA Ltd., a Bermuda
company (the "Company"), and Mellon Investor Services LLC (the "Rights Agent").

                               W I T N E S S E T H

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

     WHEREAS, on February 26, 2003, the Board of Directors of the Company
authorized and granted one Right (as such term is hereinafter defined) for each
outstanding Common Share (as such term is hereinafter defined) outstanding as of
the close of business on April 2, 2003 (the "Record Date"), and contemplated the
issuance of one Right for each Common Share of the Company issued between the
Record Date and the earlier of the Distribution Date or the Expiration Date (as
such terms are hereinafter defined), each Right initially representing the right
to purchase one one-thousandth of a Series A Preference Share of the Company
having rights, powers and preferences substantially identical to those set forth
in the form of the Resolutions Regarding Preferences and Rights of Series A
Preference Shares attached hereto as Exhibit A, upon the terms and subject to
the conditions hereinafter set forth (the "Rights");

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

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

          (a) "Acquiring Person" shall mean any Person (as such term is
     hereinafter defined) who or which, together with all Affiliates (as such
     term is hereinafter defined) and Associates (as such term is hereinafter
     defined) of such Person, shall be the Beneficial Owner (as such term is
     hereinafter defined) of 20% or more of the Common Shares then outstanding,
     but shall not include (i) the Company, (ii) any Subsidiary (as such term is
     hereinafter defined) of the Company, (iii) any employee benefit plan or
     compensation arrangement of the Company or any Subsidiary of the Company or
     (iv) any Person holding Common Shares organized, appointed or established
     by the Company or any Subsidiary of the Company for or pursuant to the
     terms of any such employee benefit plan or compensation arrangement (the
     Persons described in clauses (i) through (iv) above are referred to herein
     as "Exempt Persons").

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                                      -2-

          Notwithstanding the foregoing, 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 20% or
     more of the Common Shares then outstanding; provided, however, that if a
     Person shall become the Beneficial Owner of 20% or more of the Common
     Shares of the Company then outstanding by reason of share purchases by the
     Company and shall, after such share purchases by the Company, become the
     Beneficial Owner of any additional Common Shares of the Company, then such
     Person shall be deemed to be an "Acquiring Person."

          (b) "Adverse Person" shall mean any Person declared to be an Adverse
     Person by the Board of Directors of the Company upon a determination of the
     Board of Directors of the Company that the criteria set forth in Section
     11(a)(ii)(B) apply to such Person.

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

          (d) A Person shall be deemed the "Beneficial Owner" of, and shall be
     deemed to "beneficially own," any securities:

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

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

                    (A) the right to acquire (whether such right is exercisable
               immediately or only after the passage of time or upon the
               satisfaction of any conditions or both) pursuant to any
               agreement, arrangement or understanding (whether or not in
               writing) (other than customary agreements with and between
               underwriters and selling group members with respect to a bona
               fide public offering of securities) or upon the exercise of
               conversion rights, exchange rights, rights (other than the
               Rights), warrants or options, or otherwise; provided, however,
               that a Person

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                                      -3-

               shall not be deemed the "Beneficial Owner" of, or to
               "beneficially own," (1) securities tendered pursuant to a tender
               or exchange offer made by or on behalf of such Person or any of
               such Person's Affiliates or Associates until such tendered
               securities are accepted for purchase or exchange; (2) securities
               issuable upon exercise of Rights at any time prior to the
               occurrence of a Triggering Event; or (3) securities issuable upon
               exercise of Rights from and after the occurrence of a Triggering
               Event, which Rights were acquired by such Person or any of such
               Person's Affiliates or Associates prior to the Distribution Date
               or pursuant to Sections 3(a) or 11(i) hereof; or

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

                    (C) the right to dispose of or a "pecuniary interest" or an
               "indirect pecuniary interest" in (as determined pursuant to Rule
               16a-1(a)(2) of the Rules), in any event including pursuant to any
               agreement, arrangement or understanding (whether or not in
               writing) (other than customary arrangements with and between
               underwriters and selling group members with respect to a bona
               fide public offering of securities); or

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

     provided, however, that (1) no Person ordinarily engaged in business as an
     underwriter of securities shall be deemed the Beneficial Owner of any
     securities acquired through such Person's participation as an underwriter
     in good faith in a firm commitment un-

<PAGE>
                                      -4-

     derwriting pursuant to an underwriting agreement with the Company until the
     expiration of 40 days after the date of such acquisition and (2) no Person
     who is a director or an officer of the Company shall be deemed, solely as a
     result of his or her position as director or officer of the Company, the
     Beneficial Owner of any securities of the Company that are beneficially
     owned by any other director or officer of the Company.

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

          (f) "close of business" on any given date shall mean 5:00 P.M., San
     Francisco, California time, on such date; provided, however, that if such
     date is not a Business Day it shall mean 5:00 P.M., San Francisco,
     California time, on the next succeeding Business Day.

          (g) "Common Shares" shall mean the Common Shares, par value $0.0005
     per share, of the Company except that "Common Shares" when used with
     reference to any Person other than the Company shall mean the capital stock
     with the greatest voting power, or the equity securities or other equity
     interests having power to control or direct the management of such Person
     or, if such Person is a Subsidiary of another person, the Person which
     ultimately controls such first-mentioned Person and which has issued such
     capital stock, equity securities or equity interests.

          (h) "Common Stock" shall mean, when used with reference to any Person,
     the capital stock with the greatest voting power, or the equity securities
     or other equity interests having power to control or direct the management
     of such Person or, if such Person is a Subsidiary of another person, the
     Person which ultimately controls such first-mentioned Person and which has
     issued such capital stock, equity securities or equity interests.

          (i) "Continuing Director" shall mean (i) any member of the Board of
     Directors of the Company, while such Person is a member of the Board, who
     is not an Acquiring Person, an Adverse Person, or an Affiliate or Associate
     of an Acquiring Person or an Adverse Person, or a representative or nominee
     of an Acquiring Person or an Adverse Person or of any such Affiliate or
     Associate and was a member of the Board prior to the date hereof, and (ii)
     any Person who subsequently becomes a member of the Board of Directors of
     the Company who is not an Acquiring Person, an Adverse Person, or an
     Affiliate or Associate of an Acquiring Person or an Adverse Person, or a
     representative of an Acquiring Person or an Adverse Person or of any such
     Affiliate or Associate, if such Person's nomination for election or
     election to the Board of Directors of the Company is recommended or
     approved by a majority of the other Continuing Directors.

<PAGE>
                                      -5-

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

          (k) "Exempt Persons" shall have the meaning defined in the definition
     of Acquiring Person.

          (l) "Exercise Price" shall have the meaning as described in Section
     7(b) hereof.

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

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

          (o) "Person" shall mean an individual, a corporation, a company, a
     partnership, an association, a limited liability Company, a joint stock
     company, a trust, a business trust, a government or political subdivision,
     any unincorporated organization, or any other association or entity.

          (p) "Preference Shares" shall mean Series A Preference Shares, par
     value $0.05 per share, of the Company having the rights and preferences set
     forth in the form of the Resolutions Regarding Preferences and Rights of
     Series A Preference Shares attached hereto as Exhibit A.

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

          (r) "Record Date" shall mean the close of business on April [2], 2003.

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

          (t) "Section 11(a)(ii) Event" shall mean any event described in
     Section 11(a)(ii) hereof.

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

          (v) "Share Acquisition Date" shall mean the date of the first public
     announcement (which for purposes of this definition shall include, without
     limitation, a press release or a publicly available report or filing with
     the Securities and Exchange

<PAGE>
                                      -6-

     Commission or any other governmental agency) by the Company or an Acquiring
     Person that an Acquiring Person has become such.

          (w) "Subsidiary" shall mean, with respect to any Person, any other
     Person of which a majority of the voting power of the voting equity
     securities or voting interests is owned, directly or indirectly, by such
     Person, or which is otherwise controlled by such Person.

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

          (y) "United States" means the United States of America.

          (z) "$" means United States dollars.

     Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company, and the Rights Agent hereby
accepts such appointment. The Company may from time to time appoint such
co-Rights Agents (the "Co-Rights Agents") as it may deem necessary or desirable
upon ten (10) days' prior written notice to the Rights Agent. The Rights Agent
shall have no duty to supervise, and shall in no event be liable for, the acts
or omissions of any such Co-Rights Agent. In the event the Company appoints one
or more Co-Rights Agents, the respective duties of the Rights Agent and any
Co-Rights Agents shall be as the Company shall determine.

     Section 3. Issue of Right Certificates.

     (a) From the date hereof until the earliest of (i) the close of business on
the tenth Business Day after the Share Acquisition Date, (ii) the close of
business on the tenth Business Day (or such other Business Day, if any, as the
Board of Directors of the Company may determine in its sole discretion) after
the date of the commencement by any Person, other than an Exempt Person, of a
tender or exchange offer if, upon consummation thereof, such Person would be the
Beneficial Owner of 20% or more of the Common Shares then outstanding or (iii)
the determination by the Board of Directors of the Company, pursuant to the
criteria set forth in Section 11(a)(ii)(B) hereof, that a Person is an Adverse
Person (including any such date which is after the date of this Agreement and
prior to the issuance of the Rights) (the earliest of such dates being herein
referred to as the "Distribution Date"), (x) the Rights will be evidenced
(subject to the provisions of Section 3(b) hereof) by the certificates for the
Common Shares (including, without limitation, any certificates for shares of
common stock of the Company's predecessor in interest which represent Common
Shares) registered in the names of the holders of the Common Shares (which
certificates shall be deemed also to be certificates for Rights) and not by
separate certificates, and (y) the Rights will be transferable only in
connection with the transfer of the underlying Common Shares. As soon as
practica-

<PAGE>
                                      -7-

ble after the Company has notified the Rights Agent of the occurrence of the
Distribution Date and provided the Rights Agent with all necessary information
and materials, the Rights Agent will send, by first-class, insured, postage
prepaid mail, to each record holder of the 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, one or more certificates, in substantially the form of
Exhibit B hereto (the "Right Certificates"), evidencing one Right for each
Common Share so held. In the event that an adjustment in the number of Rights
per Common Share has been made pursuant to Section 11(o) hereof, the Company
shall make the necessary and appropriate rounding adjustments (in accordance
with Section 14(a) hereof) at the time of distribution of the Right
Certificates, so that Right Certificates representing only whole numbers of
Rights are distributed and cash is paid in lieu of any fractional Rights. As of
and after the close of business on the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.

     (b) With respect to certificates for the Common Shares issued prior to the
close of business on the Record Date (regardless of whether such certificates
bear a legend referencing a prior shareholder rights agreement of the Company or
its predecessor in interest), the Rights will be evidenced by such certificates
for the Common Shares on or until the Distribution Date (or the earlier
redemption, expiration or termination of the Rights), and the registered holders
of the Common Shares also shall be the registered holders of the associated
Rights. Until the Distribution Date (or the earlier redemption, expiration or
termination of the Rights), the transfer of any of the Common Shares outstanding
prior to the date of this Agreement shall also constitute the transfer of the
Rights associated with such Common Shares.

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

     This certificate also evidences and entitles the holder hereof to certain
     Rights as set forth in a Shareholder Rights Agreement between XOMA Ltd. and
     Mellon Investor Services LLC, as Rights Agent, dated as of February 26,
     2003, as may be amended from time to time (the "Rights Agreement"), the
     terms of which are hereby incorporated herein by reference and a copy of
     which is on file at the principal offices of XOMA Ltd. 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. XOMA Ltd. may redeem the Rights at a redemption price of
     $0.001 per Right, subject to adjustment, under the terms of the Rights
     Agreement. XOMA Ltd. will mail to the holder of this certificate a copy of
     the Rights Agreement, as in effect on the

<PAGE>
                                      -8-

     date of mailing, without charge promptly after receipt of a written request
     therefor. Under certain circumstances, Rights issued to or held by
     Acquiring Persons, Adverse Persons or any Affiliates or Associates thereof
     (as defined in the Rights Agreement), and any subsequent holder of such
     Rights, may become null and void.

