Document:

<PAGE>   1
                                                                     EXHIBIT 4.2

                                    AXT, INC.

                                       AND

                        COMPUTERSHARE TRUST COMPANY, INC.

                                  Rights Agent

                                RIGHTS AGREEMENT

                           Dated as of April 24, 2001

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                                TABLE OF CONTENTS

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

2.      Appointment of Rights Agent..........................................................5

3.      Issuance of Right Certificates.......................................................5

4.      Form of Right Certificates...........................................................7

5.      Countersignature and Registration....................................................8

6.      Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated,
        Destroyed, Lost or Stolen Right Certificates.........................................8

7.      Exercise of Rights; Purchase Price; Expiration Date of Rights........................9

8.      Cancellation and Destruction of Right Certificates..................................10

9.      Reservation and Availability of Shares of Preferred Stock...........................11

10.     Preferred Stock Record Date.........................................................12

11.     Adjustments to Number and Kind of Shares, Number of Rights or Purchase Price........12

12.     Certification of Adjustments........................................................21

13.     Consolidation, Merger or Sale or Transfer of Assets or Earning Power................22

14.     Fractional Rights and Fractional Shares.............................................25

15.     Rights of Action....................................................................26

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

17.     Right Certificate Holder Not Deemed a Stockholder...................................27

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

19.     Merger or Consolidation or Changed Name of Rights Agent.............................28

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

21.     Change of Rights Agent..............................................................31
</TABLE>

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                                TABLE OF CONTENTS
                                  (continued)

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22.     Issuance of New Right Certificates..................................................31

23.     Redemption..........................................................................32

24.     Exchange of Rights for Common Stock.................................................32

25.     Notice of Proposed Actions..........................................................34

26.     Notices.............................................................................35

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

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

29.     Benefits of this Rights Agreement...................................................36

30.     Governing Law.......................................................................36

31.     Counterparts........................................................................36

32.     Descriptive Headings................................................................36

33.     Severability........................................................................36
</TABLE>

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<PAGE>   4

                                RIGHTS AGREEMENT

      This Rights Agreement ("Rights Agreement"), is dated as of April 24, 2001,
between AXT, Inc., a Delaware corporation (the "Company"), and Computershare
Trust Company, Inc. (the "Rights Agent").

                              W I T N E S S E T H:

      WHEREAS, the Board of Directors of the Company on April 24, 2001 (i)
authorized the issuance and declared a dividend of one right ("Right") for each
share of the common stock of the Company ("Common Stock") outstanding as of the
Close of Business (as such term is hereinafter defined) on May 30, 2001 (the
"Record Date"), each Right representing the right to purchase one one-thousandth
of a share of Series B Preferred Stock of the Company having the rights, powers
and preferences set forth in the form of Certificate of Designation attached
hereto as Exhibit A upon the terms and subject to the conditions hereinafter set
forth, and (ii) further authorized the issuance of one Right with respect to
each share of Common Stock of the Company that shall become outstanding between
May 30, 2001 and the Distribution Date (as such term is hereinafter defined);

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

      1. Certain Definitions. For purposes of this Agreement the following terms
shall 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, without the prior approval of the Board of Directors, shall be the
Beneficial Owner (as such term is hereinafter defined) of fifteen percent (15%)
or more of the outstanding Common Stock; provided, however, that in no event
shall a Person who or which, together with all Affiliates and Associates of such
Person, is the Beneficial Owner of less than 15% of the Company's outstanding
shares of Common Stock, become an Acquiring Person solely as a result of a
reduction of the number of shares of outstanding Common Stock, including
repurchases of outstanding shares of Common Stock by the Company, which
reduction increases the percentage of outstanding shares of Common Stock
beneficially owned by such Person, provided, however, that if a Person shall
become the Beneficial Owner of 15% or more of the Company's outstanding shares
of Common Stock then outstanding solely by reason of a reduction of the number
of shares of outstanding Common Stock, and shall thereafter become the
Beneficial Owner of any additional shares of Common Stock of the Company, then
such Person shall be deemed to be an "Acquiring Person" unless upon the
consummation of the acquisition of such additional shares of Common Stock such
person does not own fifteen percent (15%) or more of the shares of Common Stock
then outstanding, and provided further, that an Acquiring Person shall not
include an Exempt Person (as such term is hereinafter defined). Notwithstanding
the foregoing, if the Board of Directors of the Company determines in good faith
that a Person who would otherwise be an "Acquiring Person," as defined pursuant
to the foregoing provisions of this paragraph (a), has become such inadvertently
(including, without limitation, because (i) such Person was unaware that it

<PAGE>   5

beneficially owned a percentage of Common Stock that would otherwise cause such
Person to be an "Acquiring Person" or (ii) such Person was aware of the extent
of its Beneficial Ownership but had no actual knowledge of the consequences of
such Beneficial Ownership under this Agreement) and without any intention of
changing or influencing control of the Company, and such Person divests as
promptly as practicable a sufficient number of shares of Common Stock so that
such Person would no longer be an "Acquiring Person," as defined pursuant to the
foregoing provisions of this paragraph (a), then such Person shall not be deemed
to be or to have become an "Acquiring Person" for any purposes of this
Agreement.

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

            (c) A Person shall be deemed the "Beneficial Owner" of any
securities

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

                  (ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has (A) the right to acquire (whether such
right is exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (other than customary agreements
with and between underwriters and selling group members with respect to a bona
fide public offering of securities), whether or not in writing, or upon the
exercise of conversion rights, exchange rights, rights (other than the Rights),
warrants or options, or otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own," securities tendered
pursuant to a tender or exchange offer made by such Person or any of such
Person's Affiliates or Associates until such tendered securities are accepted
for purchase or exchange; or (B) the right to vote or dispose of or has
"beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General
Rules and Regulations under the Exchange Act, or any comparable or successor
rule), including 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 securities if
the agreement, arrangement or understanding to vote such security (1) arises
solely from a revocable proxy or consent given in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations of the Exchange Act and (2) is not also then reportable by
such Person on Schedule 13D under the Exchange Act (or any comparable or
successor report); or

                  (iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting except as described in
the proviso to clause (B) of subparagraph (ii) of this Section 1(c) or disposing
of any securities of the Company; provided, however, that no Person who is an
officer, director or employee of an Exempt Person shall be deemed, solely by
reason of such Person's status or authority as such, to be the "Beneficial
Owner" of, to have "Beneficial Ownership" of or to "beneficially own" any
securities that are "beneficially owned"

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<PAGE>   6

(as defined in this Section 1(c)), including, without limitation, in a fiduciary
capacity, by an Exempt Person or by any other such officer, director or employee
of an Exempt Person.

      For all purposes of this Agreement, any calculation of the number of
shares of Common Stock outstanding at any particular time, including any
calculation for purposes of determining the particular percentage of such
outstanding shares of Common Stock of which any Person is the Beneficial Owner,
shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the
General Rules and Regulations under the Exchange Act as in effect on the date
hereof.

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

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

            (f) "Common Stock" when used with reference to the Company shall
mean the common stock of the Company. "Common Stock" when used with reference to
any Person other than the Company which shall be organized in corporate form
shall mean the capital stock or other equity security with the greatest per
share voting power of such Person or, if such Person is a Subsidiary of or is
controlled by another Person, the Person which ultimately controls such
first-mentioned Person. "Common Stock" when used with reference to any Person
other than the Company which shall not be organized in corporate form shall mean
units of beneficial interest which shall represent the right to participate in
profits, losses, deductions and credits of such Person and which shall be
entitled to exercise the greatest voting power per unit of such Person.

            (g) "Common Stock Equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof.

            (h) "Current Market Price" shall have the meaning set forth in
Section 11(d) hereof.

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

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

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

            (l) "Exchange Act" shall have the meaning set forth in Section 1(b)
hereof.

            (m) "Exempt Person" shall mean the Company or any Subsidiary of the
Company, including, without limitation, in its fiduciary capacity, any employee
benefit plan or employee stock plan of the Company or of any Subsidiary of the
Company, or any Person,

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organized, appointed, established or holding Common Stock for or pursuant to
the terms of any such plan or any Person funding other employee benefits for
employees of the Company or any Subsidiary of the Company.

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

            (o) "Flip-In Event" shall mean any event described in Section
11(a)(ii)(A), 11(a)(ii)(B) or 11(a)(ii)(C) hereof.

            (p) "Flip-In Trigger Date" shall have the meaning set forth in
Section 11(a)(iii) hereof.

            (q) "Flip-Over Event" shall mean any event described in clause (x),
(y) or (z) of Section 13(a) hereof.

            (r) "NASDAQ" shall have the meaning set forth in Section 9(b)
hereof.

            (s) "Person" shall mean any individual, firm, corporation,
partnership, trust or other entity.

            (t) "Preferred Stock" shall mean the Series B Preferred Stock, $.001
par value, of the Company having the rights, powers and preferences set forth in
Exhibit A hereto, and, to the extent that there is not a sufficient number of
shares of Series B Preferred Stock authorized to permit the full exercise of the
Rights, any other series of Preferred Stock, $.001 par value, of the Company
designated for such purpose containing terms substantially similar to the terms
of the Series B Preferred Stock.

            (u) "Principal Party" shall have the meaning set forth in Section
13(b) hereof.

            (v) "Purchase Price" shall have the meaning set forth in Section
4(a) hereof.

            (w) "Record Date" shall have the meaning set forth in the WHEREAS
clause at the beginning of the Agreement.

            (x) "Redemption Date" shall have the meaning set forth in Section
7(a) hereof.

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

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

            (aa) "Securities Act" shall mean the Securities Act of 1933, as
amended.

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

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earlier date as a majority of the directors shall become aware of the existence
of an Acquiring Person.

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

            (dd) "Subsidiary" of a Person shall mean any corporation or other
entity of which securities or other ownership interests having ordinary voting
power sufficient to elect a majority of the board of directors or other persons
performing similar functions are beneficially owned, directly or indirectly, by
such Person and any corporation or other entity that is otherwise controlled by
such Person.

            (ee) "Summary of Rights" shall have the meaning set forth in Section
3(b) hereof.

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

            (gg) "Triggering Event" shall mean any event described in Section
11(a)(ii)(A), 11(a)(ii)(B) or 11(a)(ii)(C) or Section 13 hereof.

            (hh) "Voting Power" shall mean the voting power of all securities of
the Company then outstanding and generally entitled to vote for the election of
directors of the Company.

      Any determination required by the definitions contained in this Section 1
shall be made by the Board of Directors of the Company in its good faith
judgment, which determination shall be binding on the Rights Agent and the
holders of the Rights.

      2. Appointment of Rights Agent. The Company hereby appoints the Rights
Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such Co-Rights Agents as it may deem
necessary or desirable. In the event the Company appoints one or more Co-Rights
Agents, the respective duties of the Rights Agents and any Co-Rights Agents
shall be as the Company shall determine.

      3. Issuance of Right Certificates.

            (a) Until the earlier of (i) the tenth day after the Stock
Acquisition Date (or, if the tenth day after the Stock Acquisition Date occurs
before the Record Date, the Close of Business on the Record Date) or (ii) the
tenth business day (or such later date as may be determined by action of the
Board of Directors prior to such time as any Person becomes an Acquiring Person)
after the date of the commencement by any Person (other than an Exempt Person)
of, or of the first public announcement of the intent of any Person (other than
an Exempt Person) to commence (which intention to commence remains in effect for
five (5) business days after such announcement), a tender or exchange offer upon
the successful consummation of which such Person, together with its Affiliates
and Associates, would be the Beneficial Owner of 15% or more of the outstanding
Common Stock (irrespective of whether any shares are actually

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purchased pursuant to any such offer) (including any such date which is after
the date of this Agreement and prior to the issuance of the Rights; the earlier
of such dates being herein referred to as the "Distribution Date"), (x) the
Rights will be evidenced (subject to the provisions of Section 3(c) hereof) by
the certificates for the Common Stock registered in the names of the holders of
the Common Stock and not by separate Right Certificates, and (y) each Right will
be transferable only in connection with the transfer of a share (subject to
adjustment as hereinafter provided) of Common Stock. As soon as practicable
after the Distribution Date, the Rights Agent will mail, at the expense of the
Company, by first-class, postage prepaid mail, to each record holder of the
Common Stock as of the Close of Business on the Distribution Date, as shown by
the records of the Company, to the address of such holder shown on such records,
a Right certificate in substantially the form of Exhibit B hereto ("Right
Certificate") evidencing one Right for each share of Common Stock so held. As of
and after the Distribution Date, the Rights will be evidenced solely by such
Right Certificates.

            (b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Preferred Stock,
substantially in the form attached hereto as Exhibit C ("Summary of Rights"), by
first-class, postage prepaid mail, to each record holder of Common Stock as of
the Close of Business on the Record Date, at the address of such holder shown on
the records of the Company.

            (c) Rights shall be issued in respect of all shares of Common Stock
that are issued (either as an original issuance or from the Company's treasury)
after the Record Date prior to the earlier of the Distribution Date or the
Expiration Date. With respect to certificates representing such shares of Common
Stock, the Rights will be evidenced by such certificates for Common Stock
registered in the names of the holders thereof together with the Summary of
Rights. Until the Distribution Date (or, if earlier, the Expiration Date), the
surrender for transfer of any certificate for Common Stock outstanding on the
Record Date (with or without a copy of the Summary of Rights attached thereto),
shall also constitute the surrender for transfer of the Rights associated with
the Common Stock represented thereby.

            (d) Certificates issued for Common Stock (including, without
limitation, certificates issued upon transfer or exchange of Common Stock) after
the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date shall have impressed on, printed on, written on or otherwise
affixed to them the following legend:

      This certificate also evidences and entitles the holder hereof to certain
      Rights as set forth in the Rights Agreement between AXT, Inc. and
      Computershare Trust Company, Inc., as Rights Agent, dated as of April 24,
      2001, as the same may be amended from time to time (the "Rights
      Agreement"), the terms of which are incorporated herein by reference and a
      copy of which is on file at the principal executive office of AXT, Inc.
      Under certain circumstances, as set forth in the Rights Agreement, such
      Rights will be evidenced by separate certificates and will no longer be
      evidenced by this certificate. AXT, Inc. will mail to the holder of this
      certificate a copy of the Rights Agreement without charge after receipt by
      it of a written request therefor. UNDER CERTAIN CIRCUMSTANCES, AS PROVIDED
      IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO, BENEFICIALLY OWNED BY OR
      TRANSFERRED TO ANY PERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS
      DEFINED IN THE RIGHTS AGREEMENT) OR

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      AN ASSOCIATE OR AFFILIATE (AS DEFINED IN THE RIGHTS AGREEMENT) THEREOF AND
      CERTAIN TRANSFEREES THEREOF WILL BE NULL AND VOID AND WILL NO LONGER BE
      TRANSFERABLE.

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

      Notwithstanding this paragraph (d), the omission of a legend shall not
affect the enforceability of any part of this Agreement or the rights of any
holder of the Rights.

      4.    Form of Right Certificates.

            (a) The Right Certificates (and the forms of election to purchase
shares and of assignment to be printed on the reverse thereof), when, as and if
issued, shall be substantially in the form set forth in Exhibit B hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Rights Agreement, or as may be required
to comply with any law or with any rule or regulation made pursuant thereto or
with any rule or regulation of any stock exchange on which the Rights may from
time to time be listed, or to conform to usage. Subject to the provisions of
Sections 11, 13 and 22 hereof, the Right Certificates evidencing the Rights
issued on the Record Date whenever such certificates are issued, shall be dated
as of the Record Date and the Right Certificates evidencing Rights to holders of
record of Common Stock issued after the Record Date shall be dated as of the
Record Date but shall also be dated to reflect the date of issuance of such
Right Certificate. On their face, Right Certificates shall entitle the holders
thereof to purchase, for each Right, one one-thousandth of a share of Preferred
Stock, or other securities or property as provided herein, as the same may from
time to time be adjusted as provided herein, at the price per one one-thousandth
of a share of Preferred Stock of $131.00, as the same may from time to time be
adjusted as provided herein (the "Purchase Price").