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

     Section 4. Form of Right Certificates.

     (a) The Right Certificates (and the forms of election to purchase shares
and of assignment and of the certificate to be printed on the reverse thereof)
shall each be substantially in the form of Exhibit B hereto and may have such
marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate (but which do
not affect the duties, rights or obligations of the Rights Agent) and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law, rule or regulation or with any rule or
regulation of any stock exchange on which the Rights may from time to time be
listed, or to conform to customary usage. Subject to the provisions of Section
11 and Section 22 hereof, the Right Certificates, whenever distributed, shall be
dated as of the Record Date, shall show the date of countersignature, and on
their face shall entitle the holders thereof to purchase such number of one
one-thousandths of a Preference Share as shall be set forth therein at the price
set forth therein (the "Exercise Price"), but the number of such shares and the
Exercise Price shall be subject to adjustment as provided herein.

     (b) Any Right Certificate issued pursuant to Section 3(a) or Section 22
hereof that represents Rights beneficially owned by (i) an Acquiring Person, an
Adverse Person or any Associate or Affiliate of an Acquiring Person or an
Adverse Person, (ii) a transferee or nominee of an Acquiring Person or an
Adverse Person (or of any Associate or Affiliate of an Acquiring Person or an
Adverse Person) who becomes a transferee or nominee after the Acquiring Person
or Adverse Person becomes such, or (iii) a transferee of an Acquiring

<PAGE>
                                      -9-

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

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

     The Company shall give notice to the Rights Agent promptly after it becomes
aware of the existence and identity of any Acquiring Person or Adverse Person or
any Associate or Affiliate thereof and the Rights Agent shall have no obligation
under this paragraph (b) until it has received such notice. The failure to print
the foregoing legend on any such Right Certificate or any defect therein shall
not affect in any manner whatsoever the application or interpretation of the
provisions of Section 7(e) hereof. The Company shall instruct the Rights Agent
in writing of the Right Certificates which should be so legended.

     Section 5. Countersignature and Registration.

     (a) The Right Certificates shall be executed on behalf of the Company by
its Chairman of the Board or its President and by its Secretary either manually
or by facsimile signature, and shall have affixed thereto the Company's seal or
a facsimile thereof which shall be attested to by the Secretary or any Assistant
Secretary of the Company, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by an authorized signatory of the
Rights Agent, which need not be the same authorized signatory for all of the
Right Certificates, and shall not be valid for any purpose unless so
countersigned. In case any officer of the Company who shall have signed any of
the Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and

<PAGE>
                                      -10-

issuance and delivery by the Company, such Right Certificates, nevertheless, may
be countersigned by an authorized signatory of the Rights Agent, and issued and
delivered by the Company with the same force and effect as though the person who
signed such Right Certificates had not ceased to be such officer of the Company;
and any Right Certificates may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Right Certificate, shall be a
proper officer of the Company to sign such Right Certificate, although at the
date of the execution of this Rights Agreement any such person was not such an
officer.

     In case any authorized signatory of the Rights Agent who shall have
countersigned any of the Right Certificates shall cease to be so authorized
before delivery by the Company, such Right Certificates, nevertheless, may be
issued and delivered by the Company with the same force and effect as though the
person who countersigned such Right Certificates had not ceased to be so
authorized; and any Right Certificate may be countersigned on behalf of the
Rights Agent by any person who, at the actual date of the countersignature of
such Right Certificate, shall be properly authorized to countersign such Right
Certificate, although at the date of the execution of this Agreement any such
person was not so authorized.

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

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

     (a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14
hereof, at any time after the close of business on the Distribution Date, and at
or prior to the close of business on the Expiration Date, any Right Certificate
or Right Certificates 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 Preference Share (or
following a Triggering Event, preference shares, cash, property, debt
securities, common shares or any combination thereof) as the Right Certificate
or Right Certificates surrendered then entitled such holder to purchase and at
the same Exercise Price. Any registered holder desiring to transfer, split up,
combine or exchange any Right Certificate shall make such request in writing
delivered to the Rights Agent, and shall surrender the Right Certificate to be
transferred, split up, combined or exchanged, with the form of assignment and
certificate duly executed, along with a signature guarantee and such other and
further documentation as the Rights Agent may reasonably request, at the office
or offices of the

<PAGE>
                                      -11-

Rights Agent designated for such purpose. Neither the Rights Agent nor the
Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Right Certificate until the registered holder
shall have properly completed and signed the certificate contained in the form
of assignment on the reverse side of such Right Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company or
the Rights Agent shall reasonably request. Thereupon the Rights Agent shall,
subject to Section 4(b), Section 7(e), Section 14 and Section 20(k) hereof,
countersign and deliver to the Person entitled thereto a Right Certificate or
Right Certificates, as the case may be, as so requested. The Company may require
payment by the holder of a Right Certificate of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any transfer,
split up, combination or exchange of Right Certificates. The Rights Agent shall
have no duty or obligation under this Section unless and until it is reasonably
satisfied that all such taxes and/or charges have been paid.

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

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

     (a) Subject to Section 7(e) hereof, the registered holder of any Right
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to purchase
and the certificate on the reverse side thereof duly executed, along with a
signature guarantee and such other and further documentation as the Rights Agent
may reasonably request, to the Rights Agent at the office or offices of the
Rights Agent designated for such purpose, together with payment of the aggregate
Exercise Price for the total number of one one-thousandths of a Preference Share
(or Common Shares, other securities, cash or other assets, as the case may be)
as to which such surrendered Rights are then exercised, at or prior to the
earliest of (i) the close of business on December 31, 2012 (the "Final
Expiration Date"), (ii) the time at which the Rights are redeemed as provided in
Section 23 hereof or (iii) the time at which such Rights are exchanged as
provided in Section 24 hereof (the earliest date being herein referred to as the
"Expiration Date"). Except as set forth in Section 7(e) hereof and
notwithstanding any other provision of this Agreement, any Person

<PAGE>
                                      -12-

who prior to the Distribution Date becomes a record holder of Common Shares may
exercise all of the rights of a registered holder of a Right Certificate with
respect to the Rights associated with such Common Shares in accordance with the
provisions of this Agreement, as of the date such Person becomes a record holder
of Common Shares.

     (b) The Exercise Price for each one one-thousandth of a Preference Share
pursuant to the exercise of a Right shall initially be $30.00, shall be subject
to adjustment from time to time as provided in Section 11 and Section 13 hereof
and shall be payable in lawful money of the United States of America in
accordance with Section 7(c) below, provided that such Exercise Price shall
never be less than one one-thousandth of the par value of a Preference Share.

     (c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase and the certificate on the reverse side
thereof duly executed, along with a signature guarantee and such other and
further documentation as the Rights Agent may reasonably request, accompanied by
payment of the Exercise Price for the shares to be purchased and an amount equal
to any applicable transfer tax or governmental charge in cash, or by certified
check or bank draft payable to the order of the Company, the Rights Agent shall,
subject to Section 20(k) hereof, thereupon promptly (i) (A) procure that the
Company issues, and requisition from any transfer agent of Preference Shares (or
make available, if the Rights Agent is the transfer agent therefor) certificates
for, the number of one one-thousandths of a Preference Share to be purchased and
the Company hereby irrevocably authorizes its transfer agent to comply with all
such requests, or (B) if the Company shall have elected to deposit the total
number of Preference Shares issuable upon exercise of the Rights hereunder with
a depositary agent, requisition from the depositary agent depositary receipts
representing such number of one one-thousandths of a Preference Share as are to
be purchased (in which case certificates for the Preference Shares represented
by such receipts shall be deposited by the transfer agent with the depositary
agent) and the Company will direct the depositary agent to comply with such
request, (ii) when appropriate, requisition from the Company the amount of cash,
if any, to be paid in lieu of issuance of fractional shares in accordance with
Section 14 hereof, (iii) promptly after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Right Certificate, registered in such name or names as
may be designated by such holder and (iv) when appropriate, after receipt
promptly deliver such cash to or upon the order of the registered holder of such
Right Certificate. In the event that the Company is obligated to issue other
securities (including Common Shares) of the Company, pay cash or distribute
other property pursuant to Section 11(a) hereof, the Company will make all
arrangements necessary so that such other securities, cash or other property are
available for distribution by the Rights Agent, if and when necessary to comply
with this Agreement.

<PAGE>
                                      -13-

     (d) In case the registered holder of any Right Certificate shall exercise
less than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent and delivered to the registered holder of such Right Certificate or
to his duly authorized assigns, subject to the provisions of Section 6 and
Section 14 hereof.

     (e) Notwithstanding anything in this Agreement to the contrary, from and
after the first occurrence of a Section 11(a)(ii) Event, any Rights beneficially
owned by (i) an Acquiring Person, an Adverse Person or any Associate or
Affiliate of an Acquiring Person or an Adverse Person, (ii) a transferee of an
Acquiring Person or an Adverse Person (or of any Associate or Affiliate of an
Acquiring Person or an Adverse Person) who becomes a transferee after the
Acquiring Person or Adverse Person becomes such or (iii) a transferee of an
Acquiring Person or an Adverse Person (or of any Associate or Affiliate of an
Acquiring Person or an Adverse Person) who becomes a transferee prior to or
concurrently with the Acquiring Person or Adverse Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person or Adverse Person (or from the
Associate or Affiliate) to holders of equity interests in such Acquiring Person
or Adverse Person (or such Associate or Affiliate) or to any Person with whom
the Acquiring Person or Adverse Person has any continuing agreement, arrangement
or understanding regarding the transferred Rights or (B) a transfer which the
Board of Directors of the Company has determined is part of a plan, arrangement
or understanding which has as a primary purpose or effect the avoidance of this
Section 7(e), shall become null and void without any further action and no
holder of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise. The Company
shall notify the Rights Agent when this Section applies and shall use all
reasonable efforts to ensure that the provisions of this Section 7(e) and
Section 4(b) hereof are complied with, but neither the Company nor the Rights
Agent shall have any liability to any holder of Right Certificates or other
Person as a result of the Company's failure to make any determinations with
respect to an Acquiring Person or Adverse Person or any Affiliates or Associates
of an Acquiring Person or an Adverse Person or any transferee of any of them
hereunder.

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

<PAGE>
                                      -14-

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

     Section 9. Reservation and Availability of Preference Shares.

     (a) The Company covenants and agrees that it will cause to be reserved and
kept available out of its authorized and unissued Preference Shares, the number
of Preference Shares that will be sufficient to permit the exercise in full of
all outstanding and exercisable Rights (it being understood that any of the
foregoing shares may also be reserved for other purposes) or will take such
other steps as are appropriate to assure that the number of such shares (or
their equivalents) sufficient to permit the exercise in full of all outstanding
Rights will be available upon such exercise.

     (b) The Company shall use its best efforts to cause, from and after such
time as the Rights become exercisable, all Preference Shares issued or reserved
for issuance to be listed, upon official notice of issuance, upon the principal
national securities exchange, if any, upon which the Common Shares are listed
or, if the principal market for the Common Shares is not on any national
securities exchange, to be eligible for quotation on The Nasdaq Stock Market
("Nasdaq") or any successor thereto or other comparable quotation system.

     (c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the occurrence of a Section
11(a)(ii) Event as of which the consideration to be delivered by the Company
upon exercise of the Rights has been determined in accordance with Section
11(a)(iii) hereof, or as soon as required by law following the Distribution
Date, as the case may be, a registration statement under the U.S. Securities Act
of 1933, as amended (the "Securities Act"), with respect to the securities
purchasable upon exercise of the Rights on an appropriate form, (ii) cause such
registration statement to become effective as soon as practicable after such
filing and (iii) cause such registration statement to remain effective (with a
prospectus that at all times meets the requirements of the Securities Act) until
the earlier of (A) the date as of which the Rights are no longer exercisable for
such securities or (B) the Expiration Date. The Company will also take such
action as may be appropriate under, and which will ensure compliance with, the
laws of Bermuda, the federal securities of the United States or "blue sky" laws
of the various states of the

<PAGE>
                                      -15-

United States in connection with the exercisability of the Rights. The Company
may temporarily suspend, for a period of time not to exceed ninety (90) days
after the date determined in accordance with the provisions of the first
sentence of this Section 9(c), the exercisability of the Rights in order to
prepare and file such registration statement and permit it to become effective.
Upon such suspension, the Company shall issue a public announcement stating that
the exercisability of the Rights has been temporarily suspended, as well as a
public announcement at such time as the suspension is no longer in effect (with
prompt notice of such public announcement to the Rights Agent). Failure of the
Company to notify the Rights Agent of the suspension will not affect the
effectiveness of the suspension. Notwithstanding any such provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction unless the requisite qualification in such jurisdiction shall have
been obtained. Unless otherwise notified in writing by the Company, the Rights
Agent may assume that any Right exercised is permitted to be exercised under
applicable law and shall have no liability for acting in reliance upon such
assumption.

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

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

     Section 10. Preference Share Record Date. Each Person in whose name any
certificate for Preference Shares is issued upon the exercise of Rights shall be
entered in the share register in respect thereof on the date of such exercise
and thereafter shall for all purposes become the holder of record of the
Preference Shares represented thereby on, and such certificate shall be dated,
the date of such entry in the share register; provided, however, that if the
date of such surrender and payment is a date upon which the Preference Share
register

<PAGE>
                                      -16-

of the Company is closed, such Person shall become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preference Share register of the Company is open. Prior to the
exercise of the Right evidenced thereby, the holder of a Right Certificate shall
not be entitled to any rights of a shareholder of the Company with respect to
shares for which the Rights shall be exercisable, including, without limitation,
the right to vote, to receive dividends or other distributions or to exercise
any preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.

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

     (a) (i) In the event the Company shall at any time after the date of this
Agreement (A) declare a dividend or bonus issue on the Preference Shares payable
in Preference Shares, (B) subdivide the outstanding Preference Shares, (C)
combine or consolidate the outstanding Preference Shares into a smaller number
of shares or (D) issue any of its shares in a reclassification of the Preference
Shares (including any such reclassification in connection with a consolidation,
amalgamation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a) and Section
7(e) hereof, the Exercise Price in effect at the time of the record date for
such dividend or bonus issue or of the effective date of such subdivision,
combination, consolidations or reclassification, and the number and kind of
shares 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 which, if such Right had been exercised
immediately prior to such date and at a time when the Preference Share register
of the Company is open, he would have owned upon such exercise and been entitled
to receive by virtue of such dividend, subdivision, combination or
reclassification. If an event occurs which would require an adjustment under
both Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for
in this Section 11(a)(i) shall be in addition to, and shall be made prior to,
any adjustment required pursuant to Section 11(a)(ii) hereof.

     (ii) Subject to the provisions of Section 24, hereof, in the event

          (A) any Person, alone or together with its Affiliates and Associates,
     shall become an Acquiring Person, or

          (B) the Board of Directors of the Company, by majority vote of all
     Directors, shall declare any Person to be an Adverse Person, after (x) a
     determination that such Person, alone or together with its Affiliates and
     Associates, has become the Beneficial Owner of l0% or more of the
     outstanding Common Shares and (y) a deter-

<PAGE>
                                      -17-

     mination by the Board of Directors of the Company, after reasonable inquiry
     and investigation, including such consultation, if any, with such Persons
     as such directors shall deem appropriate, that (a) such Beneficial
     Ownership by such Person is intended to cause, is reasonably likely to
     cause or will cause the Company to repurchase the Common Shares
     beneficially owned by such Person or to cause pressure on the Company to
     take action or enter into a transaction or series of transactions which
     would provide such Person with short-term financial gain under
     circumstances where the Board of Directors of the Company determines that
     the best long-term interests of the Company and its shareholders, but for
     the actions and possible actions of such Person, would not be served by
     taking such action or entering into such transactions or series of
     transactions at that time or (b) such Beneficial Ownership is causing or
     reasonably likely to cause a material adverse impact (including, but not
     limited to, impairment of relationships with customers or impairment of the
     Company's ability to maintain its competitive position) on the business or
     prospects of the Company; provided, however, that the Board of Directors of
     the Company may not declare a Person to be an Adverse Person if, prior to
     the time that such Person acquired 10% or more of the Common Shares then
     outstanding, such Person provided to the Board of Directors of the Company
     in writing a statement of such Person's purpose and intentions in
     connection with the proposed acquisition of Common Shares, together with
     any other information reasonably requested of such Person by the Board of
     Directors of the Company, and the Board of Directors of the Company, based
     on such statement and reasonable inquiry and investigation, including such
     consultation, if any, with such Person as the Board of Directors of the
     Company shall deem appropriate, determines to notify and notifies such
     Person in writing that it will not declare such Person to be an Adverse
     Person; provided, further, that the Board of Directors of the Company may
     expressly condition in any manner a determination not to declare a Person
     an Adverse Person on such conditions as the Board of Directors of the
     Company may select, including without limitation, such Person's not
     acquiring more than a specified amount of shares and/or on such Person's
     not taking actions inconsistent with the purposes and intentions disclosed
     by such Person in the statement provided to the Board of Directors of the
     Company. No delay or failure by the Board of Directors of the Company to
     declare a Person to be an Adverse Person shall in any way waive or
     otherwise affect the power of the Board of Directors of the Company
     subsequently to declare a Person to be an Adverse Person. In the event that
     the Board of Directors of the Company should at any time determine, upon
     reasonable inquiry and investigation, including consultation with such
     Persons as the Board of Directors of the Company shall deem appropriate,
     that such Person has not met or complied with any condition specified by
     the Board of Directors of the Company, the Board of Directors of the
     Company may at any time thereafter declare such Person to be an Adverse
     Person pursuant to the provisions of this Section 11(a)(ii)(B),

<PAGE>
                                      -18-

then, and in each such case, promptly following any such occurrence, proper
provision shall be made so that each holder of a Right, except as provided in
Section 7(e) hereof, shall thereafter have a right to receive, upon exercise
thereof at the then current Exercise Price in accordance with the terms of this
Agreement, such number of Preference Shares as shall equal the result obtained
by (x) multiplying the then current Exercise Price by the then number of one
one-thousandths of a Preference Share for which such Right may be exercised
immediately prior to the first occurrence of a Section 11(a)(ii) Event and
dividing that product by (y) 50% of the Fair Market Value per one one-thousandth
of a Preference Share (determined pursuant to Section 11(d)) on the date of the
occurrence of any one of the events listed above in this Section 11(a)(ii).

     (iii) In the event that there shall not be sufficient authorized but
unissued Preference Shares to permit the exercise in full of the Rights in
accordance with the foregoing Section 11(a)(ii), the Company shall take all
action as may be necessary to authorize and reserve for issuance such number of
additional Preference Shares as may from time to time be required to be issued
upon the exercise in full of all Rights outstanding and, if necessary, shall use
its best efforts to obtain shareholder approval thereof. Notwithstanding the
foregoing provisions of this Section 11(a)(iii), in lieu of issuing Preference
Shares in accordance with Section 11(a)(ii) hereof, if a majority of the
Directors then in office determines that such action is necessary or appropriate
and is not contrary to the interests of the holders of the Rights, they may
elect to cause the Company to pay, and if sufficient Preference Shares cannot be
issued for such purpose in accordance with the provisions hereof, the Company
shall issue or pay upon the exercise of the Rights, cash, property, debt
securities, preference shares or common shares, or any combination thereof,
having an aggregate Fair Market Value equal to the Fair Market Value of the
Preference Shares which otherwise would have been issuable pursuant to Section
11(a)(ii). Any such election by a majority of the Directors of the Company must
be made and publicly announced within 30 days of the date on which any Section
11(a)(ii) Event first occurs following the Share Acquisition Date.

     (b) If the Company shall fix a record date for the issuance of rights,
options or warrants to all holders of Preference Shares entitling them (for a
period expiring within 45 calendar days after such record date) to subscribe for
or purchase Preference Shares (or securities having the same or more favorable
rights, privileges and preferences as or than the Preference Shares ("Preference
Share Equivalents")) or securities convertible into Preference Shares or
Preference Share Equivalents at a price per Preference Share or per share of
Preference Share Equivalents (or having a conversion price per share, if a
security convertible into Preference Shares or Preference Share Equivalents)
less than the Fair Market Value (as determined pursuant to Section 11(d) hereof)
per Preference Share on such record date, the Exercise Price to be in effect
after such record date shall be determined by multiplying the Exercise Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the number of Preference Shares outstanding on such record date,
plus the

<PAGE>
                                      -19-

number of Preference Shares which the aggregate offering price of the total
number of Preference Shares to be offered (or the aggregate initial conversion
price of the convertible securities so to be offered) would purchase at such
Fair Market Value and the denominator of which shall be the number of Preference
Shares outstanding on such record date, plus the number of additional Preference
Shares and Preference Share Equivalents to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible). In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be the Fair Market Value thereof determined in
accordance with Section 11(d) hereof. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
rights or warrants are not so issued, the Exercise Price shall be adjusted to be
the Exercise Price which would then be in effect if such record date had not
been fixed.

     (c) If the Company shall fix a record date for the making of a distribution
to all holders of Preference Shares (including any such distribution made in
connection with a consolidation, amalgamation or merger in which the Company is
the continuing or surviving corporation) of evidences of indebtedness, cash
(other than a regular periodic cash dividend out of the earnings or retained
earnings of the Company), assets (other than a dividend payable in or bonus
issue of Preference Shares, but including any dividend payable in or bonus issue
of shares other than Preference Shares) or convertible securities, subscription
rights or warrants (excluding those referred to in Section 11(b)), the Exercise
Price to be in effect after such record date shall be determined by multiplying
the Exercise Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the Fair Market Value (as determined
pursuant to Section 11(d) hereof) per one one-thousandth of a Preference Share
on such record date, less the Fair Market value (as determined pursuant to
Section 11(d) hereof) of the portion of the cash, assets or evidences of
indebtedness so to be distributed or of such convertible securities,
subscription rights or warrants applicable to one one-thousandth of a Preference
Share and the denominator of which shall be the Fair Market Value (as determined
pursuant to Section 11(d) hereof) per one one-thousandth of a Preference Share
on such record date. Such adjustments shall be made successively whenever such a
record date is fixed; and in the event that such distribution is not so made,
the Exercise Price shall again be adjusted to be the Exercise Price which would
be in effect if such record date had not been fixed.

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

          (i) In the case of a publicly traded share or other security, the Fair
     Market Value on any date shall be deemed to be the average of the daily
     closing prices per share of such share or per unit of such other security
     for the 30 consecutive Trading

<PAGE>
                                      -20-

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

          (ii) If a security is not publicly held or not so listed or traded,
     "Fair Market Value" shall mean the fair value per share or per other unit
     of such security, determined reasonably and with utmost good faith to the
     holders of the Rights by the Board

<PAGE>
                                      -21-

     of Directors of the Company, provided, however, that if at the time of such
     determination there is an Acquiring Person or an Adverse Person, the Fair
     Market Value of such security on such date shall be determined by a
     nationally recognized investment banking firm selected by the Board of
     Directors of the Company, which determination shall be described in a
     statement filed with the Rights Agent and shall be binding on the Rights
     Agent and the holders of the Rights; provided, however, that for the
     purposes of making any adjustment provided for by Section 11(a)(ii) hereof,
     the Fair Market Value of a Preference Share shall not be less than the
     product of the then Fair Market Value of a Common Share multiplied by the
     higher of the then Dividend Multiple or Vote Multiple (as both of such
     terms are defined in the form of Resolution of Preferences and Rights of
     Series A Preference Shares attached as Exhibit A hereto) applicable to the
     Preference Share and shall not exceed 105% of the product of the then Fair
     Market Value of a Common Share multiplied by the higher of the then
     Dividend Multiple or Vote Multiple applicable to the Preference Share.