            (b) Notwithstanding any other provision of this Rights Agreement,
any Right Certificate that represents Rights that are or were at any time on or
after the earlier of the Stock Acquisition Date or the Distribution Date
beneficially owned by an Acquiring Person or any Affiliate or Associate thereof
(or any transferee of such Rights) shall have impressed on, printed on, written
on or otherwise affixed to it (if the Company or the Rights Agent has knowledge
that such Person is an Acquiring Person or an Associate or Affiliate thereof or
transferee of such Persons or a nominee of any of the foregoing) the following
legend:

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      The beneficial owner of the Rights represented by this Right Certificate
      is an Acquiring Person or an Affiliate or Associate (as defined in the
      Rights Agreement) of an Acquiring Person or a subsequent holder of such
      Right Certificates beneficially owned by such Persons. Accordingly, this
      Right Certificate and the Rights represented hereby are null and void and
      will no longer be transferable as provided in the Rights Agreement.

The provisions of Section 11(a)(ii) and Section 24 of this Rights Agreement
shall be operative whether or not the foregoing legend is contained on any such
Right Certificates.

      5.    Countersignature and Registration.

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

            (b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at one of its offices designated for such purposes, records
for registration and transfer of the Right Certificates issued hereunder. Such
records 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, the date of each of the Right Certificates and the
certificate numbers for each of the Right Certificates.

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

            (a) Subject to the provisions of Sections 7(e), 11(a)(ii) and 14
hereof, at any time after the Close of Business on the Distribution Date and at
or prior to the Close of Business on the Expiration Date, any Right Certificate
or Certificates (other than Right Certificates representing Rights that have
become void pursuant to Section 11(a)(ii) hereof or that have been exchanged
pursuant to Section 24 hereof) may be (i) transferred or (ii) split up, combined
or exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of shares of Preferred Stock or
other securities as the Right Certificate or Right Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer any
Right Certificate shall surrender the Right Certificate at the office of the

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<PAGE>   12

Rights Agent designated for such purposes with the form of assignment on the
reverse side thereof duly endorsed (or enclose with such Right Certificate a
written instrument of transfer in form satisfactory to the Company and the
Rights Agent), duly executed by the registered holder thereof or his attorney
duly authorized in writing, and with such signature guaranteed by a member of a
securities approved medallion program. Any registered holder desiring to split
up, combine or exchange any Right Certificate shall make such request in writing
delivered to the Rights Agent, and shall surrender the Right Certificate or
Right Certificates to be split up, combined or exchanged at the principal office
of the Rights Agent. Thereupon the Rights Agent shall, subject to Sections 4(b),
7(e), 11 and 14 hereof, countersign (by manual or facsimile signature) and
deliver to the person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.

            (b) Subject to the provisions of Section 11(a)(ii) hereof, upon
receipt by the Company and the Rights Agent of evidence reasonably satisfactory
to them of the loss, theft, destruction or mutilation of a Right Certificate,
and, in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to them, and, if requested by the Company, reimbursement to the
Company of all reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Right Certificate if mutilated, the Company
will execute and deliver a new Right Certificate of like tenor to the Rights
Agent for delivery to the registered owner in lieu of the Right Certificate so
lost, stolen, destroyed or mutilated.

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

            (a) Subject to Section 11(a)(ii) hereof, the Rights shall become
exercisable, and may be exercised to purchase Preferred Stock, except as
otherwise provided herein, in whole or in part at any time after the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase on the reverse side thereof duly executed (with such
signature duly guaranteed), to the Rights Agent at Computershare Trust Company,
Inc., 12039 West Alameda, Suite Z-2, Lakewood, Colorado 80228, together with
payment of the Purchase Price with respect to each Right exercised, subject to
adjustment as hereinafter provided, at or prior to the Close of Business on the
earlier of (i) April 24, 2011 (the "Final Expiration Date"), (ii) the time at
which the Rights are redeemed as provided in Section 23 hereof (such date being
herein referred to as the "Redemption Date") or (iii) the time at which all such
Rights are exchanged as provided in Section 24 hereof (the earliest of (i), (ii)
and (iii) being herein referred to as the "Expiration Date").

            (b) The Purchase Price and the number of shares of Preferred Stock
or other securities or consideration to be acquired upon exercise of a Right
shall be subject to adjustment from time to time as provided in Sections 11 and
13 hereof. The Purchase Price shall be payable in lawful money of the United
States of America, in accordance with Section 7(c) hereof.

            (c) Except as provided in Section 11(a)(ii) hereof, upon receipt of
a Right Certificate with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price (as such amount may be reduced
pursuant to Section 11(a)(iii) hereof) or so much

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<PAGE>   13

thereof as is necessary for the shares to be purchased and an amount equal to
any applicable transfer tax, by cash, certified check or official bank check
payable to the order of the Company or the Rights Agent, the Rights Agent shall,
subject to Section 20(j), thereupon promptly (i) requisition from any transfer
agent of the Preferred Stock (or make available if the Rights Agent is the
transfer agent) certificates for the number of shares of Preferred Stock so
elected to be purchased and the Company will comply and hereby authorizes and
directs such transfer agent to comply with all such requests, (ii) requisition
from the Company the amount of cash to be paid in lieu of issuance of fractional
shares in accordance with Section 14(b) hereof, and (iii) promptly after receipt
of such Preferred Stock certificates 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, when appropriate, after
receipt promptly deliver such cash to or upon the order of the registered holder
of such Right Certificate. In the event of a purchase of securities, other than
Preferred Stock, pursuant to Section 11(a) or Section 13 hereof, the Rights
Agent shall promptly take the appropriate actions corresponding to the foregoing
clauses (i) through (iii). In the event that the Company is obligated to issue
other securities of the Company, pay cash and/or distribute other property
pursuant to Section 11(a) hereof, the Company will make all arrangements
necessary so that such other securities, cash and/or other property are
available for distribution by the Rights Agent, if and when appropriate.

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

            (e) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate 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.

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

                                       10
<PAGE>   14

      9.    Reservation and Availability of Shares of Preferred Stock.

            (a) The Company covenants and agrees that at all times it will cause
to be reserved and kept available, out of and to the extent of its authorized
and unissued shares of Preferred Stock not reserved for another purpose (and,
following the occurrence of a Triggering Event, other securities) or held in its
treasury, the number of shares of Preferred Stock (and, following the occurrence
of a Triggering Event, other securities) that, as provided in this Agreement,
including Section 11(a)(iii) hereof, will be sufficient to permit the exercise
in full of all outstanding Rights, provided, however, that the Company shall not
be required to reserve and keep available shares of Preferred Stock or other
securities sufficient to permit the exercise in full of all outstanding Rights
pursuant to the adjustments set forth in Section 11(a)(ii), Section 11(a)(iii)
or Section 13 hereof unless, and only to the extent that, the Rights become
exercisable pursuant to such adjustments.

            (b) The Company shall (i) use its best efforts to cause, from and
after such time as the Rights become exercisable, the Rights and all shares of
Preferred Stock (and following the occurrence of a Triggering Event, other
securities) issued or reserved for issuance upon exercise thereof to be reported
by the National Association of Securities Dealers, Inc. Automated Quotations
System ("NASDAQ"), or such other system then in use, and if the Preferred Stock
shall become listed on any national securities exchange, to cause, from and
after such time as the Rights become exercisable, the Rights and all shares of
Preferred Stock (and, following the occurrence of a Triggering Event, other
securities) issued or reserved for issuance upon exercise thereof to be listed
on such exchange upon official notice of issuance upon such exercise and (ii) if
then necessary, to permit the offer and issuance of such shares of Preferred
Stock (and, following the occurrence of a Triggering Event, other securities),
register and qualify such share of Preferred Stock (and, following the
occurrence of a Triggering Event, other securities) under the Securities Act and
any applicable state securities or "blue sky" laws (to the extent exemptions
therefrom are not available), cause such registration statement and
qualifications to become effective as soon as possible after such filing and
keep such registration and qualifications effective until the Expiration Date of
the Rights. The Company may temporarily suspend, for a period of time not to
exceed ninety (90) days, the exercisability of the Rights in order to prepare
and file a registration statement under the Securities Act and permit it to
become effective. Upon any 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. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction unless the
requisite qualification in such jurisdiction shall have been obtained and until
a registration statement under the Securities Act (if required) shall have been
declared effective.

            (c) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Preferred Stock (and
following the occurrence of a Triggering Event, other securities) delivered upon
exercise of Rights shall, at the time of delivery of the certificates for such
shares (subject to payment of the Purchase Price in respect thereof), be duly
and validly authorized and issued and fully paid and nonassessable shares in
accordance with applicable law.

                                       11
<PAGE>   15

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

      10. Preferred Stock Record Date. Each Person in whose name any certificate
for shares of Preferred Stock (or other securities, as the case may be) is
issued upon the exercise of Rights shall for all purposes be deemed to have
become the holder of record of the shares of Preferred Stock (or other
securities, as the case may be) represented thereby on, and such certificate
shall be dated, the date upon which the Right Certificate evidencing such Rights
was duly surrendered and payment of the Purchase Price (and any applicable
transfer taxes) was made. Prior to the exercise of the Rights evidenced thereby,
the holder of a Right Certificate, as such, shall not be entitled to any rights
of a stockholder of the Company with respect to the 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.

      11. Adjustments to Number and Kind of Shares, Number of Rights or Purchase
Price. The number and kind of shares subject to purchase upon the exercise of
each Right, the number of Rights outstanding and the Purchase Price 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 Rights Agreement (A) declare or pay any dividend on Preferred Stock payable
in shares of Preferred Stock, (B) subdivide or split the outstanding shares of
Preferred Stock into a greater number of shares, (C) combine or consolidate the
outstanding shares of Preferred Stock into a smaller number of shares or effect
a reverse split of the outstanding shares of Preferred Stock, or (D) issue any
shares of its capital stock in a reclassification of the Preferred Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a), the Purchase Price in effect at the
time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification, and the number and kind of shares
of Preferred Stock or capital stock, as the case may be, issuable on such date,
shall be proportionately adjusted so that the holder of any Right exercised
after such time shall be entitled to receive, upon payment of the Purchase Price
then in effect, the aggregate number and kind of shares of capital stock or
other securities which, if such Right had been exercised immediately prior to
such date, the holder thereof would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. If an event occurs

                                       12
<PAGE>   16

which would require an adjustment under both this Section 11(a)(i) and Section
11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall be
in addition to, and shall be made prior to, any adjustment required pursuant to
Section 11(a)(ii).

                  (ii) Subject to Section 24, in the event

                      (A) any Acquiring Person or any Associate or Affiliate of
any Acquiring Person, at any time after the date of this Agreement, directly or
indirectly, (1) shall consolidate with or merge with and into the Company or any
of its Subsidiaries or otherwise combine with the Company or any of its
Subsidiaries and the Company or such Subsidiary shall be the continuing or
surviving corporation of such consolidation, merger or combination and the
Common Stock of the Company shall remain outstanding and no shares thereof shall
be changed into or exchanged for stock or other securities of the Company or of
any other Person or cash or any other property, or (2) shall, in one or more
transactions, other than in connection with the exercise of a Right or Rights
and other than in connection with the exercise or conversion of securities
exercisable for or convertible into securities of the Company or of any
Subsidiary of the Company, transfer any assets or property to the Company or any
of its Subsidiaries in exchange (in whole or in part) for any shares of any
class of capital stock of the Company or any of its Subsidiaries or any
securities exercisable for or convertible into shares of any class of capital
stock of the Company or any of its Subsidiaries, or otherwise obtain from the
Company or any of its Subsidiaries, with or without consideration, any
additional shares of any class of capital stock of the Company or any of its
Subsidiaries or any securities exercisable for or convertible into shares of any
class of capital stock of the Company or any of its Subsidiaries (other than as
part of a pro rata offer or distribution by the Company or such Subsidiary to
all holders of such shares), or (3) shall sell, purchase, lease, exchange,
mortgage, pledge, transfer or otherwise acquire (other than as a pro rata
dividend) or dispose, to, from or with, as the case may be, in one transaction
or a series of transactions, the Company or any of its Subsidiaries, assets
(including securities) on terms and conditions less favorable to the Company or
such Subsidiary than the Company or such Subsidiary would be able to obtain in
arm's-length negotiation with an unaffiliated third party, or (4) shall receive
any compensation from the Company or any of its Subsidiaries for services other
than compensation for employment as a regular or part-time employee, or fees for
serving as a director, at rates in accordance with the Company's (or its
Subsidiary's) past practices, or (5) shall receive the benefit, directly or
indirectly (except proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or tax
advantage provided by the Company or any of its Subsidiaries, or (6) shall
engage in any transaction with the Company (or any of its Subsidiaries)
involving the sale, license, transfer or grant of any right in, or disclosure
of, any patents, copyrights, trade secrets, trademarks, know-how or any other
intellectual or industrial property rights recognized under any country's
intellectual property laws which the Company (including its Subsidiaries) owns
or has the right to use on terms and conditions not approved by the Board; or

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

                                       13
<PAGE>   17
                      (C) during such time as there is an Acquiring Person,
there shall be any reclassification of securities (including any reverse stock
split), or any recapitalization of the Company, or any merger or consolidation
of the Company with any of its Subsidiaries or any other transaction or series
of transactions involving the Company or any of its Subsidiaries (whether or not
with or into or otherwise involving an Acquiring Person or any Affiliate or
Associate of such Acquiring Person) which has the effect, directly or
indirectly, of increasing by more than 1% the proportionate share of the
outstanding shares of any class of equity securities of the Company or any of
its Subsidiaries, or securities exercisable for or convertible into equity
securities of the Company or any of its Subsidiaries, which is directly or
indirectly beneficially owned by any Acquiring Person or any Affiliate or
Associate of any Acquiring Person (any of (A), (B) or (C) being referred to
herein as a "Flip-In Event"), then upon the first occurrence of such Flip-In
Event (A) the Purchase Price shall be adjusted to be the Purchase Price in
effect immediately prior to the Flip-In Event multiplied by the number of one
one-thousandths of a share of Preferred Stock for which a Right was exercisable
immediately prior to such Flip-In Event, whether or not such Right was then
exercisable, and (B) each holder of a Right, except as otherwise provided in
this Section 11(a)(ii) and Section 11(a)(iii) hereof, shall thereafter have the
right to receive, upon exercise thereof at a price equal to the Purchase Price
(as so adjusted), in accordance with the terms of this Agreement and in lieu of
shares of Preferred Stock, such number of shares of Common Stock as shall equal
the result obtained by dividing the Purchase Price (as so adjusted) by 50% of
the Current Market Price per share of the Common Stock (determined pursuant to
Section 11(d) hereof) on the date of such Flip-In Event; provided, however, that
the Purchase Price (as so adjusted) and the number of shares of Common Stock so
receivable upon the exercise of a Right shall, following the Flip-In Event, be
subject to further adjustment as appropriate in accordance with Section 11(f)
hereof. Notwithstanding anything in this Agreement to the contrary, however,
from and after the Flip-In Event, any Rights that are beneficially owned by (x)
any Acquiring Person (or any Affiliate or Associate of any Acquiring Person),
(y) a transferee of any Acquiring Person (or any such Affiliate or Associate)
who becomes a transferee after the Flip-In Event or (z) a transferee of any
Acquiring Person (or any such Affiliate or Associate) who became a transferee
prior to or concurrently with the Flip-In Event pursuant to either (I) a
transfer from the Acquiring Person to holders of its equity securities or to any
Person with whom it has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (II) a transfer which the Board of Directors
has determined is part of a plan, arrangement or understanding which has the
purpose or effect of avoiding the provisions of this paragraph, and subsequent
transferees of such Persons, shall be void without any further action and any
holder of such Rights shall thereafter have no rights whatsoever with respect to
such Rights under any provision of this Agreement. The Company shall use all
reasonable efforts to ensure that the provisions of this Section 11(a)(ii) are
complied with, but shall have no liability to any holder of Right Certificates
or other Person as a result of its failure to make any determinations with
respect to an Acquiring Person or its Affiliates, Associates or transferees
hereunder. From and after the Flip-In Event, no Right Certificate shall be
issued pursuant to Section 3 or Section 6 hereof that represents Rights that are
or have become void pursuant to the provisions of this paragraph, and any Right
Certificate delivered to the Rights Agent that represents Rights that are or
have become void pursuant to the provisions of this paragraph shall be canceled.

                                       14
<PAGE>   18

                  (iii) The Company may at its option substitute for a share of
Common Stock issuable upon the exercise of Rights in accordance with the
foregoing subparagraph (ii) such number or fractions of shares of Preferred
Stock having an aggregate current market value equal to the Current Market Price
of a share of Common Stock. In the event that there shall not be sufficient
shares of Common Stock issued but not outstanding or authorized but unissued to
permit the exercise in full of the Rights in accordance with the foregoing
subparagraph (ii), the Board of Directors shall, to the extent permitted by
applicable law and any material agreements then in effect to which the Company
is a party (A) determine the excess (such excess, the "Spread") of (1) the value
of the shares of Common Stock issuable upon the exercise of a Right in
accordance with the foregoing subparagraph (ii) (the "Current Value") over (2)
the Purchase Price (as adjusted in accordance with the foregoing subparagraph
(ii)), and (B) with respect to each Right (other than Rights which have become
void pursuant to the foregoing subparagraph (ii)), make adequate provision to
substitute for the shares of Common Stock issuable in accordance with the
foregoing paragraph (ii) upon exercise of the Right and payment of the Purchase
Price (as adjusted in accordance therewith), (1) cash, (2) a reduction in such
Purchase Price, (3) shares of Preferred Stock or other equity securities of the
Company (including, without limitation, shares or fractions of shares of
preferred stock which, by virtue of having dividend, voting and liquidation
rights substantially comparable to those of the shares of Common Stock, are
deemed in good faith by the Board of Directors to have substantially the same
value as the shares of Common Stock (such shares of Preferred Stock and shares
or fractions of shares of preferred stock are hereinafter referred to as "Common
Stock Equivalents," (4) debt securities of the Company, (5) other assets, or (6)
any combination of the foregoing, having a value which, when added to the value
of the shares of Common Stock actually issued upon exercise of such Right, shall
have an aggregate value equal to the Current Value (less the amount of any
reduction in such Purchase Price), where such aggregate value has been
determined by the Board of Directors upon the advice of a nationally recognized
investment banking firm selected in good faith by the Board of Directors;
provided, however, that if the Company shall not make adequate provision to
deliver value pursuant to clause (B) above within thirty (30) days following the
date of the Flip-In Event (the "Flip-in Trigger Date"), then the Company shall
be obligated to deliver, to the extent permitted by applicable law and any
material agreements then in effect to which the Company is a party, upon the
surrender for exercise of a Right and without requiring payment of such Purchase
Price, shares of Common Stock (to the extent available), and then, if necessary,
such number or fractions of shares of Preferred Stock (to the extent available)
and then, if necessary, cash, which shares and/or cash have an aggregate value
equal to the Spread. If the Board of Directors of the Company shall determine in
good faith that it is likely that sufficient additional shares of Common Stock
and/or Common Stock Equivalents could be authorized for issuance upon exercise
in full of the Rights, the thirty (30) day period set forth above may be
extended to the extent necessary, but not more than ninety (90) days after the
Flip-In Trigger Date, in order that the Company may seek stockholder approval
for the authorization of such additional shares or Common Stock Equivalents
(such thirty (30) day period, as it may be extended, is herein called the
"Substitution Period"). To the extent that the Company determines that some
action need be taken pursuant to the second and/or third sentence of this
Section 11(a)(iii), the Company (x) shall provide, subject to the last sentence
of Section 11(a)(ii) hereof, that such action shall apply uniformly to all
outstanding

                                       15
<PAGE>   19

Rights, and (y) may suspend the exercisability of the Rights until the
expiration of the Substitution Period in order to seek any authorization of
additional shares and/or to decide the appropriate form of distribution to be
made pursuant to the first sentence of Section 11(a)(iii) and to determine the
value thereof. In the event of any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section 11(a)(iii), the
value of the Common Stock shall be the Current Market Price per share of the
Common Stock on the Flip-In Trigger Date and the per share or per unit value of
any Common Stock Equivalent shall be deemed to equal the Current Market Price
per share of the Common Stock on such date. The Board of Directors may, but
shall not be required to, establish procedures to allocate the right to receive
Common Stock upon the exercise of the Rights among holders of Rights pursuant to
this Section 11(a)(iii).

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

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

                                       16
<PAGE>   20

determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the Current Market
Price per share of Preferred Stock on such record date, less the fair market
value (as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent) of the portion of the cash, assets or evidences of indebtedness to be
distributed or of such subscription rights or warrants applicable to a share of
Preferred Stock and the denominator of which shall be such Current Market Price
per share of Preferred Stock. Such adjustments shall be made successively
whenever such a record date is fixed, and in the event that such distribution is
not so made, the Purchase Price shall be adjusted to be the Purchase Price which
would have been in effect if such record date had not been fixed.

            (d) (i) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) hereof, the "Current Market
Price" per share of Common Stock on any date shall be deemed to be the average
of the daily closing prices per share of the Common Stock for the thirty (30)
consecutive Trading Days (as such term is hereinafter defined) immediately prior
to such date, and for purpose of computations made pursuant to Section
11(a)(iii) hereof, the "Current Market Price" per share of the Common Stock on
any date shall be deemed to be the average of the daily closing prices per share
of the Common Stock for the ten (10) consecutive Trading Days immediately
following such date; provided, however, that in the event that the Current
Market Price per share of the Common Stock is determined during a period
following the announcement by the issuer of the Common Stock of (i) any dividend
or distribution on the Common Stock (other than a regular quarterly cash
dividend and other than the Rights), (ii) any subdivision, combination or
reclassification of the Common Stock, and prior to the expiration of the
requisite thirty (30) Trading Day or ten (10) Trading Day period, as set forth
above, after the ex-dividend date for such dividend or distribution, or the
record date for such subdivision, combination or reclassification occurs, then,
and in each such case, the Current Market Price 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 shares of Common Stock are not listed or admitted to trading
on the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the shares of Common Stock are listed or
admitted to trading or, if the shares of Common Stock are not listed or admitted
to trading on any national securities exchange, the last quoted sale price or,
if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use,
or, if on any such date the shares of Common Stock are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock selected by the
Board of Directors of the Company. If on any such date no market maker is making
a market in the Common Stock, the fair value of such shares on such date as
determined in good faith by the Board of Directors of the Company shall be used
and shall be binding on the Rights Agent. The term "Trading Day" shall mean a
day on which the principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading is open for the transaction of

                                       17
<PAGE>   21

business or, if the shares of Common Stock are not listed or admitted to trading
on any national securities exchange, a Business Day. If the Common Stock is not
publicly held or not so listed or traded, "Current Market Price" per share shall
mean the fair value per share as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes.

                  (ii) For the purpose of any computation hereunder, the
"Current Market Price" per share (or one one-thousandth of a share) of Preferred
Stock shall be determined in the same manner as set forth above for the Common
Stock in clause (i) of this Section 11(d) (other than the last sentence
thereof). If the Current Market Price per share (or one one-thousandth of a
share) of Preferred Stock cannot be determined in the manner provided above or
if the Preferred Stock is not publicly held or listed or traded in a manner
described in clause (i) of this Section 11(d), the "Current Market Price" per
share of Preferred Stock shall be conclusively deemed to be an amount equal to
1,000 (as such number may be appropriately adjusted for such events as stock
splits, stock dividends and recapitalizations with respect to the Common Stock
occurring after the date of this Agreement) multiplied by the Current Market
Price per share of the Common Stock, and the "Current Market Price" per one
one-thousandth of a share of Preferred Stock shall, be equal to the Current
Market Price per share of the Common Stock (as appropriately adjusted). If
neither the Common Stock nor the Preferred Stock is publicly held or so listed
or traded, "Current Market Price" per shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes.

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

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

            (g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted

                                       18
<PAGE>   22

Purchase Price, the number of shares of Preferred Stock purchasable from time to
time hereunder upon exercise of the Rights, all subject to further adjustment as
provided herein.

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

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

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

                                       19
<PAGE>   23

share and the number of shares which were expressed in the initial Right
Certificate issued hereunder.

            (k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the shares of Common
Stock, Preferred Stock or other capital stock issuable upon exercise of the
Rights, the Company shall take any corporate action, including using its best
efforts to obtain any required stockholder approvals, which may, in the opinion
of its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock, Preferred Stock or
other capital stock at such adjusted Purchase Price. If upon any exercise of the
Rights, a holder is to receive a combination of Common Stock and Common Stock
Equivalents, a portion of the consideration paid upon such exercise, equal to at
least the then par value of a share of Common Stock of the Company, shall be
allocated as the payment for each share of Common Stock of the Company so
received.

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

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

            (n) The Company covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with any other Person, (ii) merge
with or into any other Person, or (iii) sell or transfer (or permit any
Subsidiary to sell or transfer), in one transaction or a series of related
transactions, assets or earning power aggregating more than 50% of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to, any
other Person or Persons, if (x) at the time of or immediately after such
consolidation, merger or sale there are any charter or by-law provisions or any
rights, warrants or other instruments or securities outstanding or agreements in
effect which substantially diminish or otherwise eliminate the benefits intended
to be afforded by the Rights or (y) prior to, simultaneously with or immediately
after such

                                       20
<PAGE>   24

consolidation, merger or sale, the stockholders of the Person who constitutes,
or would constitute, the "Principal Party" for purposes of Section 13(a) hereof
shall have received a distribution of Rights previously owned by such Person or
any of its Affiliates and Associates. The Company shall not consummate any such
consolidation, merger or sale unless prior thereto the Company and such other
Person shall have executed and delivered to the Rights Agent a supplemental
agreement evidencing compliance with this subsection.

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

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

      12. Certification of Adjustments. Whenever an adjustment is made as
provided in Sections 11 and 13 hereof, the Company shall (a) promptly prepare a
certificate signed by its Chief Executive Officer, its President or any Vice
President and by the Treasurer or any Assistant Treasurer or the Secretary or
any Assistant Secretary of the Company setting forth such adjustment and a brief
statement of the facts giving rise to such adjustment, (b) promptly file with
the Rights Agent and with each transfer agent for the Preferred Stock and the
Common Stock a copy of such certificate and (c) mail a brief summary thereof to
each holder of a Right Certificate (or, if prior to the Distribution Date, to
each holder of a certificate representing shares of Common Stock) in accordance
with Section 26 hereof. Notwithstanding the foregoing sentence, the failure of
the Company to give such notice shall not affect the validity of or the force or
effect of or the requirement for such adjustment. The Rights Agent shall be
fully protected in relying on any certificate prepared by the Company pursuant
to Sections 11 and 13 and on any adjustment therein contained and shall not be
deemed to have knowledge of any such adjustment unless and until it shall have
received such certificate. Any adjustment to be made pursuant to Sections 11 and
13 of this Rights Agreement shall be effective as of the date of the event
giving rise to such adjustment.

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

                                       21
<PAGE>   25

            (a) In the event that following the first occurrence of a Flip-In
Event, directly or indirectly, (x) the Company shall consolidate with, or merge
with and into, any other Person or Persons and the Company shall not be the
surviving or continuing corporation of such consolidation or merger, or (y) any
Person or Persons shall consolidate with, or merge with and into, the Company,
and the Company shall be the continuing or surviving corporation of such
consolidation or merger and, in connection with such consolidation or merger,
all or part of the outstanding shares of Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or of the Company or
cash or any other property other than, in the case of the transactions described
in subparagraphs (x) or (y), a merger or consolidation which would result in all
of the Voting Power represented by the securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into securities of the surviving entity) all
of the Voting Power represented by the securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation and
the holders of such securities not having changed as a result of such
transactions), or (z) the Company or one or more of its Subsidiaries shall sell,
mortgage or otherwise transfer to any other Person or any Affiliate or Associate
of such Person, in one transaction, or a series of related transactions, assets
or earning power aggregating more than 50% of the assets or earning power of the
Company and its Subsidiaries (taken as a whole), then, on the first occurrence
of any such event (a "Flip-Over Event"), proper provision shall be made so that
(i) each holder of a Right (other than Rights which have become void pursuant to
Section 11(a)(ii) hereof) shall thereafter have the right to receive, upon the
exercise thereof at the Purchase Price (as theretofore adjusted in accordance
with Section 11(a)(ii) hereof), in accordance with the terms of this Agreement
and in lieu of shares of Preferred Stock or Common Stock of the Company, such
number of validly authorized and issued, fully paid, non-assessable and freely
tradeable shares of Common Stock of the Principal Party (as such term is
hereinafter defined), not subject to any liens, encumbrances, rights of first
refusal or other adverse claims, as shall equal the result obtained by dividing
the Purchase Price (as theretofore adjusted in accordance with Section 11(a)(ii)
hereof) by 50% of the Current Market Price per share of the Common Stock of such
Principal Party (determined pursuant to Section 11(d) hereof) on the date of
consummation of such consolidation, merger, sale or transfer; provided, however,
that the Purchase Price (as theretofore adjusted in accordance with Section
11(a)(ii) hereof) and the number of shares of Common Stock of such Principal
Party so receivable upon exercise of a Right shall be subject to further
adjustment as appropriate in accordance with Section 11(f) hereof to reflect any
events occurring in respect of the Common Stock of such Principal Party after
the occurrence of such consolidation, merger, sale or transfer; (ii) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such Flip-Over Event, all the obligations and duties of the Company pursuant to
this Rights Agreement; (iii) the term "Company" for all purposes of this Rights
Agreement shall thereafter be deemed to refer to such Principal Party, it being
specifically intended that the provisions of Section 11 hereof shall only apply
to such Principal Party following the first occurrence of a Flip-Over Event; and
(iv) such Principal Party shall take such steps (including, but not limited to,
the reservation of a sufficient number of shares of its Common Stock in
accordance with Section 9 hereof) in connection with the consummation of any
such transaction as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to its
shares of Common Stock thereafter deliverable upon the exercise of the Rights;
provided, however, that,

                                       22
<PAGE>   26

upon the subsequent occurrence of any merger, consolidation, sale of all or
substantially all assets, recapitalization, reclassification of shares,
reorganization or other extraordinary transaction in respect of such Principal
Party, each holder of a Right shall thereupon be entitled to receive, upon
exercise of a Right, such cash, shares, rights, warrants and other property
which such holder would have been entitled to receive had he, at the time of
such transaction, owned the shares of Common Stock of the Principal Party
purchasable upon the exercise of a Right, and such Principal Party shall take
such steps (including, but not limited to, reservation of shares of stock) as
may necessary to permit the subsequent exercise of the Rights in accordance with
the terms hereof for such cash, shares, rights, warrants and other property.

            (b)   "Principal Party" shall mean

                  (i) in the case of any transaction described in (x) or (y) of
the first sentence of Section 13(a) hereof, (A) the Person that is the issuer of
the securities into which shares of Common Stock of the Company are converted in
such merger or consolidation, or, if there is more than one such issuer, the
issuer the Common Stock of which has the greatest aggregate market value, or (B)
if no securities are so issued, (x) the Person that is the other party to the
merger or consolidation and that survives said merger or consolidation, or, if
there is more than one such Person, the Person the Common Stock of which has the
greatest market value, or (y) if the Person that is the other party to the
merger or consolidation does not survive the merger or consolidation, the Person
that does survive the merger or consolidation (including the Company if it
survives); and

                   (ii) in the case of any transaction described in (z) of the
first sentence in Section 13(a) hereof, the Person that is the party receiving
the greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions, or, if each Person that is a party to such
transaction or transactions receives the same portion of the assets or earning
power so transferred or if the Person receiving the greatest portion of the
assets or earning power cannot be determined, whichever of such Persons as is
the issuer of Common Stock having the greatest aggregate market value of shares
outstanding; provided, however, that in any such case described in the foregoing
(b)(i) or (b)(ii), (1) if the Common Stock of such Person is not at such time
and has not been continuously over the preceding 12-month period registered
under Section 12 of the Exchange Act, and such Person is a direct or indirect
Subsidiary of another Person the Common Stock of which is and has been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Stocks of all of which are and have been so registered, the term
"Principal Party" shall refer to whichever of such Persons is the issuer of the
Common Stock having the greatest market value of shares outstanding, or (3) if
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 clauses (1) and (2) above shall apply to each of the
owners having an interest in the joint venture as if the Person owned by the
joint venture was a Subsidiary of both or all of such joint venturers, and the
Principal Party in each such case shall bear the obligations set forth in this
Section 13 in the same ratio as its interest in such Person bears to the total
of such interests.