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

     (e) Anything herein to the contrary notwithstanding, no adjustment in the
Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Exercise Price; provided, however,
that any adjustments which by reason of this Section 11(e) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the nearest
cent or to the nearest ten-thousandth of a Common Share or one-millionth of a
Preference Share, as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made no later
than the earlier of (i) three (3) years from the date of the transaction which
mandates such adjustment and (ii) the Expiration Date.

     (f) If, as a result of any provision of 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 Preference Shares, thereafter the number
of such other shares so receivable upon exercise of any Right shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preference Shares contained in
Section 11(a) through (o), inclusive, and the provisions of Sections

<PAGE>
                                      -22-

7, 9, 10, 13 and 14 hereof with respect to the Preference Shares shall apply on
like terms to any such other shares.

     (g) All Rights originally issued by the Company subsequent to any
adjustment made to the Exercise Price hereunder shall evidence the right to
purchase, at the adjusted Exercise Price, the number of one one-thousandths of a
Preference 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 Exercise Price as a result of the
calculations made in Section 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Exercise Price, that number of one one-thousandths of
a Preference Share (calculated to the nearest one-millionth) obtained by (i)
multiplying (x) the number of one one-thousandths of a Preference Share for
which a Right may be exercisable immediately prior to this adjustment by (y) the
Exercise Price in effect immediately prior to such adjustment of the Exercise
Price and (ii) dividing the product so obtained by the Exercise Price in effect
immediately after such adjustment of the Exercise Price.

     (i) The company may elect on or after the date of any adjustment of the
Exercise Price to adjust the number of Rights, in substitution for any
adjustment in the number of Preference Shares purchasable upon the exercise of a
Right. Each of the Rights outstanding after the adjustment in the number of
Rights shall be exercisable for the number of one one-thousandths of a
Preference 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
ten-thousandth) obtained by dividing the Exercise Price in effect immediately
prior to adjustment of the Exercise Price by the Exercise Price in effect
immediately after adjustment of the Exercise Price. The Company shall make a
public announcement (with prompt written notice thereof to the Rights Agent) of
its election to adjust the number of Rights, indicating the record date for the
adjustment, and, if known at the time, the amount of the adjustment to be made.
This record date may be the date on which the Exercise Price is adjusted or any
day thereafter, but, if the Right Certificates have been issued, shall be at
least ten (10) days later than the date of the public announcement. If Right
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(i), the Company shall, as promptly as practicable,
cause to be distributed to holders of record of Right Certificates on such
record date Right Certificates evidencing, subject to Section 14 hereof, the
additional Rights to which such holders shall be entitled as a result of such
adjustment, or, at the option of the Company, shall cause to be distributed to
such holders of record in substitution and replacement for the Right
Certificates held by such holders prior to the date of adjustment, and upon
surrender thereof,

<PAGE>
                                      -23-

if required by the Company, new Right Certificates evidencing all the Rights to
which such holders shall be entitled after such adjustment. Right Certificates
so to be distributed shall be issued, executed and countersigned in the manner
provided for herein (and may bear, at the option of the Company, the adjusted
Exercise Price) and shall be registered in the names of the holders of record of
Right Certificates on the record date specified in the public announcement.

     (j) Irrespective of any adjustment or change in the Exercise Price or the
number of Preference Shares issuable upon the exercise of the Rights, the Right
Certificates theretofore and thereafter issued may continue to express the
Exercise Price per share and the number of shares which were expressed in the
initial Right Certificates issued hereunder.

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

     (l) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Exercise Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any (i) consolidation or subdivision of the Preference Shares, (ii)
issuance wholly for cash of any Preference Shares at less than the Fair Market
Value, (iii) issuance wholly for cash of Preference Shares or securities which
by their terms are convertible into or exchangeable for Preference Shares, or
(iv) bonus issues, share dividends or issuance of rights, options or warrants
referred to hereinabove in this Section 11, hereafter made by the Company to
holders of its Preference Shares, shall not be taxable to such shareholders.

     (m) The Company covenants and agrees that, after the Distribution Date, it
will not, except as permitted by Sections 23, 24 and 27 hereof, take (nor will
it permit any of its Subsidiaries to take) any action if at any time such action
is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits afforded by the Rights.

<PAGE>
                                      -24-

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

     (o) In the event the Company shall at any time after the date of this
Agreement and prior to the Distribution Date (i) declare a dividend or bonus
issue on the outstanding Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise than by payment of dividends or bonus issues in
Common Shares) into a greater or lesser number of Common Shares, the number of
Rights associated with each Common Share shall be proportionately adjusted so
that the number of Rights thereafter associated with each Common Share following
any such event shall equal the result obtained by multiplying the number of
Rights associated with each Common Share immediately prior to such event by a
fraction, the numerator of which shall be the total number of Common Shares
outstanding immediately prior to the occurrence of any such event listed in
clause (i) or (ii) above and the denominator of which shall be the total number
of Common Shares outstanding immediately following the occurrence of such event
listed in clause (i) or (ii) above. The adjustments provided for in this Section
11(p) shall be made successively whenever such a dividend or bonus issue is
declared or paid or such a subdivision, combination or consolidation is
effected.

     (p) The failure by the Board of Directors of the Company to declare a
Person to be an Adverse Person following such Person becoming the Beneficial
Owner of 10% or more of the outstanding Common Shares shall not imply that such
Person is not an Adverse Person or limit the Board of Directors' right at any
time in the future to declare such Person to be an Adverse Person.

     (q) Notwithstanding anything in this Agreement to the contrary, prior to
the Distribution Date, the Company may, in lieu of making any adjustment to the
Exercise

<PAGE>
                                      -25-

Price, the number of Preference Shares eligible for purchase on exercise of each
Right or the number of Rights outstanding, which adjustment would otherwise be
required by Section 11(a)(i), 11(b), 11(c), 11(h) or 11(i), make such other
equitable adjustment or adjustments thereto as the Board of Directors of the
Company (whose determination shall be conclusive) deems appropriate in the
circumstances.

     Section 12. Certificate of Adjusted Exercise Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11, Section 13 or Section
23(d) hereof, the Company shall (a) promptly prepare a certificate setting forth
such adjustment and a brief statement of the facts and computations accounting
for such adjustment, (b) promptly file with the Rights Agent and with each
transfer agent for the Preference Shares and the Common Shares a copy of such
certificate and (c) mail a brief summary thereof to each holder of a Right
Certificate in accordance with Section 26 hereof. The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment
contained therein and shall not be deemed to have knowledge of any such
adjustment unless and until it shall have received such certificate.

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

     (a) In the event that, following the Share Acquisition Date, directly or
indirectly, (x) the Company shall under any applicable law consolidate with,
amalgamate with, merge with and into, or otherwise combine with any other Person
(other than a Subsidiary of the Company in a transaction which is not prohibited
by Section 11(n) hereof), and the Company shall not be the continuing or
surviving corporation of such consolidation, amalgamation, merger or
combination, (y) any Person under any applicable law (other than a Subsidiary of
the Company in a transaction which is not prohibited by Section 11(n) hereof)
shall consolidate or amalgamate with the Company, or merge with and into the
Company or otherwise combine with the Company and the Company shall be the
continuing or surviving corporation of such consolidation, amalgamation, merger
or combination and, in connection with such amalgamation, merger or combination,
all or part of the Common Shares shall be changed into or exchanged for stock or
other securities of any other Person or cash or any other property, or (z) the
Company shall sell, mortgage or otherwise transfer (or one or more of its
Subsidiaries shall sell, mortgage or otherwise transfer), in one transaction of
a series of related transactions, assets or earning power aggregating 50% or
more of the assets or earning power of the Company and its Subsidiaries (taken
as a whole) to any other Person or Persons (other than the Company or any
Subsidiary of the Company in one or more transactions, each of which is not
prohibited by Section 11(n) hereof), then, and in each such case, proper
provision shall be made so that: (i) each holder of a Right, except as provided
in Section 7(e) hereof, shall have the right to receive, upon the exercise
thereof at the then current Exercise Price in accordance with the terms of this
Agreement, such number of validly authorized and issued,

<PAGE>
                                      -26-

fully paid and non-assessable shares of freely tradeable Common Stock of the
Principal Party (as hereinafter defined in Section 13(b)), free and clear of
rights of call or first refusal, liens, encumbrances or other adverse claims, as
shall be equal to the result obtained by (1) multiplying the then current
Exercise Price by the number of one one-thousandths of a Preference Share for
which a Right is exercisable immediately prior to the first occurrence of a
Section 13 Event, and dividing that product by (2) 50% of the Fair Market Value
(determined pursuant to Section 11(d) hereof) per share of the Common Stock of
such Principal Party on the date of consummation of such consolidation,
amalgamation, merger, combination, sale or transfer; (ii) such Principal Party
shall thereafter be liable for, and shall assume, by virtue of such
consolidation, amalgamation, merger, combination, sale or transfer, all the
obligations and duties of the Company pursuant to this Agreement; (iii) the term
"Company" shall thereafter be deemed to refer to such Principal Party, it being
specifically intended that the provisions of Section 11 hereof shall apply to
such Principal Party; (iv) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of shares
of its Common Stock to permit exercise of all outstanding Rights in accordance
with this Section 13(a) and the making of payments in cash and/or other
securities in accordance with Section 11(a)(iii) hereof) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to its
shares of Common Stock thereafter deliverable upon the exercise of the Rights;
and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect
following the first occurrence of any Section 13 Event.

     (b) "Principal Party" shall mean

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

          (ii) in the case of any transaction described in clause (z) of the
     first sentence of Section 13(a), the Person that is the party receiving the
     greatest portion of the assets or earning power transferred pursuant to
     such transaction or transactions;

provided, however, that in any such case, (x) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding 12-month
period registered under Section 12 of the Exchange Act, and such Person is a
direct or indirect Subsidiary or Affiliate of another Person the Common Stock of
which is and has been so registered, "Principal Party" shall refer to such other
Person; (y) in case such Person is a direct or indirect Subsidiary or Affiliate
of more than one Person, the Common Stocks of two or more of which are and have
been so registered, "Principal Party" shall refer to whichever of such Persons
is the is-

<PAGE>
                                      -27-

suer of the Common Stock having the greatest aggregate market value of shares
outstanding; and (z) in case such Person is owned, directly or indirectly, by a
joint venture formed by two or more Persons that are not owned, directly or
indirectly, by the same Person, the rules set forth in (x) and (y) above shall
apply to each of the chains of ownership having an interest in such joint
venture as if such party were a "Subsidiary" of both or all of such joint
venturers and the Principal Parties in each such chain shall bear the
obligations set forth in this Section 13 in the same ratio as their direct or
indirect interests in such Person bear to the total of such interests.

     (c) The Company shall not consummate any Section 13 Event unless prior
thereto (x) the Principal Party shall have a sufficient number of authorized
shares of its Common Stock, which have not been issued or reserved for issuance,
to permit the exercise in full of the Rights in accordance with this Section 13,
and (y) the Company and each Principal Party and each other Person who may
become a Principal Party as a result of such consolidation, amalgamation,
merger, combination, sale or transfer shall have executed and delivered to the
Rights Agent a supplemental agreement providing for the terms set forth in
Section 13(a) and (b) and further providing that, as soon as practicable after
the date of any consolidation, amalgamation, merger, combination, sale or
transfer of assets mentioned in Section 13(a), the Principal Party at its own
expense will:

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

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

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

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

          (v) take all such other steps as are required under applicable laws in
     the United States and in other relevant jurisdictions to enable the
     exercise in full of the Rights in accordance with this Section 13.