                                       23
<PAGE>   27

            (c) The Company shall not consummate any consolidation, merger, sale
or transfer referred to in Section 13(a) unless the Principal Party shall have a
sufficient number of authorized shares of its Common Stock that have not been
issued or reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the Company and the
Principal Party involved therein shall have executed and delivered to the Rights
Agent an agreement confirming that the requirements of Sections 13(a) and (b)
hereof shall promptly be performed in accordance with their terms and that such
consolidation, merger, sale or transfer of assets shall not result in a default
by the Principal Party under this Rights Agreement as the same shall have been
assumed by the Principal Party pursuant to Sections 13(a) and (b) hereof and
further providing that, as soon as practicable after executing such agreement
pursuant to this Section 13, the Principal Party at its own expense shall:

                  (i) prepare and file a registration statement under the
Securities Act, if necessary, 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 at all times
meeting the requirements of the Securities Act) until the date of expiration of
the Rights, and similarly comply with applicable state securities laws;

                  (ii) use its best efforts, if the Common Stock of the
Principal Party shall become listed on a national securities exchange, to list
(or continue the listing of) the Rights and the securities purchasable upon
exercise of the Rights on such securities exchange and, if the Common Stock of
the Principal Party shall not be listed on a national securities exchange, to
cause the Rights and the securities purchased upon exercise of the Rights to be
reported by NASDAQ or such other system then in use;

                  (iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act; and

                  (iv) obtain waivers of any rights of first refusal or
preemptive rights in respect of the shares of Common Stock of the Principal
Party subject to purchase upon exercise of outstanding Rights.

In the event that any of the transactions described in Section 13(a) hereof
shall occur at any time after the occurrence of a transaction described in
Section 11(a)(ii) hereof, the Rights which have not theretofore been exercised
shall thereafter be exercisable in the manner described in Section 13(a).

            (d) Furthermore, in case the Principal Party which is to be a party
to a transaction referred to in this Section 13 has a provision in any of its
authorized securities or in its Certificate of Incorporation or Bylaws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue, in connection with, or as a
consequence of, the consummation of a transaction referred to in this Section
13, shares of Common Stock of such Principal Party at less than the then Current
Market Price per

                                       24
<PAGE>   28

share (determined pursuant to Section 11(d) hereof) or securities exercisable
for, or convertible into, Common Stock of such Principal Party at less than such
then current market price (other than to holders of Rights pursuant to this
Section 13) or (ii) providing for any special payment, tax or similar provisions
in connection with the issuance of the Common Stock of such Principal Party
pursuant to the provisions of Section 13, then, in such event, the Company
hereby agrees with each holder of Rights that it shall not consummate any such
transaction unless prior thereto the Company and such Principal Party shall have
executed and delivered to the Rights Agent a supplemental agreement providing
that the provision in question of such Principal Party shall have been canceled,
waived or amended, or that the authorized securities shall be redeemed, so that
the applicable provision will have no effect in connection with, or as a
consequence of, the consummation of the proposed transaction.

      14.   Fractional Rights and Fractional Shares.

            (a) The Company shall not be required to issue fractions of Rights
or to distribute Right Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the holders of record 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 then current
market value of a whole Right. For the purposes of this Section 14(a), the then
current market value of a Right shall be determined in the same manner as the
Current Market Price of a share of Common Stock shall be determined pursuant to
Section 11(d) hereof.

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

            (c) Following the occurrence of a Flip-In Event, the Company shall
not be required to issue fractions of shares or units of Common Stock or Common
Stock Equivalents or other securities upon exercise of the Rights or to
distribute certificates which evidence fractional shares of such Common Stock or
Common Stock Equivalents or other securities. In lieu of fractional shares or
units of such Common Stock or Common Stock Equivalents or other

                                       25
<PAGE>   29

securities, the Company may pay to the registered holders of Right Certificates
at the time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the Current Market Value of a share or unit of such
Common Stock or Common Stock Equivalent or other securities. For purposes of
this Section 14(c), the Current Market Value shall be determined in the manner
set forth in Section 11(d) hereof for the Trading Day immediately prior to the
date of such exercise and, if such Common Stock Equivalent is not traded, each
such Common Stock Equivalent shall have the value of one one-thousandth of a
share of Preferred Stock.

            (d) The holder of a Right by the acceptance of a Right expressly
waives his right to receive any fractional Right or any fractional shares upon
exercise of a Right.

      15.   Rights of Action. All rights of action in respect of this Agreement,
other than any rights of action vested in the Rights Agent pursuant to Sections
18 and 20 below, are vested in the respective holders of record of the Right
Certificates (and, prior to the Distribution Date, the holders of record of the
Common Stock); and any holder of record of any Right Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company or any other Person to enforce, or otherwise act in respect
of, his right to exercise the Rights evidenced by such Right Certificate in the
manner provided in such Right Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and, accordingly, that they will
be entitled to specific performance of the obligations under, and injunctive
relief against actual or threatened violations of, the obligations of any Person
subject to this Agreement. Holders of Rights shall be entitled to recover the
reasonable costs and expenses, including attorneys' fees, incurred by them in
any action to enforce the provisions of this Agreement.

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

            (a) prior to the Distribution Date, the Rights will not be evidenced
by a Right Certificate and will be transferable only in connection with the
transfer of Common Stock;

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

            (c) the Company and the Rights Agent may deem and treat the person
in whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Stock certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby (notwithstanding any notations of ownership
or writing on the Right Certificate or the associated Common Stock certificate
made by anyone other than the Company or the Rights Agent or the

                                       26
<PAGE>   30

transfer agent of the Common Stock) 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 a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, that the Company must use its
best efforts to have any such order, decree or ruling lifted or otherwise
overturned as soon as possible.

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

      18.   Concerning the Rights Agent.

            (a) The Company agrees to pay to the Rights Agent reasonable
compensation for all service rendered by it hereunder and, from time to time, on
demand of the Rights Agent, its reasonable expenses and counsel fees and other
disbursements incurred in the administration and execution of this Rights
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense incurred without gross negligence, bad faith or
willful misconduct on the part of the Rights Agent for any thing done or omitted
to be done by the Rights Agent in connection with the acceptance and
administration of this Rights Agreement, including the cost and expenses of
defending against any claim of liability in the premises. The indemnity provided
herein shall survive the expiration of the Rights and the termination of this
Rights Agreement. Anything in this agreement to the contrary notwithstanding, in
no event shall the Rights Agent be liable for special, indirect or consequential
loss or damage of any kind whatsoever (including but not limited to lost
profits), even if the Rights Agent has been advised of the likelihood of such
loss damage and regardless of the form of action.

                                       27
<PAGE>   31

            (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 Rights Agreement in reliance upon any Right
Certificate, certificate for Common Stock or other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, guaranteed, verified or acknowledged, by the proper Person or
Persons.

      19.   Merger or Consolidation or Changed Name of Rights Agent.

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

            (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 such 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
Certificate shall have the full force provided in the Right Certificates and in
this Rights Agreement.

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

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

            (b) Whenever in the performance of its duties under this Rights
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without

                                       28
<PAGE>   32

limitation, the identity of any Acquiring Person and the determination of
"Current Market Price") be proved or established by the Company prior to taking
or suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by certificate signed by the President or
any Vice President and by the Treasurer or any Assistant Treasurer or the
Secretary or any Assistant Secretary of the Company and delivered to the Rights
Agent; and such certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions of this
Rights Agreement in reliance upon such certificate.

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

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

            (e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Rights 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 Rights Agreement or in any Right
Certificate; nor shall it be responsible for any adjustment required under the
provisions of Sections 11, 13, 23 or 24 hereof or responsible for the manner,
method or amount of any such adjustment or the ascertaining of the existence of
facts that would require any such adjustment (except with respect to the
exercise of Rights evidenced by Right Certificates after receipt of a
Certificate furnished pursuant to Section 12 describing any such adjustment);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any shares of Common Stock to
be issued pursuant to this Rights Agreement or any Right Certificate or as to
whether any shares of Common Stock will, when issued, be validly authorized and
issued, fully paid and nonassessable.

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

            (g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the Chief Executive Officer, the President or any Vice
President or the Secretary or any Assistant Secretary or the Treasurer or any
Assistant Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer. Any application by the Rights Agent for
written instructions from the Company may, at the option of the Rights Agent,
set forth in writing any action proposed to be taken or omitted by the Rights
Agent under this Rights Agreement and the date on and/or after which

                                       29
<PAGE>   33

such action shall be taken or such omission shall be effective. Subject to
Section 20(c) hereof, the Rights Agent shall not be liable for any action taken
by, or omission of, the Rights Agent in accordance with a proposal included in
any such application on or after the date specified in such application (which
date shall not be less than five Business Days after the date any officer of the
Company actually receives such application, unless any such officer shall have
consented in writing to an earlier date) unless, prior to taking any such action
(or the effective date in the case of an omission), the Rights Agent shall have
received written instructions in response to such application specifying the
action to be taken or omitted.

            (h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or 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 Rights Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other entity.

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

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

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

      21.   Change of Rights Agent. The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Rights Agreement
upon thirty (30) days' notice in writing, or such earlier period as shall be
agreed to in writing, mailed to the Company and to each transfer agent of the
Common Stock by registered or certified mail, and, at the expense of the
Company, to the holders of the Right Certificates by first-class mail. The
Company may remove the Rights Agent or any successor Rights Agent (with or
without cause) upon thirty (30) days' notice in writing, or such earlier period
as shall be agreed to in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Stock by
registered or certified mail, and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise

                                       30
<PAGE>   34

become incapable of acting, the Company shall appoint a successor to the Rights
Agent. Notwithstanding the foregoing provisions of this Section 21, in no event
shall the resignation or removal of a Rights Agent be effective until a
successor Rights Agent shall have been appointed and have accepted such
appointment. If the Company shall fail to make such appointment within a period
of thirty (30) days after such removal or after it has been notified in writing
of such resignation or incapacity by the resigning or incapacitated Rights Agent
or by the holder of a Right Certificate (who shall, with such notice, submit his
Right Certificate for inspection by the Company), then the incumbent Rights
Agent or the holder of record of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be (a)
a corporation organized and doing business under the laws of the United States
or any State thereof, in good standing, which is authorized under such laws to
exercise corporate trust or stock transfer powers and is subject to supervision
or examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000 or (b) an Affiliate controlled by a corporation described in clause
(a) of this sentence. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock, and mail a notice thereof in writing to the registered holders
of the Right Certificates. Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be.

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

      23. Redemption.

                                       31
<PAGE>   35

            (a) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (x) the first occurrence of a Flip-In Event or (y)
the Close of Business on the Expiration Date, redeem all but not less than all
the then outstanding Rights at a redemption price of $.001 per Right, as such
amount may be appropriately adjusted to reflect any stock split, stock dividend
or similar transaction occurring after the date hereof (such redemption price
being hereinafter referred to as the "Redemption Price").

            (b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights (or at such later time as the
Board of Directors may establish for the effectiveness of such redemption), 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. The Company shall promptly give public
notice of any such redemption; provided, however, that the failure to give, or
any defect in, any such notice shall not affect the validity of such redemption.
Within ten (10) days after such action of the Board of Directors ordering the
redemption of the Rights (or such later time as the Board of Directors may
establish for the effectiveness of such redemption), the Company shall mail a
notice of redemption to all the holders of the then outstanding Rights at their
last addresses as they appear upon the registry books of the Rights Agent or,
prior to the Distribution Date, on the registry books of the transfer agent for
the Common Stock. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of redemption shall state the method by which the payment of the Redemption
Price will be made. The failure to give notice required by this Section 23(b) or
any defect therein shall not affect the legality or validity of the action taken
by the Company.

            (c) In the case of a redemption permitted under Section 23(a), the
Company may, at its option, discharge all of its obligations with respect to the
Rights by (i) issuing a press release announcing the manner of redemption of the
Rights and (ii) mailing payment of the Redemption Price to the registered
holders of the Rights at their last addresses as they appear on the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent of the Common Stock, and upon such action, all
outstanding Right Certificates shall be null and void without any further action
by the Company.

      24.   Exchange of Rights for Common Stock.

            (a) The Board of Directors of the Company may, at its option, at any
time after the occurrence of a Flip-In Event, exchange all or part of the then
outstanding and exercisable Rights (which (i) shall not include Rights that have
become void pursuant to the provisions of Section 11(a)(ii) and (ii) shall
include, without limitation, any Rights issued after the Distribution Date in
accordance with Section 22) for shares of Common Stock at an exchange ratio of
one share of Common Stock per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(such exchange ratio being hereinafter referred to as the "Exchange Ratio").
Notwithstanding the foregoing, the Board of Directors 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 shares of Common Stock aggregating 50% or more of the shares
of Common Stock then outstanding. From and after the occurrence of an event
specified

                                       32
<PAGE>   36

in Section 13(a) hereof, any Rights that theretofore have not been exchanged
pursuant to this Section 24(a) shall thereafter be exercisable only in
accordance with Section 13 and may not be exchanged pursuant to this Section
24(a).

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

            (c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute, and, in the event that there shall not be sufficient
shares of Common Stock issued but not outstanding or authorized but unissued to
permit any exchange of Rights as contemplated in accordance with this Section
24, the Company shall substitute to the extent of such insufficiency, for each
share of Common Stock that would otherwise be issuable upon exchange of a Right,
a number of shares of Preferred Stock or fractions thereof (or Equivalent
Preferred Shares, as such term is defined in Section 11(b)) having an aggregate
current per share market price (determined pursuant to Section 11(d) hereof)
equal to the current per share market price of one share of Common Stock
(determined pursuant to Section 11(d) hereof) as of the date of the Flip-In
Event.

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

            (e) The Company shall not be required to issue fractions of shares
of Common Stock or to distribute certificates which evidence fractional shares
of Common Stock. In lieu of such fractional shares of Common Stock, the Company
shall pay to the registered holders of the Right Certificates with regard to
which such fractional shares of Common Stock would otherwise be issuable an
amount in cash equal to the same fraction of the current market value of a whole
share of Common Stock. For the purposes of this paragraph (d), the current
market value of a whole share of Common Stock shall be the Current Market Price
of a share of Common Stock (as defined in Section 11(d) hereof for the purposes
of computations made other

                                       33
<PAGE>   37
than pursuant to Section 11(a)(iii)) for the Trading Day immediately prior to
the date of exchange pursuant to this Section 24.

      25.   Notice of Proposed Actions.

            (a) In case the Company, after the Distribution Date, shall propose
(i) to effect any of the transactions referred to in Section 11(a)(i) or to pay
any dividend to the holders of record of its Preferred Stock payable in stock of
any class or to make any other distribution to the holders of record of its
Preferred Stock (other than a regular periodic cash dividend), or (ii) to offer
to the holders of record of its Preferred Stock or options, warrants, or other
rights to subscribe for or to purchase shares of Preferred Stock (including any
security convertible into or exchangeable for Preferred Stock) or shares of
stock of any other class or any other securities, options, warrants, convertible
or exchangeable securities or other rights, or (iii) to effect any
reclassification of its Preferred Stock or any recapitalization or
reorganization of the Company, or (iv) to effect any consolidation or merger
with or into, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of more than 50% of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person or Persons, or (v) to
effect the liquidation, dissolution or winding up of the Company, then, in each
such case, the Company shall give to each holder of record of a Right
Certificate, in accordance with Section 26 hereof, notice of such proposed
action, which shall specify the record date for the purposes of such transaction
referred to in Section 11(a)(i), or such dividend or distribution, or the date
on which such reclassification, recapitalization, reorganization, consolidation,
merger, sale or transfer of assets, liquidation, dissolution or winding up is to
take place and the record date for determining participation therein by the
holders of record of Preferred Stock, if any such date is to be fixed, and such
notice shall be so given in the case of any action covered by clause (i) or (ii)
above at least 10 days prior to the record date for determining holders of
record of the Preferred Stock for purposes of such action, and in the case of
any such other action, at least 10 days prior to the date of the taking of such
proposed action or the date of participation therein by the holders of record of
Preferred Stock, whichever shall be the earlier.

            (b) In case any of the transactions referred to in Section 11(a)(ii)
or Section 13 of this Rights Agreement are proposed, then, in any such case, the
Company shall give to each holder of Rights, in accordance with Section 26
hereof, notice of the proposal of such transaction at least 10 days prior to
consummating such transaction, which notice shall specify the proposed event and
the consequences of the event to holders of Rights under Section 11(a)(ii) or
Section 13 hereof, as the case may be, and, upon consummating such transaction,
shall similarly give notice thereof to each holder of Rights.

            (c) The failure to give notice required by this Section 25 or any
defect therein shall not affect the legality or validity of the action taken by
the Company or the vote upon any such action.

      26.   Notices. Notices or demands authorized by this Rights Agreement to
be given or made by the Rights Agent or by the holder of record of any Right
Certificate or Right to or on

                                       34
<PAGE>   38

behalf of the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:

            AXT, Inc.
            4281 Technology Drive
            Fremont, CA  95438
            Attention:  Corporate Secretary

Subject to the provisions of Section 20 hereof, any notice or demand authorized
by this Rights Agreement to be given or made by the Company or by the holder of
record of any Right Certificate or Right to or on the Rights Agent shall be
sufficiently given or made if sent by registered or certified mail, postage
prepaid (until another address is filed in writing with the Company) as follows:

            Computershare Trust Company, Inc.
            12039 West Alameda Parkway, Suite Z-2
            Lakewood, Colorado 80228

Notices or demands authorized by this Rights Agreement to be given or made by
the Company or the Rights Agent to the holder of record of any Right Certificate
or 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 it
appears upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the Transfer Agent.

      27. Supplements and Amendments. Except as provided in the penultimate
sentence of this Section 27, for so long as the Rights are then redeemable, the
Company may in its sole and absolute discretion, and the Rights Agent shall if
the Company so directs, supplement or amend any provision of this Agreement in
any respect without the approval of any holders of the Rights. At any time when
the Rights are no longer redeemable, except as provided in the penultimate
sentence of this Section 27, the Company may, and the Rights Agent shall, if the
Company so directs, supplement or amend this Agreement without the approval of
any holders of Rights Certificates in order to (i) cure any ambiguity, (ii)
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) shorten or lengthen any
time period hereunder, or (iv) change or supplement the provisions hereunder in
any manner which the Company may deem necessary or desirable; provided that no
such supplement or amendment shall adversely affect the interests of the holders
of Rights as such (other than an Acquiring Person or an Affiliate or Associate
of an Acquiring Person), and no such amendment may cause the Rights again to
become redeemable or cause the Agreement again to become amendable other than in
accordance with this sentence. Notwithstanding anything contained in this Rights
Agreement to the contrary, no supplement or amendment shall be made which
changes the Redemption Price. Prior to the Distribution Date, the interests of
the holders of Rights shall be deemed coincident with the interests of the
holders of Common Stock.

      28. Successors. All of the covenants and provisions of this Rights
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.

                                       35
<PAGE>   39

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

      30. Governing Law. This Rights Agreement and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Delaware and for all purposes shall be governed by and construed in accordance
with the laws of such state applicable to contracts to be made solely by
residents of such state and performed entirely within such state.

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

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

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

                                       36
<PAGE>   40

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

[SEAL]

ATTEST:                                 AXT, INC.
By: /s/ Donald L. Tazin                 By: /s/ Morris S. Young
        Donald L. Tatzin                        Morris S. Young
        Secretary                               Chief Executive Officer
                                                and President
[SEAL]
ATTEST:                                 COMPUTERSHARE TRUST COMPANY, INC.,
                                        as Rights Agent
By:  /s/ Margo Ankele                   By: /s/ Kellie Gwinn
         Margo Ankele                           Kellie Gwinn
         Marketing Officer                      Vice President/Trust Officer

                                       37
<PAGE>   41
                                    EXHIBIT A

                                    AXT, INC.

                                   CERTIFICATE
                     OF DESIGNATION, PREFERENCES AND RIGHTS
                               OF THE TERMS OF THE
                            SERIES B PREFERRED STOCK

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

      We, the President and Chief Executive Officer and the Secretary,
respectively, of AXT, Inc. (the "Corporation"), organized and existing under the
General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 103 thereof, DO HEREBY CERTIFY:

      That pursuant to the authority conferred upon the Board of Directors by
the Certificate of Incorporation of the said Corporation, the said Board of
Directors on April 24, 2001, adopted the following resolution creating a series
of 200,000 shares of Preferred Stock designated as Series B Preferred Stock:

      RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Certificate of
Incorporation, a series of Preferred Stock of the Corporation be and it hereby
is created, and that the designation and amount thereof and the powers,
preferences and relative, participating, optional and other special rights of
the shares of such series, and the qualifications, limitations or restrictions
thereof are as follows:

      Section 1. Designation and Amount. The shares of such series shall be
designated as "Series B Preferred Stock" (the "Series B Preferred Stock"), $.001
par value per share, and the number of shares constituting such series shall be
200,000.

      Section 2. Dividends and Distributions.

            (A) The dividend rate on the shares of Series B Preferred Stock
shall be for each quarterly dividend (hereinafter referred to as a "quarterly
dividend period"), which quarterly dividend periods shall commence on January 1,
April 1, July 1, and October 1 each fiscal year (each such date being referred
to herein as a "Quarterly Dividend Payment Date") (or in the case of original
issuance, from the date of original issuance) and shall end on and include the
day next preceding the first date of the next quarterly dividend period, at a
rate per quarterly dividend period (rounded to the nearest cent) equal to the
greater of (a) $3,275.00 or (b) subject to the provisions for adjustment
hereinafter set forth, 1,000 times the aggregate per share amount of all cash
dividends, and 1,000 times the aggregate per share amount (payable in cash,
based upon the fair market value at the time the non-cash dividend or other
distribution is declared as determined in good faith by the Board of Directors)
of all non-cash dividends or other

                                       1
<PAGE>   42

distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared (but not withdrawn) on the Common Stock, par value $.001
per share, of the Corporation (the "Common Stock") during the immediately
preceding quarterly dividend period, or, with respect to the first quarterly
dividend period, since the first issuance of any share or fraction of a share of
Series B Preferred Stock. In the event this Corporation shall at any time after
May 30, 2001 (the "Rights Declaration Date") (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the amount to which holders of shares of Series B
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.

            (B) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series B Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series B Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series B Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series B Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series B Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than forty-five (45) days prior to
the date fixed for the payment thereof.

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

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

                                       2
<PAGE>   43

            (B) Except as otherwise provided herein, in the Certificate of
Incorporation or Bylaws, the holders of shares of Series B Preferred Stock and
the holders of shares of Common Stock shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.

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

      Section 4. Reacquired Shares. Any shares of Series B Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.

      Section 5. Liquidation, Dissolution or Winding Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of the Series B Preferred Stock shall be entitled to
receive the greater of (a) $131,000.00 per share, plus accrued dividends to the
date of distribution, whether or not earned or declared, or (b) an 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 Stock. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Series B Preferred Stock were entitled
immediately prior to such event pursuant to clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.

      Section 6. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series B Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the Rights Declaration Date
(i) declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change of shares
of Series B Preferred Stock shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of

                                       3
<PAGE>   44

which is the number of shares of Common Stock that were outstanding immediately
prior to such event.

      Section 7. No Redemption. The shares of Series B Preferred Stock shall not
be redeemable.

      Section 8. Fractional Shares. Series B Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and have the benefit of all other rights of holders
of Series B Preferred Stock. All payments made with respect to fractional shares
hereunder shall be rounded to the nearest whole cent.

      Section 9. Certain Restrictions.

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

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

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

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

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

                                       4
<PAGE>   45

            (B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 9, purchase or otherwise acquire such shares at such time and in
such manner.

      Section 10. Ranking. The Series B Preferred Stock shall be junior to all
other Series of the Corporation's preferred stock as to the payment of dividends
and the distribution of assets, unless the terms of any series shall provide
otherwise.

      Section 11. Amendment. The Certificate of Incorporation of the Corporation
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series B Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of two-thirds
or more of the outstanding shares of Series B Preferred Stock voting together as
a single class.

      IN WITNESS WHEREOF, we have executed and subscribed this Certificate and
do affirm the foregoing as true under the penalties of perjury this 14th day of
May, 2001.

                                        /s/ Morris S. Young
                                        ----------------------------------------
                                        Morris S. Young
                                        Chief Executive Officer and President
Attest:
/s/ Donald L. Tatzin
-------------------------------------
Donald L. Tatzin
Secretary

                                       5
<PAGE>   46

                                    EXHIBIT B

                           [Form of Right Certificate]

Certificate No. W-                                                        Rights
                  --------                                     -----------

      NOT EXERCISABLE AFTER April 24, 2011, OR EARLIER IF REDEEMED OR EXCHANGED.
      AT THE OPTION OF THE COMPANY, THE RIGHTS MAY BE REDEEMED AT $.001 PER
      RIGHT OR EXCHANGED FOR PREFERRED STOCK ON THE TERMS SET FORTH IN THE
      RIGHTS AGREEMENT. IN THE EVENT THAT THE RIGHTS REPRESENTED BY THIS
      CERTIFICATE ARE ISSUED TO A PERSON WHO IS AN ACQUIRING PERSON OR CERTAIN
      TRANSFEREE OF THE RIGHTS PREVIOUSLY OWNED BY SUCH PERSONS, THIS RIGHT
      CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY SHALL BE NULL AND VOID AND
      WILL NO LONGER BE TRANSFERABLE.

                                RIGHT CERTIFICATE

                                    AXT, INC.

      This certifies that           , or registered assigns, is the registered
owner of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights Agreement
dated as of April 24, 2001 ("Rights Agreement") between AXT, Inc., a Delaware
corporation (the "Company"), and Computershare Trust Company, Inc. (the "Rights
Agent"), to purchase from the Company at any time after the Distribution Date
(as such term is defined in the Rights Agreement) and prior to 5:00 p.m.
(Pacific Time) on April 24, 2011 at the principal office of the Rights Agent, or
its successors as Rights Agent, designated for such purposes, one one-thousandth
of a fully paid and nonassessable share of Series B Preferred Stock of the
Company ("Preferred Stock") at a purchase price of $131.00 per one
one-thousandth of a share of Preferred Stock, as the same may from time to time
be adjusted in accordance with the Rights Agreement ("Purchase Price"), upon
presentation and surrender of this Right Certificate with the Form of Election
to Purchase duly

                                       1
<PAGE>   47

executed. Capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed to such terms in the Rights Agreement.

      As provided in the Rights Agreement, the Purchase Price and the number of
shares of Preferred Stock or other securities which may be purchased upon the
exercise of the Rights evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events and, upon the
happening of certain events, securities other than shares of Preferred Stock, or
other property, may be acquired upon exercise of the Rights evidenced by this
Right Certificate, as provided by the Rights Agreement.

      Upon the occurrence of a Flip-In Event, if the Rights evidenced by this
Rights Certificate are beneficially owned by (i) an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person, (ii) a transferee of any
such Acquiring Person, Associate or Affiliate, or (iii) under certain
circumstances specified in the Rights Agreement, a transferee of a person who,
after such transfer, became an Acquiring Person, or any Affiliate or Associate
of an Acquiring Person, such Rights shall be null and void and will no longer be
transferable and no holder hereof shall have any right with respect to such
Rights from and after the occurrence of such Flip-In Events.

      This Right Certificate is subject to all the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
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 of the Rights Agent,
the Company and the holders of record of the Right Certificates, which
limitation of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal executive office of
the Company and are available upon written request to the Company.

      This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right

                                       2
<PAGE>   48

Certificates of like tenor and date evidencing Rights entitling the holder of
record to purchase a like aggregate number of shares of Preferred Stock as the
Rights evidenced by the Right Certificate or Right Certificates surrendered
shall have entitled such holder to purchase. If this Right Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender
hereof, another Right Certificate or Right Certificates for the number of whole
Rights not exercised.

      Subject to the provisions of the Rights Agreement, at any time prior to
the earlier of (i) the occurrence of a Flip-In Event (as such term is defined in
the Rights Agreement) or (ii) the Expiration Date (as such term is defined in
the Rights Agreement), the Rights evidenced by this Certificate may be redeemed
by the Company at its option at a redemption price of $.001 per Right. Subject
to the provisions of the Rights Agreement, the Company may, at its option, at
any time after a Flip-In Event, exchange all or part of the Rights evidenced by
this Certificate for shares of the Company's Common Stock or for Preferred Stock
(or shares of a class or series of the Company's preferred stock having the same
rights, privileges and preferences as the Preferred Stock).

      In the event (i) any person or group becomes an Acquiring Person or (ii)
any of the types of transactions, acquisitions or other events described above
as self-dealing transactions occur, and prior to the acquisition by such person
or group of 50% or more of the outstanding shares of Common Stock, the Board may
require all or any portion of the outstanding Rights (other than Rights owned by
such Acquiring Person which have become void) to be exchanged for Common Stock
on a pro rata basis, at an exchange ratio of one share of Common Stock or one
one-thousandth of a share of Preferred Stock (or of a share of a class or series
of the Company's Preferred Stock having equivalent rights, preferences and
privileges), per Right (subject to adjustment).

      No fractional shares of Preferred Stock shall be issued upon the exercise
of any Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-thousandth of a share of Preferred Stock, which may, at the
option of the Company, be evidenced by

                                       3
<PAGE>   49

depositary receipts), and no fractional shares of Common Stock will be issued
upon the exchange of any Right or Rights evidenced hereby, and in lieu thereof,
as provided in the Rights Agreement, fractions of shares of Preferred Stock or
Common Stock shall receive an amount in cash equal to the same fraction of the
then Current Market Price (as such term is defined in the Rights Agreement) of a
share of Preferred Stock or Common Stock, as the case may be.

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

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

      WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of _______________, 20___.

ATTEST:                                 AXT, Inc.

                                        By:
-------------------------------------      -------------------------------------
Secretary
                                        Title:
                                              ----------------------------------

COUNTERSIGNED:                          Computershare Trust Company, Inc.,
                                        As Rights Agent

                                        By:
                                           -------------------------------------
                                            Authorized Officer

                                       4
<PAGE>   50

                    Form of Reverse Side of Right Certificate

                               FORM OF ASSIGNMENT

             (To be executed by the registered holder if such holder
                  desires to transfer any or all of the Rights
                     represented by this Right Certificate)

      FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto

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

--------------------------------------------------------------------------------
                   (Name, address and social security or other
                        identifying number of transferee)

___________________________________ (_______________) of the Rights represented
by this Right Certificate, together with all right, title and interest in and to
said Rights, and hereby irrevocably constitutes and appoints
_________________________ attorney to transfer said Rights on the books of the
within-named Company with full power of substitution.

      Dated:                            ----------------------------------------
            -----------------           (Signature)

Signature Guaranteed:

                                   CERTIFICATE

      The undersigned hereby certifies by checking the appropriate boxes that:

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

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

      Dated:                            ----------------------------------------
            -----------------           (Signature)

Signature Guaranteed:

                                       5
<PAGE>   51

                    Form of Reverse Side of Right Certificate
                                   (continued)

                                     NOTICE

      The signatures to the foregoing Assignment and the foregoing Certificate,
if applicable, 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, and must be guaranteed by a participant in a Securities
Transfer Association ("STA") recognized signature program.

      In the event that the foregoing Certificate is not duly executed, with
signature guaranteed, the Company may deem the Rights represented by this Right
Certificate to be Beneficially Owned by an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such capitalized terms are defined in the
Rights Agreement), and not issue any Right Certificate or Right Certificates in
exchange for this Right Certificate.

                                       6
<PAGE>   52

                      Form of Reverse of Right Certificate
                                   (continued)

                          FORM OF ELECTION TO PURCHASE

             (To be executed by the registered holder if such holder
                  desires to exercise any or all of the Rights
                     represented by this Right Certificate)

To:

      The undersigned hereby irrevocably elects to exercise ___________________
(__________) of the Rights represented by this Right Certificate to purchase the
shares of the Common Stock of the Company, or other securities or property
issuable upon the exercise of said number of Rights pursuant to the Rights
Agreement.

      The undersigned hereby requests that a certificate for any such securities
and any such property be issued in the name of and delivered to:

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

--------------------------------------------------------------------------------
                   (Name, address and social security or other
                          identifying number of issuee)

      The undersigned hereby further requests that if said number of Rights
shall not be all the Rights represented by this Right Certificate, a new Right
Certificate for the remaining balance of such Rights be issued in the name of
and delivered to:

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

                   (Name, address and social security or other
                          identifying number of issuee)

      Dated:                            ----------------------------------------
            -----------------           (Signature)

Signature Guaranteed:

                                       7
<PAGE>   53

                    Form of Reverse Side of Right Certificate
                                   (continued)

                                   CERTIFICATE

      The undersigned hereby certifies by checking the appropriate boxes that:

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

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

      Dated:                            ----------------------------------------
            -----------------           (Signature)

Signature Guaranteed:

                                     NOTICE

      The signature to the foregoing Election to Purchase and the foregoing
Certificate, if applicable, must correspond to the name as written upon the face
of the this Right Certificate in every particular, without alteration or
enlargement or any change whatsoever, and must be guaranteed by a member firm of
a registered national securities exchange, a member of the National Association
of Securities Dealers, Inc., or a commercial bank or trust company having an
office or correspondent in the United States.