<PAGE>
                                      -28-

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

     (d) Notwithstanding anything in this Agreement to the contrary, this
Section 13 shall not be applicable to a transaction described in subparagraphs
(x) and (y) of Section 13(a) if (i) such transaction is consummated with a
Person or Persons who acquired Common Shares pursuant to a tender offer or
exchange offer for all outstanding Common Shares, which complies with the
provisos of Section 11(a)(ii)(B) hereof (or a wholly owned Subsidiary of any
such Person, or Persons), (ii) the price per Common Share offered in such
transaction is not less than the price per Common Share paid to all holders of
Common Shares whose shares were purchased pursuant to such tender offer or
exchange offer, and (iii) the form of consideration being offered to the
remaining holders of Common Shares pursuant to such transaction is the same as
the form of consideration paid pursuant to such offer. Upon consummation of any
such transaction contemplated by this Section 13(d), all Rights hereunder shall
expire.

     (e) In no event shall the Rights Agent, except with respect to its duties
set forth in this Agreement, have any liability in respect of any such Principal
Party Transactions, including, without limitation, the propriety thereof. The
Rights Agent may rely and be fully protected in relying upon a certificate of
the Company stating that the provisions of this Section 13 have been fulfilled.
Notwithstanding anything in this Agreement to the contrary, the prior written
consent of the Rights Agent must be obtained in connection with any supplemental
agreement which alters the rights or duties of the Rights Agent.

     Section 14. Fractional Rights and Fractional Shares. (a) The Company shall
not be required to issue fractions of Rights, except prior to the Distribution
Date as provided in Section 11(o) hereof, or to distribute Right Certificates
which evidence fractional Rights. If the Company elects not to issue such
fractional Rights, the Company shall pay, in lieu of such fractional Rights, to
the registered holders of the Right Certificates with regard to which such
fractional Rights would otherwise be issuable, an amount in cash equal to the
same fraction of the Fair Market Value of a whole Right, as determined pursuant
to Section 11(d) hereof.

     (b) The Company shall not be required to issue fractions of Preference
Shares (other than fractions which are integral multiples of one one-thousandth
of a Preference Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preference Shares (other than fractions which are
integral multiples of one one-thousandth of a Preference Share). In lieu of
fractional Preference Shares that are not integral multiples of one
one-thousandth of a Preference Share, the Company may pay to the registered
holders of

<PAGE>
                                      -29-

Right Certificates at the time such Rights are exercised as herein provided an
amount in cash equal to the same fraction of the Fair Market Value of one
one-thousandth of a Preference Share. For purposes of this Section 14(b), the
Fair Market Value of one one-thousandth of a Preference Share shall be
determined pursuant to Section 11(d) hereof for the Trading Day immediately
prior to the date of such exercise. The Rights Agent shall have no duty or
obligation with respect to this Section 14 and Section 24(e) hereof unless and
until it has received specific instructions (and sufficient cash, if required)
from the Company with respect to its duties and obligations under such Sections.

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

     Section 15. Rights of Action. All rights of action in respect of this
Agreement, other than rights of action vested in the Rights Agent pursuant to
Sections 18 and 20 hereof, are vested in the respective registered holders of
the Right Certificates (or, prior to the Distribution Date, the registered
holders of the Common Shares); and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Common Shares), without
the consent of the Right Agent or of the holder of any other Right Certificate
(or, prior to the Distribution Date, of the Common Shares), may, on his own
behalf and for his own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Company to enforce, or otherwise act in
respect of, his right to exercise the Right evidenced by such Right Certificate
in the manner provided in such Right Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and shall be entitled to specific
performance of the obligations hereunder and injunctive relief against actual or
threatened violations of the obligations hereunder of any Person subject to this
Agreement. 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:

<PAGE>
                                      -30-

     (a) prior to the Distribution Date, each Right will be transferable only
simultaneously and together with the transfer of Common Shares;

     (b) after the Distribution Date, the Rights are transferable only on the
registry books of the Rights Agent if the corresponding Rights Certificates are
surrendered at the office or offices of the Rights Agent designated for such
purpose, duly endorsed or accompanied by a proper instrument of transfer and the
appropriate forms and certificates fully executed, along with a signature
guarantee and such other and further documentation as the Rights Agent may
reasonably request;

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

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

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

<PAGE>
                                      -31-

     Section 18. Concerning the Rights Agent.

     (a) The Company agrees to pay to the Rights Agent such compensation as
shall be agreed in writing from time to time by the Company and the Rights Agent
for all services rendered by it hereunder and, from time to time, on demand of
the Rights Agent, its reasonable expenses and counsel fees and disbursements and
other disbursements incurred in the negotiation, administration, execution and
amendment 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 and all loss, damage, claim, liability, or
expense, incurred without negligence, bad faith or willful misconduct (each as
may be determined by a final, non-appealable order, judgment, decree or ruling
of a court of competent jurisdiction) on the part of the Rights Agent, for any
action taken, suffered or omitted to be taken by the Rights Agent in connection
with the acceptance, performance and administration of this Agreement,
including, without limitation, the costs and expenses of defending against any
claim of liability arising therefrom, directly or indirectly. The provisions of
this Section 18 and Section 20 hereof shall survive the termination of this
Agreement and the exercise or expiration of the Rights and the resignation,
replacement or removal of the Rights Agent. Anything to the contrary
notwithstanding, in no event shall the Rights Agent be liable for special,
punitive, indirect, consequential or incidental loss or damage of any kind
whatsoever (including, but not limited to lost profits), even if the Rights
Agent has been advised of the likelihood of such loss or damage.

     (b) The Rights Agent shall be protected and shall incur no liability for or
in respect of any action taken, suffered or omitted by it in connection with its
administration of this Agreement in reliance upon any Right Certificate or
certificate for Common Shares, Preference Shares, or other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed and executed by
the proper Person or Persons. The Rights Agent shall not be deemed to have
knowledge of any event of which it was supposed to receive notice hereunder, and
the Rights Agent shall be fully protected and shall incur no liability for
failing to take any action in connection therewith, unless and until it has
received such notice in writing.

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

     (a) 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 shareholder services
business of the Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties

<PAGE>
                                      -32-

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 or in the name of the
successor Rights Agent; and in all such cases such Right Certificates shall have
the full force provided in the Right Certificates and in this Agreement.

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

     Section 20. Duties of Rights Agent. The Rights Agent undertakes only the
duties and obligations expressly imposed by this Agreement, and no implied
duties or obligations shall be read into this Agreement against the Rights
Agent, upon the following terms and conditions, by all of which the Company and
the holders of Right Certificates, by their acceptance thereof, shall be bound:

          (a) The Rights Agent may consult with legal counsel selected by it
     (who may be legal counsel for the Company), and the opinion or advice of
     such counsel shall be full and complete authorization and protection to the
     Rights Agent as to any action taken, suffered or omitted to be taken by it
     in accordance with such opinion or advice. The Company shall only be
     responsible for reasonable fees and expenses of outside counsel which has
     been engaged by the Rights Agent with the Company's prior written consent;
     provided, that Kelley Drye & Warren LLP may be engaged by the Rights Agent
     without prior written consent for so long as it has no conflict of interest
     with the Company, as determined by the Company in its reasonable
     discretion.

          (b) Whenever in the performance of its duties under this Agreement the
     Rights Agent shall deem it necessary or desirable that any fact or matter
     (including, without limitation, the identity of any Acquiring Person or
     Adverse Person and the determination of "Fair Market Value") be proved or
     established by the Company prior to taking or omitting to take or suffering
     any action hereunder, such fact or matter (unless other evidence in respect
     thereof shall be herein specifically prescribed) may be

<PAGE>
                                      -33-

     deemed to be conclusively proved and established by a certificate signed by
     a person believed by the Rights Agent to be the Chairman of the Board, a
     Vice Chairman of the Board, the President, a Vice President, the Treasurer,
     any Assistant Treasurer, or the Secretary of the Company and delivered to
     the Rights Agent. Any such certificate shall be full authorization and
     protection to the Rights Agent for any action taken, suffered or omitted to
     be taken by it under the provisions of this Agreement in reliance upon such
     certificate.

          (c) The Rights Agent shall be liable hereunder only for its own
     negligence, bad faith or willful misconduct (each as determined by a final,
     non-appealable order, judgment, decree or ruling of a court of competent
     jurisdiction). Any liability of the Rights Agent under this Agreement will
     be limited to the amount of fees paid by the Company to the Rights Agent
     hereunder.

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

          (e) The Rights Agent shall not have any liability for nor be under any
     responsibility in respect of the validity of this Agreement or the
     execution and delivery hereof (except the due execution hereof by the
     Rights Agent) or in respect of the validity or execution of any Right
     Certificate (except its countersignature thereof); nor shall it be
     responsible for any breach by the Company of any covenant or condition
     contained in this Agreement or in any Right Certificate; nor shall it be
     responsible for any change in the exercisability of the Rights (including
     the Rights becoming null and void pursuant to Section 7(e) hereof) or any
     adjustment required under the provisions of Sections 11, 13 or 23(c) hereof
     or responsible for the matter, 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 the Rights Agent's actual receipt of a certificate
     describing any such adjustment furnished in accordance with Section 12
     hereof), nor shall it be responsible for any determination by the Board of
     Directors of the Company of Fair Market Value of the Rights or Preference
     Shares pursuant to the provisions of Section 11(d) hereof; nor shall it by
     any act hereunder be deemed to make any representation or warranty as to
     the authorization or reservation of any Common Shares or Preference Shares
     to be issued pursuant to this Agreement or any Right Certificate or as to
     whether any Common Shares or Preference Shares will, when so issued, be
     validly authorized and issued, fully paid and non-assessable, nor shall the
     Rights Agent be responsible for the legality of the terms hereof in its
     capacity as an administrative agent.

<PAGE>
                                      -34-

          (f) The Company agrees that it will perform, execute, acknowledge and
     deliver or cause to be performed, executed, acknowledged and delivered all
     such further and other acts, instruments and assurance 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 and
     certificates delivered pursuant to any provision hereof from any person
     believed by the Rights Agent to the Chairman of the Board, any Vice
     Chairman of the Board, the President, a Vice President, the Secretary, or
     the Treasurer of the Company, and is authorized to apply to such officers
     for advice or instructions in connection with its duties, and it shall not
     be liable for any action taken or omitted to be taken or suffered to be
     taken by it in accordance with instructions of any such officer or for any
     delay in acting while waiting for those instructions. Any application by
     the Rights Agent for written instructions from the Company may, at the
     option of the Rights Agent, set forth in writing any action proposed to be
     taken or omitted by the Rights Agent under this Agreement and the date on
     or after which such action shall be taken or such omission shall be
     effective. The Rights Agent shall not be liable for any action taken by, or
     omission of, the Rights Agent in accordance with a proposal included in
     such application on or after the date specified in such application (which
     date shall not be less than five Business Days after the date any officer
     of the Company actually receives such application, unless any such officer
     shall have consented in writing to an earlier date) unless, prior to taking
     any such action (or the effective date in the case of an omission), the
     Rights Agent shall have received written instructions in response to such
     application specifying the action to be taken or omitted.

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

          (i) The Rights Agent may execute and exercise any of the rights or
     powers hereby vested in it or perform any duty hereunder either itself or
     by or through its attorneys or agents, and the Rights Agent shall not be
     answerable or accountable for any act, omis-

<PAGE>
                                      -35-

     sion, default, neglect or misconduct of any such attorneys or agents or for
     any loss to the Company or to the holders of the Rights resulting from any
     such act, omission, default, neglect or misconduct; provided reasonable
     care was exercised in the selection and continued employment thereof.