      In the event that the foregoing Certificate is not executed, with
signature guaranteed, the Company may deem the Rights represented by this Right
Certificate to be Beneficially Owned by an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such capitalized terms are defined in the
Rights Agreement), and not issue any Right Certificate or Right Certificates in
exchange for this Right Certificate.

                                       8
<PAGE>   54

     UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
ISSUED TO, BENEFICIALLY OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR BECOMES
AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) OR AN ASSOCIATE OR
AFFILIATE (AS DEFINED IN THE RIGHTS AGREEMENT) THEREOF AND CERTAIN TRANSFEREES
THEREOF WILL BE NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.

                                   AXT, INC.

                              SUMMARY OF TERMS OF
                                RIGHTS AGREEMENT

NATURE OF RIGHT:                 When exercisable, each Right (a "Right") will
                                 initially entitle the holder to purchase one
                                 one-thousandth of a share of Series B Preferred
                                 Stock ("Preferred Stock") of AXT, Inc. (the
                                 "Company").

MEANS OF DISTRIBUTION:           The Rights will be distributed to holders of
                                 the Company's outstanding Common Stock as a
                                 dividend of one Right for each share of Common
                                 Stock. The Rights will also be attached to all
                                 future issuances of Common Stock prior to the
                                 Distribution Date (as defined below).

EXERCISABILITY:                  Rights become exercisable on the earlier of:
                                 (i) the tenth day following the date of public
                                 announcement by the Company or by any person or
                                 group (an "Acquiring Person") that such person
                                 or group has acquired beneficial ownership of
                                 15% or more of the Company's outstanding Common
                                 Stock, or (ii) the tenth business day (unless
                                 extended by the Board prior to the time a
                                 person becomes an Acquiring Person) following
                                 the commencement, or announcement of an
                                 intention to commence, by any person or group
                                 of a tender or exchange offer which would
                                 result in such person owning 15% or more of the
                                 outstanding Common Stock of the Company (the
                                 earlier of such dates being referred to as the
                                 "Distribution Date"), provided that an
                                 Acquiring Person does not include an Exempt
                                 Person (as such term is defined in the Rights
                                 Agreement). Rights will trade separately from
                                 the Common Stock once the Rights become
                                 exercisable.

EXERCISE PRICE:                  $131.00 per one one-thousandth of a share of
                                 Preferred Stock, which is the amount that in
                                 the judgment of the Board of Directors
                                 represents the long-term value of the Common
                                 Stock over the term of the Rights Agreement
                                 (the "Exercise Price").

TERM:                            The Rights will expire upon the earlier of (i)
                                 ten years after the date of issuance, or April
                                 24, 2011 or (ii) redemption or exchange by the
                                 Company as described below.

REDEMPTION OF RIGHTS:            Rights are redeemable at a price of $.001 per
                                 Right, by the vote of the Company's Board of
                                 Directors, at any time until the occurrence of
                                 a Flip-In Event (defined below).

PREFERRED STOCK:                 The Preferred Stock purchasable upon exercise
                                 of the Rights will be nonredeemable and junior
                                 to any other series of preferred stock the
                                 Company may issue (unless otherwise provided in
                                 the terms of such other series). Each share of
                                 Preferred Stock will have a preferential
                                 cumulative quarterly dividend in an amount
                                 equal to

                                        1
<PAGE>   55

                                 the greater of (a) $3,275.00 or (b) 1,000 times
                                 the dividend declared on each share of Common
                                 Stock. In the event of liquidation, the holders
                                 of Preferred Stock will receive a preferred
                                 liquidation payment equal to the greater of (a)
                                 $131,000.00 per share, plus accrued dividends
                                 to the date of distribution whether or not
                                 earned or declared, or (b) an amount per share
                                 equal to 1,000 times the aggregate payment to
                                 be distributed per share of Common Stock. Each
                                 share of Preferred Stock will have 1,000 votes,
                                 voting together with the shares of Common
                                 Stock. In the event of any merger,
                                 consolidation or other transaction in which
                                 shares of Common Stock are exchanged for or
                                 changed into other securities, cash and/or
                                 other property, each share of Preferred Stock
                                 will be entitled to receive 1,000 times the
                                 amount and type of consideration received per
                                 share of Common Stock. The rights of the
                                 Preferred Stock as to dividends, liquidation
                                 and voting, and in the event of mergers and
                                 consolidations, are protected by customary
                                 anti-dilution provisions. Fractional shares (in
                                 integral multiples of one one-thousandth) of
                                 Preferred Stock will be issuable; however, the
                                 Company may elect to distribute depositary
                                 receipts in lieu of such fractional shares. In
                                 lieu of fractional shares other than fractions
                                 that are multiples of one one-thousandth of a
                                 share, an adjustment in cash will be made based
                                 on the market price of the Preferred Stock on
                                 the last trading date prior to the date of
                                 exercise. Because of the nature of the
                                 Preferred Stock's dividend, liquidation and
                                 voting rights, the value of one one-thousandth
                                 of a share of Preferred Stock purchasable upon
                                 exercise of each Right should approximate the
                                 value of one share of Common Stock.

RIGHTS IN EVENT OF
SELF-DEALING
TRANSACTION OR ACQUISITION OF
SUBSTANTIAL AMOUNT OF COMMON
STOCK:                           In the event that an Acquiring Person engages
                                 in certain self-dealing transactions with the
                                 Company, or a Person or becomes the beneficial
                                 owner of 15% or more of the outstanding Common
                                 Stock ("Flip-In Events"), a holder of a Right
                                 thereafter has the right to purchase, upon
                                 payment of the then current Exercise Price, in
                                 lieu of one one-thousandth of a share of
                                 Preferred Stock per outstanding Right, such
                                 number of shares of Common Stock having a
                                 market value at the time of the transaction
                                 equal to the Exercise Price divided by one-half
                                 the Current Market Price (as defined in the
                                 Rights Agreement) of the Common Stock.
                                 Notwithstanding the foregoing, Rights held by
                                 the Acquiring Person or any Associate or
                                 Affiliate thereof or certain transferees will
                                 be null and void and no longer be transferable.

                                 Self-dealing transactions are defined to
                                 include a consolidation, merger or other
                                 combination of an Acquiring Person with the
                                 Company in which the Company is the surviving
                                 corporation, the transfer of assets to the
                                 Company in exchange for securities of the
                                 Company, the acquisition of securities of the
                                 Company (other than in a pro rata distribution
                                 to all stockholders), the sale, purchase,
                                 transfer, distribution, lease, mortgage, pledge
                                 or acquisition of assets by the Acquiring
                                 Person to, from or with the Company on other
                                 than an arm's length basis, compensation to an
                                 Acquiring Person for services (other than for
                                 employment as a regular or part-time employee
                                 or director on a basis consistent with the
                                 Company's past practice), a loan or provision
                                 of other financial
                                        2
<PAGE>   56

                                 assistance (except proportionately as a
                                 stockholder) to an Acquiring Person or the
                                 licensing, sale or other transfer of
                                 proprietary technology or know-how from the
                                 Company to the Acquiring Person on terms not
                                 approved by the Board of Directors or a
                                 reclassification, recapitalization or other
                                 transaction with the effect of increasing by
                                 more than 1% the Acquiring Person's
                                 proportionate share of any class of securities
                                 of the Company.

RIGHTS IN EVENT OF BUSINESS
COMBINATION:                     If, following the occurrence of a Flip-In
                                 Event, the Company is acquired by any person in
                                 a merger or other business combination
                                 transaction in which the Common Stock is
                                 exchanged or converted or in which the Company
                                 is not the surviving corporation, or 50% or
                                 more of its assets or earnings power are sold
                                 to any person, each holder of a Right (other
                                 than an Acquiring Person, or Affiliates or
                                 Associates thereof) shall thereafter have the
                                 right to purchase, upon payment of the then
                                 current Exercise Price, such number of shares
                                 of common stock of the acquiring company having
                                 a current market value equal to the Exercise
                                 Price divided by one-half the Current Market
                                 Price of such common stock.

EXCHANGE OPTION:                 In the event (i) any person or group becomes an
                                 Acquiring Person or (ii) any of the types of
                                 transactions, acquisitions or other events
                                 described above as self-dealing transactions
                                 occur, and prior to the acquisition by such
                                 person or group of 50% or more of the
                                 outstanding shares of Common Stock, the Board
                                 may require all or any portion of the
                                 outstanding Rights (other than Rights owned by
                                 such Acquiring Person which have become void)
                                 to be exchanged for Common Stock on a pro rata
                                 basis, at an exchange ratio of one share of
                                 Common Stock or one one-thousandth of a share
                                 of Preferred Stock (or of a share of a class or
                                 series of the Company's Preferred Stock having
                                 equivalent rights, preferences and privileges),
                                 per Right (subject to adjustment).

FRACTIONAL SHARES:               No fractional shares of Common Stock will be
                                 issued upon exercise of the Rights and, in lieu
                                 thereof, a payment in cash will be made to the
                                 holder of such Rights equal to the same
                                 fraction of the current market value of a share
                                 of Common Stock.

ADJUSTMENT:                      The Exercise Price payable, and the number of
                                 shares of Preferred Stock or other securities
                                 or property issuable, upon exercise of the
                                 Rights are subject to adjustment from time to
                                 time to prevent dilution (i) in the event of a
                                 stock dividend on, or a subdivision,
                                 combination or reclassification of the
                                 Preferred Stock, (ii) upon the grant to holders
                                 of the Preferred Stock of certain rights or
                                 warrants to subscribe for Preferred Stock or
                                 convertible securities at less than the current
                                 market price of the Preferred Stock or (iii)
                                 upon the distribution to holders of the
                                 Preferred Stock of evidences of indebtedness or
                                 assets (excluding dividends payable in
                                 Preferred Stock) or of subscription rights or
                                 warrants (other than those referred to above).
                                 The number of Rights associated with each share
                                 of Common Stock is also subject to adjustment
                                 in the event of a stock split of the Common
                                 Stock or a stock dividend on the Common Stock
                                 payable in Common Stock or subdivisions,
                                 consolidations or combinations of the Common
                                 Stock occurring, in any such case, prior to the
                                 Distribution Date.
                                        3
<PAGE>   57

RIGHTS AS STOCKHOLDER:           The Rights themselves do not entitle the holder
                                 thereof to any rights as a stockholder,
                                 including, without limitation, voting rights or
                                 to receive dividends.

AMENDMENT OF RIGHTS:             Until the Rights become nonredeemable, the
                                 Company may, except with respect to the
                                 redemption price, amend the Agreement in any
                                 manner. After the Rights become nonredeemable,
                                 the Company may amend the Agreement to cure any
                                 ambiguity, to correct or supplement any
                                 provision which may be defective or
                                 inconsistent with any other provisions, to
                                 shorten or lengthen any time period under the
                                 Rights Agreement, or to change or supplement
                                 any provision in any manner the Company may
                                 deem necessary or desirable, provided that no
                                 such amendment may adversely affect the
                                 interests of the holders of the Rights (other
                                 than the Acquiring Person or its Affiliates or
                                 Associates) or cause the Rights to again be
                                 redeemable or the Agreement to again be freely
                                 amendable.

     A COPY OF THE RIGHTS AGREEMENT IS AVAILABLE, FREE OF CHARGE, FROM THE
COMPANY, AXT, INC., 4281 TECHNOLOGY DRIVE, FREMONT, CALIFORNIA, 94538,
ATTENTION: CORPORATE SECRETARY. THIS SUMMARY DESCRIPTION OF THE RIGHTS AGREEMENT
DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE RIGHTS AGREEMENT, AS AMENDED FROM TIME TO TIME, WHICH IS INCORPORATED IN
THIS SUMMARY DESCRIPTION BY REFERENCE.

                                        4<PAGE>   1
                                                                     EXHIBIT 4.1

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

                       ALLIANCE FIBER OPTIC PRODUCTS, INC.
                             a Delaware corporation

                                       and

                          MELLON INVESTOR SERVICES LLC
                     a New Jersey limited liability company

                                  Rights Agent

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

                                Rights Agreement

                            Dated as of May 29, 2001

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

<PAGE>   2

                                TABLE OF CONTENTS

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

2.   Appointment of Rights Agent.............................................................4

3.   Issue of Rights Certificates............................................................5

4.   Form of Rights Certificates.............................................................6

5.   Countersignature and Registration.......................................................7

6.   Transfer,  Split Up, Combination and Exchange of Rights  Certificates;  Mutilated,
     Destroyed, Lost or Stolen Rights Certificates...........................................7

7.   Exercise of Rights; Purchase Price; Expiration Date of Rights...........................8

8.   Cancellation and Destruction of Rights Certificates....................................10

9.   Reservation and Availability of Preferred Stock........................................10

10.  Preferred Stock Record Date............................................................12

11.  Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights............12

12.  Certificate of Adjusted Purchase Price or Number of Shares.............................19

13.  Consolidation, Merger or Sale or Transfer of Assets or Earning Power...................19

14.  Additional Covenants...................................................................21

15.  Fractional Rights and Fractional Shares................................................22

16.  Rights of Action.......................................................................23

17.  Agreement of Rights Holders............................................................23

18.  Rights Certificate Holder Not Deemed a Stockholder.....................................24

19.  Concerning the Rights Agent............................................................24

20.  Merger or Consolidation or Change of Name of Rights Agent..............................25

21.  Duties of Rights Agent.................................................................25
</TABLE>

<PAGE>   3

<TABLE>
<S>                                                                                         <C>
22.  Change of Rights Agent.................................................................27

23.  Issuance of New Rights Certificates....................................................28

24.  Redemption, Termination and Exchange...................................................29

25.  Notice of Certain Events...............................................................31

26.  Notices................................................................................32

27.  Supplements and Amendments.............................................................32

28.  Determination and Actions by the Board.................................................33

29.  Successors.............................................................................33

30.  Benefits of This Agreement.............................................................33

31.  Severability...........................................................................33

32.  Governing Law..........................................................................33

33.  Counterparts...........................................................................34

34.  Descriptive Headings...................................................................34

Exhibit A --   Certificate of Designation of Series A
               Participating Preferred Stock...............................................A-1

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

Exhibit C --   Form of Summary of Rights...................................................C-1
</TABLE>

<PAGE>   4

                                RIGHTS AGREEMENT

THIS RIGHTS AGREEMENT (this "Agreement") is dated as of May 29, 2001, between
ALLIANCE FIBER OPTIC PRODUCTS, INC., a Delaware corporation (the "Company"), and
MELLON INVESTOR SERVICES LLC, a New Jersey limited liability company (the
"Rights Agent").

                              W I T N E S S E T H:

        WHEREAS, on May 18, 2001, the Board of Directors of the Company (the
"Board") authorized and declared a dividend distribution of one Right (as
hereinafter defined) for each share of Common Stock, par value $0.001 per share,
of the Company (the "Common Stock") outstanding as of the Close of business on
June 12, 2001 (the "Record Date"), and contemplates the issuance of one Right
(subject to adjustment as provided herein) for each share of Common Stock issued
between the Record Date and the earlier of the Distribution Date and the
Expiration Date, as such terms are hereinafter defined (with Rights also to be
issued in connection with certain issuances of Common Stock after the
Distribution Date, as provided more fully herein), each Right representing the
right to purchase one one-thousandth of a share of Series A Participating
Preferred Stock, par value $0.001 per share, of the Company (the "Preferred
Stock") having the rights, powers and preferences set forth in the form of
Certificate of Designation attached hereto as Exhibit A (the "Certificate of
Designation"), 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 hereto hereby agree as follows:

        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 fifteen percent (15%) or more of the shares of Common Stock then outstanding
or who was such a Beneficial Owner at any time on or after the date hereof,
whether or not such Person continues to be the Beneficial Owner of fifteen
percent (15%) or more of the outstanding shares of Common Stock. Notwithstanding
the foregoing:

               (i) in no event shall a Person who or which, together with all
        Affiliates and Associates of such Person, is the Beneficial Owner of
        less than fifteen percent (15%) of the outstanding shares of Common
        Stock become an Acquiring Person solely as a result of a reduction of
        the number of shares of outstanding Common Stock, including repurchases
        of outstanding shares of Common Stock by the Company, which reduction
        increases the percentage of outstanding shares of Common Stock
        beneficially owned by such Person; provided, however, that any
        subsequent increase in the amount of Common Stock beneficially owned by
        such Person, together with all Affiliates and Associates of such Person,
        without the prior written approval of the Board shall cause

<PAGE>   5

        such Person to be an Acquiring Person (unless, measured at such time,
        such Person would not be an Acquiring Person);

               (ii) the term Acquiring Person shall not mean: (A) the Company;
        (B) any subsidiary of the Company (as such term is hereinafter defined);
        (C) any employee benefit plan of the Company or any of its subsidiaries;
        (D) any entity holding securities of the Company organized, appointed or
        established by the Company or any of its subsidiaries for or pursuant to
        the terms of any such plan; (E) any underwriter acting in good faith in
        a firm commitment underwriting of an offering of the Company's
        securities pursuant to arrangements with the Company that have been
        approved by the Board (however, the exception provided by this clause
        (E) shall no longer be available in the event that any such underwriter
        is otherwise an Acquiring Person on or after the date which is forty
        (40) days after the date of initial acquisition of the Company's
        securities by such underwriter in connection with such offering); or (F)
        Foxconn Holding Limited (referred to collectively with its Affiliates
        and Associates as "Foxconn"), provided that Foxconn is not the
        Beneficial Owner of a percentage of the outstanding shares of Common
        Stock that is greater (by more than one percent (1%) of the outstanding
        shares of Common Stock) than (1) the percentage of the outstanding
        shares of Common Stock as to which Foxconn has Beneficial Ownership on
        the date hereof or (2) such lesser percentage as to which Foxconn has
        Beneficial Ownership following any transfer of securities by Foxconn
        after the date hereof (except that this clause (F) shall pertain only
        until such time as Foxconn has Beneficial Ownership of less than fifteen
        percent (15%) of the outstanding shares of Common Stock); and

               (iii) no Person shall be deemed to be an Acquiring Person if:
        (A)(1) any Schedule 13D under the Securities Exchange Act of 1934, as
        amended (the "Exchange Act"), or any comparable or successor report,
        filed (or required to be filed) by such Person does not (or would not)
        state any intention to or reserve the right to control or influence the
        management or policies of the Company or engage in any of the actions
        specified in Item 4 (or any comparable or successor Item) of such
        Schedule 13D (other than the disposition of Common Stock), (2) either
        (x) within two Business Days of being requested by the Company to advise
        the Company regarding the same, such Person certifies in writing to the
        Company that such Person acquired Beneficial Ownership of fifteen
        percent (15%) or more of the outstanding shares of Common Stock
        inadvertently or without knowledge of the terms of the Rights, or (y)
        the Board determines in good faith that such Person has become an
        Acquiring Person inadvertently, (3) such Person divests as promptly as
        practicable (as determined in good faith by the Board) a sufficient
        number of securities so that such Person shall not be deemed to be an
        Acquiring Person pursuant to the first sentence of this Section 1(a),
        and (4) promptly following such Person's divestiture of such securities,
        such Person certifies to the Board that such Person is no longer an
        Acquiring Person as defined pursuant to the first sentence of this
        Section 1(a); or (B) by reason of such Person's Beneficial Ownership of
        fifteen percent (15%) or more of the outstanding shares of Common Stock
        on the date hereof if prior to the Record Date such Person notifies the
        Board that such Person is no longer the Beneficial Owner of fifteen
        percent (15%) or more of the then outstanding shares of Common Stock.

                                       2
<PAGE>   6

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

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

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

               (ii) which such Person or any of such Person's Affiliates or
        Associates has (A) the right or obligation to acquire (whether such
        right or obligation is exercisable or effective immediately or only
        after the passage of time) pursuant to any agreement, arrangement or
        understanding (whether or not in writing) or upon the exercise of
        conversion rights, exchange rights, rights (other than the Rights),
        warrants or options, or otherwise; provided, however, that a Person
        shall not be deemed (under this clause (A)) the "Beneficial Owner," and
        shall not be deemed (under this clause (A)) to "beneficially own" or
        have "Beneficial Ownership," of 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 payment or exchange; or (B) the right to vote or dispose of
        pursuant to any agreement, arrangement or understanding (whether or not
        in writing); provided, however, that a Person shall not be deemed the
        "Beneficial Owner," and shall not be deemed to "beneficially own" or
        have "Beneficial Ownership," of any security under this clause (B) if
        the agreement, arrangement or understanding to vote such security (1)
        arises solely from a revocable proxy given in response to a public proxy
        or consent solicitation made pursuant to, and in accordance with, the
        applicable rules and regulations of the Exchange Act and (2) is not also
        then reportable by such Person on Schedule 13D under the Exchange Act
        (or any comparable or successor report); or

               (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), or with which such Person or any of such Person's
        Affiliates or Associates have otherwise formed a group, for the purpose
        of acquiring, holding, voting (except pursuant to a revocable proxy as
        described in clause (B) of subparagraph (ii) of this paragraph (c)) or
        disposing of any securities of the Company.

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

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

                                       3
<PAGE>   7

           (f) "Common Stock" shall mean the Common Stock, par value $0.001 per
share, of the Company or any other shares of capital stock of the Company into
which such Common Stock may be reclassified or exchanged, except that "Common
Stock" when used with reference to stock issued by any Person other than the
Company shall mean the capital stock with the greatest voting power, or the
equity securities or other equity interest having power to control or direct the
management, of such Person or, if such Person is a subsidiary of another Person,
of the Person which ultimately controls such first-mentioned Person and which
has issued and outstanding such capital stock, equity securities or equity
interests.

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

           (h) "Permitted Offer" shall mean a tender or exchange offer for all
outstanding shares of Common Stock at a price and on terms determined, prior to
the date of the first acceptance of payment for any of such shares, to be in the
best interests of the Company and its stockholders (other than the offeror or
any Affiliate or Associate thereof) by at least a majority of the members of the
Board who are not (i) officers of the Company, (ii) the offeror, (iii) Acquiring
Persons or (iv) Affiliates or Associates of the offeror or any Acquiring Person.

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

           (j) "Preferred Stock" shall mean the Series A Participating Preferred
Stock, par value $0.001 per share, of the Company.

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

           (l) A "subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity securities
or voting interests is owned, directly or indirectly, by such Person, or which
is otherwise controlled by such Person.

           (m) "Triggering Event" shall mean a Section 11 Event (as defined in
Section 11(a) hereof) or a Section 13 Event (as defined in Section 13(a)
hereof).

           (n) "Voting power" shall mean the voting power of all securities of
the Company then outstanding and generally entitled to vote for the election of
directors of the Company.

        2. Appointment of Rights Agent. The Company hereby appoints the Rights
Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable upon 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 Agents and any
co-Rights Agents shall be as the Company shall determine.

                                       4
<PAGE>   8

        3. Issue of Rights Certificates.

           (a) Until the earlier of (i) the Stock Acquisition Date or (ii) the
Close of Business on the tenth Business Day (or such later date as may be
determined by action of the Board) after the date of the commencement
(determined in accordance with Rule 14d-2 under the Exchange Act or, if no
longer applicable, the intent of the same as in effect on the date hereof as
determined in good faith by the Board) by any Person (other than the Company,
any subsidiary of the Company, any employee benefit plan of the Company or any
of its subsidiaries, or any entity organized, appointed or established by the
Company or any of its subsidiaries for or pursuant to the terms of any such
plan) of a tender or exchange offer (other than a Permitted Offer) the
consummation of which would result in such Person becoming an Acquiring Person
(including any such date which is on or after the date of this Agreement and
prior to the issuance of the Rights) (the earlier of such dates being herein
referred to as the "Distribution Date"), (x) the Rights shall be evidenced
(subject to the provisions of paragraph (b) of this Section 3) by the
certificates for Common Stock registered in the names of the holders of the
Common Stock (which certificates for Common Stock shall be deemed also to be
certificates for Rights) and not by separate certificates and (y) the Rights
(and the right to receive certificates therefor) shall be transferable only in
connection with the transfer of the underlying shares of Common Stock. As soon
as practicable after the Distribution Date, the Company shall provide the Rights
Agent with a list of shareholders of Common Stock and the Rights Agent shall
send, by first-class, insured, postage prepaid mail, to each record holder of
the Common Stock as of the Close of Business on the Distribution Date, at the
address of such holder shown on the records of the Company, a certificate for
Rights, in substantially the form of Exhibit B hereto (the "Rights
Certificates"), evidencing one Right for each share of Common Stock so held
(subject to adjustment as provided herein). As of and after the Distribution
Date, the Rights shall be evidenced solely by such Rights Certificates.

        As soon as practicable following the Record Date, the Company shall send
a copy of a Summary of Rights, in substantially the form attached hereto as
Exhibit C (the "Summary of Rights"), by first-class, postage prepaid mail, to
each record holder of the Common Stock as of the Close of Business on the Record
Date, at the address of such holder shown on the records of the Company. With
respect to certificates for the Common Stock outstanding as of the Record Date,
until the Distribution Date (or earlier redemption, expiration or termination of
the Rights), the Rights shall be evidenced by such certificates for the Common
Stock and the registered holders of the Common Stock shall also be the
registered holders of the associated Rights. Until the Distribution Date (or
earlier redemption, expiration or termination of the Rights), the surrender for
transfer of any of the certificates for the Common Stock outstanding on the
Record Date shall also constitute the transfer of the Rights associated with the
Common Stock represented by such certificate.

           (b) Certificates issued for Common Stock (including, without
limitation, certificates issued upon transfer or exchange of Common Stock) after
the Record Date, but prior to the earlier of the Distribution Date or the
Expiration Date (as such term is hereinafter defined), shall be deemed also to
be certificates for Rights, and shall have impressed, printed, stamped, written
or otherwise affixed onto them the following legend:

                                       5
<PAGE>   9

        This certificate also evidences and entitles the holder hereof to
        certain Rights as set forth in a Rights Agreement between Alliance Fiber
        Optic Products, Inc. (the "Company") and Mellon Investor Services LLC
        (the "Rights Agent") dated as of May 29, 2001 (the "Rights Agreement"),
        the terms of which are hereby incorporated herein by reference and a
        copy of which is on file at the principal offices of the Company. Under
        certain circumstances, as set forth in the Rights Agreement, such Rights
        may be redeemed, may expire, or may be evidenced by separate
        Certificates and will no longer be evidenced by this Certificate. The
        Company will mail to the holder of this certificate a copy of the Rights
        Agreement without charge after receipt of a written request therefor.
        Under certain circumstances, Rights beneficially owned by Acquiring
        Persons (as defined in the Rights Agreement) or certain related Persons
        and any subsequent holder of such Rights may become null and void.

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

        4. Form of Rights Certificates.

           (a) The Rights Certificates (and the forms of election to purchase
shares and of assignment and certificates to be printed on the reverse thereof)
shall each be substantially in the form set forth in Exhibit B hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange or interdealer
quotation system on which the Rights may from time to time be listed or traded,
or to conform to usage. Subject to the provisions of Section 11 and Section 23
hereof, the Rights Certificates, whenever distributed, shall be dated as of the
Record Date, and on their face shall entitle the holders thereof to purchase
such number of one one-thousandths of a share of Preferred Stock as shall be set
forth therein at the price per one one-thousandth of a share set forth therein
(the "Purchase Price"), such Purchase Price to be initially equal to the amount
set forth in Section 7(b) below but the number of one one-thousandths of a share
and the Purchase Price shall be subject to adjustment as provided herein.

           (b) Any Rights Certificate issued pursuant to Section 3(a) hereof
that represents Rights beneficially owned by an Acquiring Person or any
Associate or Affiliate thereof, any Rights Certificate issued at any time upon
the transfer of any Rights to such an Acquiring Person or any Associate or
Affiliate thereof or to any nominee of such Acquiring Person, Associate or
Affiliate, and any Rights Certificate issued pursuant to Section 6, Section 11
or Section 23 hereof upon transfer, exchange, replacement or adjustment of any
other Rights Certificate referred to in this sentence, shall contain the
following legend:

                                       6
<PAGE>   10

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

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

        5. Countersignature and Registration.

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

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

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

           (a) Subject to the provisions of Sections 7(e), 7(f) and 15 hereof,
at any time after the Close of Business on the Distribution Date, and at or
prior to the Close of Business on the Expiration Date, any Rights Certificate or
Certificates may be transferred, split up, combined or exchanged for another
Rights Certificate or Rights Certificates, entitling the registered holder to
purchase a like number of one one-thousandths of a share of Preferred Stock (or,
after the occurrence of a Triggering Event, shares of Common Stock or other
securities and property, as the case may be) as the Rights Certificate or Rights
Certificates surrendered then entitled such holder (or former holder in the case
of a transfer) to purchase. Any registered holder desiring to transfer, split
up, combine or exchange any Rights Certificate shall make such request in
writing delivered to the Rights Agent, and shall surrender the Rights
Certificate or Rights Certificates to be transferred, split up, combined or
exchanged at the office of the Rights Agent set forth in

                                       7
<PAGE>   11

Section 26 hereof. Subject to receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them (as the Company may reasonably request)
of the identity of the Beneficial Owner (or former Beneficial Owner) of the
Rights Certificate or the Affiliates or Associates thereof, the Rights Agent
shall (subject to Section 7(e) hereof) thereupon countersign and deliver to the
Person entitled thereto a Rights Certificate or Rights Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Rights Certificates. The Rights
Agent shall have no duty or obligation under this Section 6 unless and until it
is satisfied that all taxes and/or charges have been paid in full.

           (b) Subject to the provisions of Sections 7(e), 7(f) and 15 hereof,
upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Rights
Certificate and 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, 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 Rights
Certificate if mutilated, the Company shall execute and deliver a new Rights
Certificate of like tenor to the Rights Agent for countersignature and delivery
to the registered owner in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.

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

           (a) Subject to the provisions of Sections 7(e) and 7(f) hereof, the
registered holder of any Rights 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 presentation of the Rights Certificate, with
the appropriate form of election to purchase on the reverse side thereof duly
executed, to the Rights Agent at the office of the Rights Agent set forth in
Section 26 hereof, together with payment of the Purchase Price for each one
one-thousandth share of Preferred Stock (or such other securities or property as
the case may be) as to which the Rights are exercised, at or prior to the
earliest of (i) the Close of Business on May 29, 2011 (the "Final Expiration
Date"), (ii) the time at which the Rights are redeemed as provided in Section 24
hereof, (iii) the consummation of a transaction contemplated by Section 13(d)
hereof or (iv) the time at which the Rights are exchanged as provided in Section
24(c) hereof (such earliest time being herein referred to as the "Expiration
Date"). Notwithstanding any other provision of this Agreement, any Person who
prior to the Distribution Date becomes a record holder of shares of Common Stock
may exercise all of the rights of a registered holder of a Rights Certificate
with respect to the Rights associated with such shares of Common Stock in
accordance with and subject to the provisions of this Agreement, including the
provisions of Section 7(e) hereof, as of the date such Person becomes a record
holder of shares of Common Stock.

           (b) The Purchase Price for each one one-thousandth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be $80.00,
shall be subject to adjustment

                                       8
<PAGE>   12

from time to time as provided in Sections 11 and 13 hereof and shall be payable
in lawful money of the United States of America in accordance with paragraph (c)
of this Section 7 below.

           (c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the appropriate form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the fractional interests in
shares of Preferred Stock (or other securities or property) to be purchased and
an amount equal to any applicable tax (as determined by the Rights Agent) in
cash, or by certified check or bank draft payable to the order of the Company,
the Rights Agent shall, subject to Section 21(k) hereof, thereupon promptly
(i)(A) requisition from any transfer agent of the shares of Preferred Stock (or
make available, if the Rights Agent is the transfer agent) certificates for the
number of one one-thousandths of a share of Preferred Stock to be purchased, and
the Company hereby irrevocably authorizes its transfer agent to comply with all
such requests, or (B) if the Company, in its sole discretion, shall have elected
to deposit the fractional interests in shares of Preferred Stock issuable upon
exercise of the Rights hereunder into a depositary, requisition from the
depositary agent depositary receipts representing such number of one
one-thousandths of a share of Preferred Stock as are to be purchased (in which
case certificates for the one one-thousandths of a share of Preferred Stock
represented by such receipts shall be deposited by the transfer agent with the
depositary agent) and the Company shall 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 15, (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 Rights 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
Rights Certificate. In the event that the Company is obligated to issue other
securities of the Company, and/or distribute other property pursuant to Section
11(a), the Company shall make all arrangements necessary so that such other
securities and/or property are available for distribution by the Rights Agent,
if and when appropriate. In addition, in the case of an exercise of the Rights
by a holder pursuant to Section 11(a)(ii), the Rights Agent shall return such
Rights Certificate to the registered holder thereof after imprinting, stamping
or otherwise indicating thereon that the rights represented by such Rights
Certificate no longer include the rights provided by Section 11(a)(ii) hereof;
provided, however, that if less than all the Rights represented by such Rights
Certificate were so exercised, the Rights Agent shall indicate on the Rights
Certificate the number of Rights represented thereby which continue to include
the rights provided by Section 11(a)(ii).