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

          (k) If, with respect to any Right Certificate surrendered to the
     Rights Agent for exercise or transfer, the certificate attached to the form
     of assignment or form of election to purchase, as the case may be, has
     either not been properly completed or indicates an affirmative response to
     clause (1) or clause (2) thereof, the Rights Agent shall not take any
     further action with respect to such requested exercise or transfer without
     first consulting with the Company. The Company shall give the Rights Agent
     prompt written instructions as to the action to be taken regarding the
     Rights Certificates involved. The Rights Agent shall be protected and shall
     not be liable for acting in accordance with such instructions.

          (l) In addition to the foregoing, the Rights Agent shall be protected
     and shall incur no liability for, or in respect of, any action taken or
     omitted by it in connection with its administration of this Agreement if
     such acts or omissions are in reliance upon (i) the proper execution of the
     certification concerning beneficial ownership appended to the form of
     assignment and the form of election to purchase attached hereto unless the
     Rights Agent shall have actual knowledge that, as executed, such
     certification is untrue, or (ii) the non-execution of such certification,
     including, without limitation, any refusal to honor any otherwise
     permissible assignment or election by reason of such non-execution.

          (m) The Company agrees to give the Rights Agent prompt written notice
     of any event known to it which would prohibit the exercise or transfer of
     the Right Certificates.

     Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company, and to each
transfer agent of the Common Shares and the Preference Shares known to the
Rights Agent, by registered or certified mail. The Company may remove the Rights
Agent or any successor Rights Agent (with or without cause) upon thirty (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
Preference 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

<PAGE>
                                      -36-

to the Rights Agent. If the Company shall fail to make such appointment within a
period of thirty (30) days after giving notice of such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right for inspection by the Company), then the
incumbent Rights Agent or the registered holder of any Right Certificate may
apply to any court of competent jurisdiction for the appointment of a new Rights
Agent. Any successor Rights Agent, whether appointed by the Company or by such a
court, shall agree to be bound by the terms hereof and shall be either (a) a
Person organized and doing business under the laws of the United States or of
any state of the United States, in good standing, which 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 $50,000,000 or (b) an Affiliate of such a Person. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Shares and the Preference Shares, and mail
a notice thereof in writing to the registered holders of the Rights
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.

     Section 22. Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, subject to Section 4 hereof, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors of
the Company to reflect any adjustment or change in the Exercise Price per share
and the number or kind or class of shares or other securities or property
purchasable under the Rights made in accordance with the provisions of this
Agreement. In addition, in connection with the issuance or sale of Common Shares
following the Distribution Date and prior to the redemption or expiration of the
Rights, the Company (a) shall, with respect to Common Shares so issued or sold
pursuant to the exercise of share options or under any employee plan or
arrangement, or upon the exercise, conversion or exchange of securities
hereafter issued by the Company, and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Right
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) no such Right Certificate
shall be issued if, and to the ex-

<PAGE>
                                      -37-

tent that, the Company shall be advised by counsel that such issuance would
create a significant risk of material adverse tax consequences to the Company or
the person to whom such Right Certificate would be issued, and (ii) no such
Right Certificate shall be issued if, and to the extent that, appropriate
adjustments shall otherwise have been made in lieu of the issuance thereof.

     Section 23. Redemption and Termination.

     (a) The Board of Directors of the Company may, at its option, redeem all
but not less than all of the then outstanding Rights at a redemption price of
$0.001 per Right, subject to adjustments as provided in Section 23(d) hereof
(such redemption price being hereinafter referred to as the "Redemption Price");
provided, however, if the Board of Directors of the Company authorizes
redemption of the Rights in either of the circumstances set forth in clauses (i)
and (ii) below, then there must be Continuing Directors then in office and such
authorization shall require the concurrence of a majority of such Continuing
Directors: (i) such authorization occurs on or after the time a person becomes
an Acquiring Person or an Adverse Person, or (ii) such authorization occurs on
or after the date of a change (resulting from a proxy or consent solicitation)
in a majority of the directors in office at the commencement of such
solicitation if any Person who is a participant in such solicitation has stated
(or, if upon the commencement of such solicitation, a majority of the continuing
Directors of the Company has determined in good faith) that such Person (or any
of its Affiliates or Associates) intends to take, or may consider taking, any
action which would result in such Person becoming an Acquiring Person or an
Adverse Person or which would cause the occurrence of a Triggering Event unless,
concurrent with such solicitation, such Person (or one or more of its Affiliates
or Associates) is making a cash tender offer pursuant to a Schedule 14D-1 (or
any successor form) filed with the U.S. Securities and Exchange Commission for
all outstanding Common Shares not beneficially owned by such Person (or by its
Affiliates or Associates). Notwithstanding anything contained in this Agreement
to the contrary, the Rights shall not be exercisable after the first occurrence
of a Section 11(a)(ii) Event until such time as the Company's right of
redemption hereunder has expired. The Rights may be redeemed only until the
earliest of (i) 5:00 p.m., New York City time, on the tenth Business Day after
the Share Acquisition Date, (ii) the declaration by the Board of Directors of
the Company that any Person is an Adverse Person, (iii) the occurrence of a
Section 13 Event, or (iv) the Final Expiration Date.

     (b) Immediately upon the action of the Board of Directors of the Company
ordering the redemption of the Rights and without any further action and without
any notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. Promptly after the action of the Board of Directors of the
Company ordering the redemption of the Rights, the Company shall give notice of
such redemption to the Rights Agent and notify the holders of the then
outstanding Rights of such redemption by either (i) mailing a notice to all such
holders, which notice will state the method by which the payment of the
Redemption Price will be made, or (ii) issuing a press release announcing the
manner of redemption of the Rights in ac-

<PAGE>
                                      -38-

cordance with this Agreement and mailing payment of the Redemption Price to all
such holders. In either case, such mailing shall be made to each holder's last
address as it appears upon the registry books of the Rights Agent or, prior to
the Distribution Date, on the register 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. Upon payment of the
Redemption Price, all outstanding Rights and Right Certificates shall be null
and void without any further action by the Company. Neither the Company nor any
of its Affiliates or Associates may redeem, acquire or purchase for value any
Rights at any time in any manner other than that specifically set forth in this
Section 23 or Section 24 hereof or in connection with the purchase of Common
Shares prior to the Distribution Date.

     (c) The Company may, at its option, pay the Redemption Price in cash,
Common Shares (based on the Fair Market Value of the Common Shares as of the
time of redemption) or any other form of consideration deemed appropriate by the
Board of Directors of the Company.

     (d) In the event the Company shall at any time after the date of this
Rights Agreement (i) pay any dividend or bonus issue on Common Shares in Common
Shares, (ii) subdivide the outstanding Common Shares into a greater number of
shares or (iii) combine or consolidate the outstanding Common Shares into a
smaller number of shares, then and in each such event the Redemption Price after
such event shall equal the Redemption Price immediately prior to such event
multiplied by a fraction, the numerator of which is the number of Common Shares
outstanding immediately prior to such event and the denominator of which is the
number of Common Shares outstanding immediately after such event; provided,
however, that in each case such adjustment to the Redemption Price shall be made
only if the amount of the Redemption Price shall be reduced or increased by
$0.001 per Right.

     Section 24. Exchange.

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

<PAGE>
                                      -39-

     (b) Immediately upon the action 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 notice
of any such exchange to the holders of such Rights and the Rights Agent in
accordance with Section 26 hereof; provided, however, that the failure to give,
or any defect in, such notice shall not affect the validity of such exchange.
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 7(e) hereof) held
by each holder of Rights.

     (c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute Preference Shares (or Preference Share Equivalents, as
such term is defined in Section 11(b) hereof) for Common Shares exchangeable for
Rights, at the initial rate of one one-thousandth of a Preference Share (or
Preference Share Equivalent) for each Common Share, as appropriately adjusted to
reflect adjustments in the voting rights of the Preference Shares pursuant to
the terms thereof, so that the fraction of a Preference 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 or
Preference Shares (or Preference Share Equivalents) authorized but unissued to
permit any exchange of Rights as contemplated in accordance with this Section
24, subject to applicable law, the Company shall take all such action as may be
necessary to authorize additional Common Shares or Preference Shares (or
Preference Share 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. If the
Company elects not to issue such fractional Common Shares, the Company shall
pay, in lieu of such fractional Common Shares, 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 Fair
Market Value of a whole Common Share. For the purposes of this paragraph (e),
the Fair 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.

<PAGE>
                                      -40-

     Section 25. Notice of Certain Events.

     (a) In case the Company shall propose, at any time after the Distribution
Date, (i) to pay any dividend payable in shares of any class to the holders of
Preference Shares or to make any other distribution to the holders of Preference
Shares (other than a regular periodic cash dividend out of earnings or retained
earnings of the Company), or (ii) to offer to the holders of Preference Shares
rights or warrants to subscribe for or to purchase any additional Preference
Shares or shares of any class or any other securities, rights or options, or
(iii) to effect any reclassification of its Preference Shares (other than a
reclassification involving only the subdivision of outstanding Preference
Shares), or (iv) to effect any consolidation, amalgamation, merger or other
combination into or with, or to effect any sale, mortgage or other transfer (or
to permit one or more of its Subsidiaries to effect any sale, mortgage or other
transfer), in one transaction or a series of related transactions, of 50% or
more of the assets or earning power of the Company and its Subsidiaries (taken
as a whole) to, any other Person (other than a Subsidiary of the Company in one
or more transactions each of which is not prohibited by Section 11(n) hereof),
or (v) to effect the liquidation, dissolution or winding up of the Company, or
(vi) to declare or pay any dividend or bonus issue 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 or
a bonus issue in Common Shares) then in each such case, the Company shall give
to each holder of a Right Certificate and to the Rights Agent, in accordance
with Section 26 hereof, a notice of such proposed action, which shall specify
the record date for the purposes of such share dividend, bonus issue,
distribution of rights or warrants, or the date on which such reclassification,
consolidation, amalgamation, merger, combination, 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 Preference 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 twenty (20) days prior to
the record date for determining holders of the Preference Shares for purposes of
such action, and in the case of any such other action, at least twenty (20) days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or Preference
Shares, whichever shall be the earlier.

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

     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 to or on the
Company

<PAGE>
                                      -41-

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:

                           XOMA Ltd.
                           2910 Seventh Street
                           Berkeley, California  94710

                           Attention:  General Counsel

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

                           Mellon Investor Services LLC
                           235 Montgomery Street, 23rd Floor
                           San Francisco, California  94104
                           Attention:  Joseph W. Thatcher, Jr.

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 shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed to such
holder at the address of such holder as shown on the registry books of the
Company.

     Section 27. Supplements and Amendments. Prior to the earlier of the
Distribution Date or the Shares Acquisition Date and subject to the other
provisions of this Section 27, the Company and the Rights Agent shall, if the
Company so directs, supplement or amend any provision of this Agreement as the
Company may deem necessary or desirable without the approval of any holders of
Rights or Common Shares. From and after the earlier of the Distribution Date or
the Shares Acquisition Date and subject to the other provisions of this Section
27, the Company and the Rights Agent shall, if the Company so directs,
supplement or amend this Agreement without the approval of any holder of Rights
in order (i) to cure any ambiguity, (ii) to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provisions herein, (iii) to shorten or lengthen any time period hereunder (which
shortening or lengthening, following the first occurrence of an event set forth
in clauses (i) and (ii) of the first proviso to Section 23(a) hereof, shall be
effective only if there are Continuing Directors and shall require the
concurrence of a majority of such Continuing Directors), or (iv) to change or
supplement the provisions hereof in any manner which the Company may deem
necessary or desirable and which shall not adversely affect the interests of the
holders of Rights (other than an Acquiring Person, an Adverse Person or any
Affiliate or Associate of an Acquiring Person or an Adverse Person); provided,
however, that this Agreement may not be supplemented or amended to lengthen,
pursuant to

<PAGE>
                                      -42-

clause (iii) of this sentence, (A) a time period relating to when the Rights may
be redeemed at such time as the Rights are not then redeemable or (B) any other
time period unless such lengthening is for the purpose of protecting, enhancing
or clarifying the rights of, and the benefits to, the holders of Rights (other
than an Acquiring Person, an Adverse Person or any Affiliate or Associate of an
Acquiring Person or Adverse Person). Upon the delivery of a certificate from an
appropriate officer of the Company which states that the proposed supplement or
amendment is in compliance with the terms of this Section 27, the Rights Agent
shall execute such supplement or amendment. Notwithstanding anything contained
in this Agreement to the contrary, no supplement or amendment shall be made on
or after the Distribution Date which changes the Redemption Price, the Final
Expiration Date, the Exercise Price or the number of one one-thousandths of a
Preference Share for which a Right is exercisable or which affects any right of
the Rights Agent hereunder. Prior to the earlier of the Distribution Date or the
Shares Acquisition Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Shares. Notwithstanding
any other provision hereof, the Rights Agent's consent must be obtained
regarding any amendment or supplement pursuant to this Section 27 which alters
the Rights Agent's rights, obligations or duties.

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

     Section 29. Determinations and Actions by the Board of Directors. For all
purposes of this Agreement, any calculation of the number of Common Shares
outstanding at any particular time, including for purposes of determining the
particular percentage of such outstanding Common Shares of which any Person is
the Beneficial Owner, shall be made in accordance with the last sentence of Rule
13d-3(d)(1)(i) of the Rules under the Exchange Act as in effect on the date
hereof. The Board of Directors of the Company shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board of Directors of the Company (with, where
specifically provided for herein, the concurrence of the Continuing Directors)
or to the Company, or as may be necessary or advisable in the administration of
this Agreement, including without limitation, the right and power to (i)
interpret the provisions of this Agreement and (ii) make all determinations
deemed necessary or advisable for the administration of this Agreement
(including a determination to redeem or not redeem the Rights, to declare that a
Person is an Adverse Person or to amend this Agreement). All such actions,
calculations, interpretations and determinations (including, for purposes of
clause (y) below, all omissions with respect to the foregoing) which are done or
made by the Board of Directors of

<PAGE>
                                      -43-

the Company (with, where specifically provided for herein, the concurrence of
the Continuing Directors) in good faith shall (x) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights and all
other parties, and (y) not subject any member of the Board of Directors of the
Company or the Continuing Directors to any liability to the holders of the
Rights or to any other person. The Rights Agent shall always be entitled to
assume that the Board of Directors of the Company acted in good faith and shall
be fully protected and incur no liability in reliance thereon.

     Section 30. Benefits of This Agreement.

     (a) The Company unilaterally and irrevocably declares and undertakes for
the benefit of the registered holders of the Rights that it will comply with,
perform and observe all of its obligations hereunder.

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

     (c) The Company shall execute a Deed of Covenant substantially in the form
of Exhibit C hereto.

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

     Section 32. Governing Law. This Agreement, each Right and each Right
Certificate issued hereunder shall be governed by and construed in accordance
with the laws of Bermuda; provided, however, that all provisions regarding the
rights, duties and obligations of the Rights Agent shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely within such State.

<PAGE>
                                      -44-

     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.

<PAGE>
                                      -45-

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

                                    The common seal of

                                    XOMA LTD.

                                    was affixed hereto in the presence of:

                                    ------------------------------------------
                                    Name:    Peter B. Davis
                                    Title:   Vice President, Finance and Chief
                                             Financial Officer

                                    MELLON INVESTOR SERVICES LLC,
                                        as Rights Agent

                                    By:
                                         -------------------------------------
                                           Name:
                                           Title:

<PAGE>

                                                                       Exhibit A

                        RESOLUTIONS REGARDING PREFERENCES
                    AND RIGHTS OF SERIES A PREFERENCE SHARES

     RESOLVED, that there is hereby created a series of preference shares of the
Company, which series shall have the following powers, preferences, and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, in addition to those set
forth in the memorandum of continuance and bye-laws of the Company:

     1. Designation. The series of preference shares established hereby shall be
designated the "Series A Preference Shares" (and shall be referred to herein as
the "Series A Preference Shares") and the authorized number of Series A
Preference Shares shall be 135,000 shares. Such number of shares may be
increased or decreased, from time to time, by resolution of the Board of
Directors of the Company; provided that no decrease shall reduce the number of
Series A Preference Shares to a number less than the total of the number of such
shares then outstanding plus the number of such shares issuable upon the
exercise of outstanding rights, options or warrants or upon the conversion of
outstanding securities issued by the Company.

     2. Dividends and Distributions.

     (A) (i) Subject to the rights of the holders of any shares of any series of
preference shares (or any similar shares) ranking prior and superior to the
Series A Preference Shares with respect to dividends, the holders of Series A
Preference Shares, in preference to the holders of Common Shares and of any
other junior shares, shall be entitled to receive, when, as and if declared by
the Board of Directors of the Company out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to herein as
a "Dividend Payment Date"), commencing on the first Dividend Payment Date after
the first issuance of a Series A Preference Share or fraction thereof, in an
amount per share (rounded to the nearest cent) equal to the greater of (a) U.S.
$1.00 or (b) subject to the provisions for adjustment hereinafter set forth,
1,000 times the aggregate per share amount of all cash dividends, plus 1,000
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend or bonus issue payable in Common
Shares or a subdivision of the outstanding Common Shares (by reclassification or
otherwise), declared on the Common Shares since the immediately preceding
Dividend Payment Date, or, with respect to the first Dividend Payment Date,
since the first issuance of any Series A Preference Share or fraction thereof.
The multiple of cash and non-cash dividends declared on the Common Shares to
which holders of the Series A Preference Shares are entitled, which shall be
1,000 initially but which shall be adjusted from time to time as hereinafter
provided, is hereinafter referred to as the "Dividend Multiple." In the event
the Company shall at any time after the date hereof (i)

                                      A-1
<PAGE>

declare or pay any dividend or bonus issue on Common Shares payable in Common
Shares, or (ii) effect a subdivision or combination or consolidation of the
outstanding Common Shares (by reclassification or otherwise than by payment of a
dividend or bonus issue in Common Shares) into a greater or lesser number of
Common Shares, then in each such case the Dividend Multiple thereafter
applicable to the determination of the amount of dividends which holders of
Series A Preference Shares shall be entitled to receive shall be the Dividend
Multiple applicable immediately prior to such event multiplied by a fraction,
the numerator of which is the number of Common Shares outstanding immediately
after such event and the denominator of which is the number of Common Shares
that were outstanding immediately prior to such event.

     (ii) Notwithstanding anything else contained in this paragraph (A), the
Company shall, out of funds legally available for that purpose, declare a
dividend or distribution on the Series A Preference Shares as provided in this
paragraph (A) immediately after it declares a dividend or distribution on the
Common Shares (other than a dividend or bonus issue payable in Common Shares);
provided that, in the event no dividend or distribution shall have been declared
on the Common Shares during the period between any Dividend Payment Date and the
next subsequent Dividend Payment Date, a dividend of U.S. $1.00 per Series A
Preference Share shall nevertheless be payable on such subsequent Dividend
Payment Date.

     (B) Dividends shall begin to accrue and be cumulative on outstanding Series
A Preference Shares from the Dividend Payment Date next preceding the date of
issue of such Series A Preference Shares, unless the date of issue of such
shares is prior to the record date for the first 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 Dividend Payment Date or is a date
after the record date for the determination of holders of Series A Preference
Shares entitled to receive a quarterly dividend and before such Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the Series A Preference Shares 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 of the Company may fix in
accordance with applicable law a record date for the determination of holders of
Series A Preference Shares entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than such
number of days prior to the date fixed for the payment thereof as may be allowed
by applicable law.

     3. Voting Rights. In addition to any other voting rights required by law,
the holders of Series A Preference Shares shall have the following voting
rights:

          (A) Subject to the provision for adjustment hereinafter set forth,
     each Series A Preference Share shall entitle the holder thereof to 1,000
     votes on all matters submitted to a vote of the shareholders of the
     Company. The number of votes which a holder of a Series A Preference Share
     is entitled to cast, which shall initially be 1,000

                                      A-2
<PAGE>

     but which may be adjusted from time to time as hereinafter provided, is
     hereinafter referred to as the "Vote Multiple." In the event the Company
     shall at any time after the date hereof (i) declare or pay any dividend or
     bonus issue on Common Shares payable in shares, or (ii) effect a
     subdivision or combination or consolidation of the outstanding Common
     Shares (by reclassification or otherwise than by payment of a dividend or
     bonus issue in Common Shares) into a greater or lesser number of Common
     Shares, then in each such case the Vote Multiple thereafter applicable to
     the determination of the number of votes per share to which holders of
     Series A Preference Shares shall be entitled shall be the Vote Multiple
     immediately prior to such event multiplied by a fraction, the numerator of
     which is the number of Common Shares outstanding immediately after such
     event and the denominator of which is the number of Common Shares that were
     outstanding immediately prior to such event.

          (B) Except as otherwise provided herein or by law, the holders of
     Series A Preference Shares and the holders of Common Shares, the holders of
     any other shares of the Company having general voting rights, shall vote
     together as one class on all matters submitted to a vote of shareholders of
     the Company.

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

     4. Certain Restrictions.

     (A) Whenever dividends or distributions payable on the Series A Preference
Shares as provided in Paragraph 2 are in arrears, thereafter and until all
accrued and unpaid dividends and distributions, whether or not declared, on
Series A Preference Shares outstanding shall have been paid in full, the Company
shall not:

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

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

          (iii) except as permitted in subparagraph 4(A)(iv) below, redeem,
     purchase or otherwise acquire for consideration any shares ranking on a
     parity (either as to dividends or upon liquidation, dissolution or winding
     up) with the Series A Preference

                                      A-3
<PAGE>

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

          (iv) purchase or otherwise acquire for consideration any Series A
     Preference Shares, or any shares ranking on a parity (either as to
     dividends or upon liquidation, dissolution or winding up) with the Series A
     Preference Shares, except in accordance with a purchase offer made in
     writing or by publication (as determined by the Board of Directors of the
     Company) to all holders of such shares upon such terms as the Board of
     Directors of the Company, after consideration of the respective annual
     dividend rates and other relative rights and preferences of the respective
     series and classes, shall determine in good faith will result in fair and
     equitable treatment among the respective series or classes; provided,
     however, that the foregoing restrictions shall not apply to the repurchase
     of Common Shares held by employees, officers, directors, or consultants of
     the Company (or their permitted transferees) that are subject to
     restrictive share purchase agreements under which the Company has the
     option or obligation to repurchase such shares upon the occurrence of
     certain events, such as termination of employment.

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

     5. Reacquired Shares. Any Series A Preference Shares purchased or otherwise
acquired by the Company in any manner whatsoever shall be canceled upon the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued preference shares and may be reissued as part of a new
series of preference shares created by resolution or resolutions of the Board of
Directors of the Company, subject to the conditions and restrictions on issuance
set forth herein.

     6. Liquidation, Dissolution or Winding Up. Upon any liquidation (voluntary
or otherwise), dissolution or winding up of the Company, no distributions shall
be made (x) to the holders of shares ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Preference Shares
unless, prior thereto, the holders of Series A Preference Shares shall have
received an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, plus an amount
equal to the greater of (1) U.S. $100.00 per share or (2) 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
Common Shares, or (y) to the holders of shares ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preference Shares, except distributions made ratably on the Series A Preference
Shares and all other such parity shares in proportion to the total amount to

                                      A-4
<PAGE>

which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Company shall at any time after the
date hereof (i) declare or pay any dividend or bonus issue on Common Shares
payable in Common Shares, or (ii) effect a subdivision or combination or
consolidation of the outstanding Common Shares (by reclassification or otherwise
than by payment of a dividend or bonus issue in Common Shares) into a greater or
lesser number of Common Shares, then in each such case the aggregate amount per
share to which holders of Series A Preference Shares were entitled immediately
prior to such event under clause (x) of the preceding sentence shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of Common Shares outstanding immediately after such event and the denominator of
which is the number of Common Shares that were outstanding immediately prior to
such event.

     7. Consolidation, Amalgamation, Merger, etc. In case the Company shall
enter into any consolidation, amalgamation, merger, combination or other
transaction in which the Common Shares are exchanged for or changed into other
shares or securities, cash and/or any other property, then in any such case the
Series A Preference Shares shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of shares,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each Common Share is changed or exchanged. In the
event the Company shall at any time after the date hereof (i) declare or pay any
dividend or bonus issue on Common Shares payable in Common Shares, or (ii)
effect a subdivision or combination or consolidation of the outstanding Common
Shares (by reclassification or otherwise than by payment of a dividend or bonus
issue in Common Shares) into a greater or lesser number of Common Shares, then
in each such case the amount set forth in the preceding sentence with respect to
the exchange or change of Series A Preference Shares shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
Common Shares outstanding immediately after such event and the denominator of
which is the number of Common Shares that were outstanding immediately prior to
such event.

     8. Redemption. The Series A Preference Shares shall not be redeemable.

     9. Ranking. Unless otherwise provided in the resolutions regarding
preferences and rights relating to a subsequently designated series of
preference shares of the Company, the Series A Preference Shares shall rank
junior to any other series of the Company's preference shares subsequently
issued, as to the payment of dividends and the distribution of assets on
liquidation, dissolution or winding up and shall rank senior to the Common
Shares.

     10. Amendment. The provisions of the memorandum of continuance or bye-laws
of the Company or of these resolutions shall not be amended, altered or repealed
in any manner which would materially alter or change the powers, preferences or
special rights of the Series A Preference Shares so as to effect them adversely
without the affirmative vote

                                      A-5
<PAGE>

of the holders of a majority or more of the outstanding Series A Preference
Shares (if any), voting separately as a class.

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

                                      A-6
<PAGE>

                                                                       Exhibit B

                           [Form of Right Certificate]

Certificate No. R-                                              ________ Rights

NOT EXERCISABLE AFTER DECEMBER 31, 2012 OR EARLIER IF NOTICE OF REDEMPTION IS
GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF XOMA LTD., AT
U.S.$0.001 PER RIGHT ON THE TERMS SET FORTH IN THE SHAREHOLDER RIGHTS AGREEMENT
BETWEEN XOMA LTD. AND MELLON INVESTOR SERVICES LLC, AS RIGHTS AGENT, DATED AS OF
FEBRUARY 26, 2003 (THE "RIGHTS AGREEMENT"). UNDER CERTAIN CIRCUMSTANCES, RIGHTS
BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN ADVERSE PERSON (AS SUCH TERMS
ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS
MAY BECOME NULL AND VOID.

                                Right Certificate

                                    XOMA LTD.

     This certifies that __________, or registered assigns, is the registered
owner of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Shareholder
Rights Agreement dated as of February 26, 2003 (the "Rights Agreement") between
XOMA LTD. (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 the close of business on
December 31, 2012 at the office or offices of the Rights Agent designated for
such purpose, or its successors as Rights Agent, one one-thousandth of a fully
paid, non-assessable Series A Preference Share (the "Preference Shares") of the
Company, at a purchase price of U.S. $ per one one-thousandth of a share (the
"Exercise Price"), upon presentation and surrender of this Right Certificate
with the Form of Election to Purchase and the related Certificate duly executed,
along with a signature guarantee and such other and further documentation as the
Rights Agent may reasonably request. The number of Rights evidenced by this
Right Certificate (and the number of shares which may be purchased upon exercise
thereof) set forth above, and the Exercise Price per share set forth above, are
the number and Exercise Price as of , based on the Preference Shares as
constituted at such date.

     Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined
in the Rights Agreement), if the Rights evidenced by this Right Certificate are
beneficially owned by (i) an Acquiring Person, an Adverse Person or an Affiliate
or Associate of any such Person (as such terms are defined in the Rights
Agreement), (ii) a transferee of any such Acquiring Person, Adverse Person,
Associate or Affiliate, or (iii) under certain circumstances specified in the
Rights Agreement, a transferee of a Person who, after such transfer, became an
Acquir-

                                      B-1
<PAGE>

ing Person or an Adverse Person, or an Affiliate or Associate of an Acquiring
Person or an Adverse Person, such Rights shall become null and void and no
holder hereof shall have any right with respect to such Rights from and after
the occurrence of such Section 11(a)(ii) Event.

     As provided in the Rights Agreement, the Exercise Price and the number of
Preference Shares or other securities which may be purchased upon the exercise
of the Rights evidenced by this Right Certificate are subject to modification
and adjustment upon the happening of certain events.

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

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

     Under certain circumstances, subject to the provisions of the Rights
Agreement, the Board of Directors of the Company at its option may exchange all
or any part of the Rights evidenced by this Certificate for the Company's common
shares or Preference Shares at an exchange ratio (subject to adjustment) of one
common share or one one-thousandth of a Preference Share per Right.

     Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Board of Directors of the Company at its
option at a redemption price of U.S.$0.001 per Right (payable in cash, common
shares or other consideration deemed appropriate by the Board of Directors of
the Company).

                                      B-2
<PAGE>

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

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

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

                                      B-3
<PAGE>

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

                                    The common seal of

                                    XOMA LTD.

                                    was affixed hereto in the presence of:

                                    ---------------------------------------
                                    Name:
                                    Title:

Countersigned:

MELLON INVESTOR SERVICES LLC,
  as Rights Agent

-------------------------------
Authorized Signatory

Date of Countersignature:

                                      B-4
<PAGE>

                   [Form of Reverse Side of Right Certificate]

                               FORM OF ASSIGNMENT

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

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

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

Dated:  ______________, ____

                                            ___________________________________
                                                         Signature

Signature Guaranteed:  ____________________

(Signatures must be guaranteed by a commercial bank or trust company or by a
member of the New York Stock Exchange.)

                                   CERTIFICATE

     The undersigned hereby certifies by checking the appropriate boxes that:

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

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

Dated:  ______________, ____                    _______________________________
                                                            Signature

(Signatures must be guaranteed by a commercial bank or trust company or by a
member of the New York Stock Exchange.)

<PAGE>

                                     NOTICE

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

<PAGE>

                          FORM OF ELECTION TO PURCHASE

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

To XOMA LTD.:

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

Please insert U.S. social security
or other taxpayer identifying number:___________________________________________

________________________________________________________________________________
                         (Please print name and address)

________________________________________________________________________________

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

Please insert U.S. social security
or other taxpayer identifying number:___________________________________________

________________________________________________________________________________
                         (Please print name and address)

Dated:  _____________, ____

                                               ______________________________
                                                         Signature

Signature Guaranteed:  __________________

(Signatures must be guaranteed by a commercial bank or trust company or by a
member of the New York Stock Exchange.)

<PAGE>

                                   CERTIFICATE

     The undersigned hereby certifies by checking the appropriate boxes that:

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

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

Dated:  ______________, ____                        ___________________________
                                                            Signature

(Signatures must be guaranteed by a commercial bank or trust company or by a
member of the New York Stock Exchange.)

                                     NOTICE

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

<PAGE>

                                                                       Exhibit C

                                DEED OF COVENANT

THIS DEED OF COVENANT is made as of [date] 2003.

     BY

(1) XOMA LIMITED (the "Company")

     IN FAVOUR OF

(2) THE RIGHTS HOLDERS (as defined below).

     WHEREAS

          (A) The Company has entered a Shareholder Rights Agreement with Mellon
     Investor Services LLC, (the "Rights Agent") dated as of [date] 2003 (the
     "Rights Agreement") pursuant to which the board of directors of the Company
     authorised and granted one Right for each common share of the Company (the
     "Rights"), with each Right initially representing the right to purchase one
     one-thousandth of a Series A Preference Share of the Company upon the terms
     and subject to the conditions as set out in the Rights Agreement.

          (B) The Company wishes to make arrangements for the enforcement of the
     Rights Agreement by the holders of Rights (the "Rights Holders").

THIS DEED OF COVENANT WITNESSES as follows:

1.   INTERPRETATION

         In this Deed unless the context otherwise requires:

1.1  references to the singular shall include the plural and vice versa and
     references to the masculine shall include the feminine and/or neuter and
     vice versa; and

1.2  references to persons shall include companies, partnerships, associations
     and bodies of persons, whether incorporated or unincorporated.

2.   DIRECT RIGHTS

2.1  The Company hereby covenants with and in favour of each Rights Holder to
     perform the Company's obligations under the Rights Agreement, and each
     Rights Holder shall

                                      C-1
<PAGE>

     have against the Company the right (the "Direct Rights") to enforce the
     provisions of the Rights Agreement in accordance with the terms of the
     Rights Agreement.

2.2  No further action shall be required on the part of the Company or any other
     person for the Rights Holders to enjoy the Direct Rights.

3.   DEPOSIT OF DEED

     This Deed shall be deposited with and held by [the Secretary of the Company
     from time to time at the Company's registered office] until the date on
     which all the obligations of the Company under or in respect of any Rights
     (including, without limitation, its obligations under this Deed) have been
     discharged in full. The Company hereby acknowledges the right of every
     Rights Holder to the production of this Deed.

4.   COVENANTS

     The Company hereby warrants, represents and covenants with and in favour of
     each Rights Holder that it has all corporate power, and has taken all
     necessary corporate or other steps, to enable it to execute, deliver and
     perform this Deed, and that this Deed constitutes a legal, valid and
     binding obligation enforceable in accordance with its terms subject to
     applicable bankruptcy, insolvency and similar laws affecting creditors'
     rights generally, and subject, as to enforceability, to general principles
     of equity (regardless of whether enforcement is sought in a proceeding in
     equity or at law).

5.   BENEFIT OF DEED

5.1  This Deed shall take effect as a deed poll for the benefit of the Rights
     Holders from time to time.

5.2  This Deed shall enure to the benefit of each Rights Holder and its (and any
     subsequent) successors and assigns, each of which shall be entitled
     severally to enforce this Deed against the Company.

5.3  The Company shall not be entitled to assign or transfer all or any of its
     rights, benefits and obligations hereunder.

6.   MISCELLANEOUS

6.1  If any of the clauses, conditions, covenants or restrictions of this Deed
     or any deed or document emanating from it shall be found to be void but
     would be valid if some part thereof were deleted or modified, then such
     clause, condition, covenant or restriction shall apply with such deletion
     or modification as may be necessary to make it valid and effective.

                                      C-2
<PAGE>

6.2  The headings in this Deed are inserted for convenience only and shall not
     affect the construction of this Deed.

7.   PROPER LAW AND JURISDICTION

     The terms and conditions of this Deed and the rights of the parties
     hereunder shall be governed by and construed in all respects in accordance
     with the laws of the Islands of Bermuda. The parties to this Deed hereby
     irrevocably agree that the courts of Bermuda shall have exclusive
     jurisdiction in respect of any dispute, suit, action, arbitration or
     proceedings ("Proceedings") which may arise out of or in connection with
     this Deed and waive any objection to Proceedings in the courts of Bermuda
     on the grounds of venue or on the basis that the Proceedings have been
     brought in an inconvenient forum.

                                      C-3
<PAGE>

IN WITNESS whereof this Deed of Covenant has been executed by the Company as a
deed and is intended to be and is hereby delivered as of the date first before
written.

EXECUTED as a deed            )
under the common seal of      )
XOMA LIMITED in the           )
presence of:                  )

                                      C-4

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