           (d) In case the registered holder of any Rights Certificate shall
exercise (except pursuant to Section 11(a)(ii)) less than all the Rights
evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the
Rights remaining unexercised shall be issued by the Rights Agent and delivered
to the registered holder of such Rights Certificate or to such registered
holder's duly authorized assigns, subject to the provisions of Section 15
hereof.

           (e) Notwithstanding anything in this Agreement to the contrary, if
there occurs any Triggering Event, then any Rights that are or were on or after
the Distribution Date beneficially owned by an Acquiring Person or any Associate
or Affiliate of an Acquiring Person shall become null and void, without any
further action, and any holder of such Rights shall thereafter have no rights
whatsoever with respect to such Rights, whether under any provision of

                                       9
<PAGE>   13

this Agreement or otherwise. Without limiting the foregoing sentence, Rights
held by the following Persons shall be null and void without any further action:
(i) any direct or indirect transferee of any Rights that are or were on or after
the Distribution Date beneficially owned by an Acquiring Person or any Associate
or Affiliate of an Acquiring Person; (ii) any direct or indirect transferee of
any Rights that were on or before the Distribution Date beneficially owned by an
Acquiring Person or any Associate or Affiliate of an Acquiring Person if the
transferee received such Rights, directly or indirectly, (A) from an Acquiring
Person or any Associate or Affiliate of an Acquiring Person (x) as a result of a
distribution by such Acquiring Person or any Associate or Affiliate of an
Acquiring Person to holders of its equity securities or similar interests
(including, without limitation, partnership interests) or (y) pursuant to any
continuing agreement, arrangement or understanding with respect to the Rights or
(B) in a transfer (or series of transfers) which the Board determines is part of
a plan, arrangement or understanding which has the purpose or effect of avoiding
the provisions of this Section 7(e); and (iii) subsequent transferees of Persons
referred to in the foregoing clauses (i) and (ii) as well as this clause (iii).
The Company shall notify the Rights Agent when this Section 7(e) applies and
shall use all reasonable efforts to ensure that the provisions of this Section
7(e) are complied with, but neither the Company nor the Rights Agent shall have
any liability to any holder of Rights or any Rights Certificate or to any other
Person as a result of their failure to make any determination with respect to an
Acquiring Person or its Affiliates, Associates or transferees hereunder.

           (f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless the Certificate contained in the
appropriate form of Election to Purchase set forth on the reverse side of the
Rights Certificate surrendered for such exercise shall have been properly
completed and duly executed by the registered holder thereof and the Company
shall have been provided with 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.

        8. Cancellation and Destruction of Rights Certificates. All Rights
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
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 Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Rights Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Rights Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.

        9. Reservation and Availability of Preferred Stock.

           (a) The Company covenants and agrees that it shall cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock, or any authorized and issued shares of Preferred Stock (and,
following the occurrence of a Triggering Event, shares of

                                       10
<PAGE>   14

Common Stock and other securities) held in its treasury, the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, shares of
Common Stock and other securities) that will be sufficient (in accordance with
the provisions of this Agreement, including Section 11(a)(iii) hereof) to permit
the exercise in full of all outstanding Rights.

           (b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, shares of Common Stock and other securities)
issuable upon the exercise of the Rights may be listed on any stock exchange or
quoted on any national quotation system, the Company shall use its best efforts
to cause, from and after such time as the Rights become exercisable, all shares
(or other securities) reserved for such issuance to be listed on such exchange
or quoted on such system upon official notice of issuance upon such exercise.

           (c) If then required by applicable law, the Company shall use its
best efforts to (i) file, as soon as practicable following the earliest date
after the occurrence of a Triggering Event as to which the consideration to be
delivered by the Company upon exercise of the Rights has been determined
pursuant to this Agreement, or as soon as is required by law following the
Distribution Date, as the case may be, a registration statement under the
Securities Act of 1933, as amended (the "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 at all times meeting the requirements of the Act) until the earlier
of (A) the date as of which the Rights are no longer exercisable for such
securities, (B) the Expiration Date or (C) the date the Company receives an
opinion of counsel to the effect that the maintenance of such registration
statement in effect is no longer necessary. If then required by applicable law,
the Company will also take such action as may be appropriate under the
securities or "blue sky" laws of the various states. The Company may temporarily
suspend, for a period of time not to exceed ninety (90) days after the date set
forth in clause (i) of this Section 9(c), the exercisability of the Rights in
order to prepare and file such registration statement or to comply with such
blue sky laws. Upon any such suspension, the Company shall promptly notify the
Rights Agent thereof and issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended. Notwithstanding any
provision of this Agreement to the contrary, the Rights shall not be exercisable
in any jurisdiction unless the requisite qualification in such jurisdiction
shall have been obtained.

           (d) The Company covenants and agrees that it shall take all such
action as may be necessary to ensure that all one one-thousandths of a share of
Preferred Stock and/or other securities delivered upon exercise of Rights shall,
at the time of delivery of the certificates for such shares or other securities
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares or securities.

           (e) The Company further covenants and agrees that it shall pay when
due and payable any and all taxes and charges which may be payable in respect of
the issuance or delivery of the Rights Certificates or of any certificates for
one one-thousandths of a share of Preferred Stock and/or other securities upon
the exercise of Rights. The Company shall not, however, be required to (i) pay
any tax or charge which may be payable in respect of any transfer or delivery of
Rights Certificates to a Person other than, or in respect of the issuance or
delivery of the shares of Preferred Stock and/or other securities in a name
other than that of, the registered

                                       11
<PAGE>   15

holder of the Rights Certificates evidencing Rights surrendered for exercise or
(ii) issue or deliver any certificates for shares of Preferred Stock and/or
other securities in a name other than that of the registered holder upon the
exercise of any Rights until such tax or charge shall have been paid (any such
tax or charge being payable by the holder of such Rights Certificate at the time
of surrender) or until it has been established to the Company's satisfaction
that no such tax or charge is due.

        10. Preferred Stock Record Date. Each Person in whose name any
certificate for one one-thousandths of a share of Preferred Stock (or other
securities) is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of the fractional shares of Preferred
Stock (or other securities) represented thereby on, and such certificate shall
be dated, the date upon which the Rights Certificate evidencing such Rights was
duly presented and payment of the Purchase Price (and any applicable taxes or
charges) was made; provided, however, that if the date of such presentation and
payment is a date upon which the Preferred Stock (or other securities) transfer
books of the Company are closed, such Person shall be deemed to have become the
record holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Stock (or other securities)
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Rights Certificate, as such, shall not be
entitled to any rights of a stockholder 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.

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

            (a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Stock payable in shares
of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine
the outstanding Preferred Stock into a smaller number of shares or (D) issue any
shares of its capital stock in a reclassification of the Preferred Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a) and in Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock and other securities which, if such Right had been exercised
immediately prior to such date and at a time when the Preferred Stock transfer
books of the Company were open, such holder would have owned upon such exercise
and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. If an event occurs which would require an
adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof the
adjustment provided for in this Section 11(a)(i) shall be in addition to, and
shall be made prior to, any adjustment required pursuant to Section 11(a)(ii)
hereof.

                                       12
<PAGE>   16

                (ii) Subject to Section 24(c) hereof, in the event any Person,
alone or together with its Affiliates and Associates, shall become an Acquiring
Person other than pursuant to a Permitted Offer (such an event being a "Section
11 Event"), then, promptly following the first occurrence of such a Section 11
Event, proper provision shall be made so that each holder of a Right, except as
provided in Section 7(e) hereof, shall, for a period of sixty (60) days after
the later of the occurrence of any such Section 11 Event and the effective date
of an appropriate registration statement pursuant to Section 9 hereof, have a
right to receive, upon exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, in lieu of fractional interests in
shares of Preferred Stock, such number of shares of Common Stock of the Company
as shall equal the result obtained by (x) multiplying the then current Purchase
Price by the number of one one-thousandths of a share of Preferred Stock for
which a Right was exercisable immediately prior to the Section 11 Event at issue
and (y) dividing that product by fifty percent (50%) of the current market price
per one share of Common Stock (determined pursuant to Section 11(d) hereof) on
the date of the occurrence of the Section 11 Event at issue (such number of
shares being referred to as the "number of Adjustment Shares"); provided,
however, that if the transaction that would otherwise give rise to the foregoing
adjustment is also subject to the provisions of Section 13 hereof, then only the
provisions of Section 13 hereof shall apply and no adjustment shall be made
pursuant to this Section 11(a)(ii); and provided, further, that such sixty (60)
day period shall not be deemed to run during any period in which the exercise of
the Rights or the fulfillment by the Company or the Rights Agent of its or their
obligations under this Agreement shall be enjoined or otherwise prohibited in
full or in part by any court or other governmental agency or body.

                (iii) In lieu of issuing shares of Common Stock in accordance
with Section 11(a)(ii) hereof, the Company may, if a majority of the Board then
in office determines that such action is necessary or appropriate and not
contrary to the interests of holders of Rights, elect to (and, in the event that
the Board has not exercised the exchange right contained in Section 24(c) hereof
and there are not sufficient treasury shares and authorized but unissued shares
of Common Stock to permit the exercise in full of the Rights in accordance with
the foregoing subparagraph (ii), the Company shall) take all such action as may
be necessary to authorize, issue or pay, upon the exercise of the Rights, cash
(including by way of a reduction of the Purchase Price), property, shares of
Common Stock, other securities (whether equity or debt securities of the
Company, any subsidiary of the Company, or otherwise) or any combination thereof
having an aggregate value equal to the value of the shares of Common Stock which
otherwise would have been issuable pursuant to Section 11(a)(ii) hereof, which
aggregate value shall be determined by a nationally recognized investment
banking firm selected by a majority of the Board. For purposes of the preceding
sentence, the value of the Common Stock shall be determined pursuant to Section
11(d) hereof and the value of any fractional interests in preferred stock or
preference stock which a majority of the Board determines to be a "common stock
equivalent" shall be deemed to have the same value as the Common Stock. Any such
election by the Board must be made and publicly announced within sixty (60) days
following the date on which the Section 11 Event at issue shall have occurred
with prompt notice thereof to the Rights Agent. Following the occurrence of such
Section 11 Event, a majority of the Board then in office may suspend the
exercisability of the Rights for a period of up to sixty (60) days following the
date on which such Section 11 Event shall have occurred to the extent that such
Directors have not determined whether to exercise their rights of election under
this Section 11(a)(iii). If the Board shall determine in good faith that it is
likely that sufficient additional shares of

                                       13
<PAGE>   17

Common Stock or common stock equivalents could be authorized for issuance upon
exercise in full of the Rights, the sixty (60) day period set forth above may be
extended to the extent necessary, but not more than ninety (90) days following
the occurrence of the Section 11 Event at issue, in order that the Company may
seek stockholder approval for the authorization of such additional shares. In
the event of any such suspension, the Company shall issue a public announcement
stating that the exercisability of the Rights has been temporarily suspended
with prompt notice thereof to the Rights Agent.

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

            (c) If the Company shall fix a record date for the making of a
distribution to all holders of interests in Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) of evidences of indebtedness, cash (other
than a regular quarterly cash dividend out of the earnings or retained earnings
of the Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock) or
subscription rights, options or warrants (excluding those referred to in Section
11(b) hereof), the Purchase Price to be in effect after such record date shall
be determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the then current
market price (as defined in Section 11(d) hereof) per share of Preferred Stock
on such

                                       14
<PAGE>   18

record date, less the fair market value (as determined reasonably and with good
faith to the holders of Rights by the Board, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the
Rights Agent and conclusive for all purposes) of the portion of the cash, assets
or evidences of indebtedness so to be distributed or of such subscription
rights, options or warrants distributable in respect of one share of Preferred
Stock and the denominator of which shall be the then current market price (as
defined in Section 11(d) hereof) per share of the Preferred Stock. Such
adjustments shall be made successively whenever such a record date is fixed; and
in the event that such distribution is not so made, the Purchase Price shall
again be adjusted to be the Purchase Price which would be in effect if such
record date had not been fixed.

            (d) (i) For the purpose of any computation hereunder, other than as
provided in Section 11(a)(iii), the "current market price" per share of Common
Stock on any date shall be deemed to be the average of the daily closing prices
per share of such Common Stock for the thirty (30) consecutive Trading Days (as
such term is hereinafter defined) immediately prior to such date; provided,
however, that in the event that the current per share market price of the Common
Stock is determined in whole or in part during a period following the
announcement by the issuer of such Common Stock of (A) a dividend or
distribution on such Common Stock payable in shares of such Common Stock or
securities convertible into shares of such Common Stock or (B) any subdivision,
combination or reclassification of such Common Stock, and prior to the
expiration of thirty (30) Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification, then, and in each such case, the "current market price"
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 shares of Common Stock are not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading or, if the shares of Common Stock
are not listed or admitted to trading on any national securities exchange but
are listed or quoted on The Nasdaq Stock Market, the last reported sale price,
or, in case no such sale takes place on such day, the average of the closing bid
and asked prices as reported by Nasdaq, or, if the shares of Common Stock are
not listed or quoted on The Nasdaq Stock Market, the last quoted price or, if
not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the OTC Bulletin Board or such other
system then in use, or, if on any such date the shares of Common Stock are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Common Stock
selected by the Board. If on any such date no market maker is making a market in
the Common Stock, the fair value of such shares on such date as determined
reasonably and with good faith by the Board shall be used and shall be binding
on the Rights Agent and conclusive for all purposes. The term "Trading Day"
shall mean a day on which the principal national securities exchange or The
Nasdaq Stock Market, as the case may be, on which the shares of Common Stock are
principally listed or admitted to trading or quoted is open for the transaction
of business or, if the shares of Common Stock are not listed or admitted to
trading or quoted on any national securities exchange or The Nasdaq Stock
Market, a Business Day. If the Common

                                       15
<PAGE>   19

Stock is not publicly held or not so listed or traded, "current market price"
per share shall mean the fair value per share determined reasonably and with
good faith to the holders of Rights by the Board, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the
Rights Agent and conclusive for all purposes.

                (ii) For the purpose of any computation hereunder, the "current
market price" per share (or one one-thousandth of a share) of Preferred Stock
shall be determined in the same manner as set forth above for the Common Stock
in Section 11(d)(i) (other than the last sentence thereof). If the current
market price per share (or one one-thousandth of a share) of Preferred Stock
cannot be determined in the manner provided above or if the Preferred Stock is
not publicly held or listed or traded in a manner described in Section 11(d)(i),
the "current market price" per share of Preferred Stock shall be conclusively
deemed to be an amount equal to 1,000 (as such number may be appropriately
adjusted for such events as stock splits, stock dividends and recapitalization
with respect to the Common Stock occurring after the date of this Agreement)
multiplied by the current market price per share of the Common Stock and the
"current market price" per one one-thousandth of a share of Preferred Stock
shall be equal to the current market price per share of the Common Stock (as
appropriately adjusted). If neither the Common Stock nor the Preferred Stock is
publicly held or so listed or traded, "current market price" per share shall
mean the fair value per share as determined in good faith by the Board, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes.

            (e) Anything herein to the contrary notwithstanding, no adjustment
in the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the Purchase Price;
provided, however, that any adjustments which by reason of this Section 11(e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 11 shall be made
to the nearest cent or to the nearest thousandth of a share of Common Stock or
other share or one-millionth of a share of Preferred Stock, 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 or
(ii) the Expiration Date.

            (f) If as a result of any provision of this Section 11, the holder
of any Right shall become entitled to receive any shares of capital stock of the
Company other than Preferred Stock, thereafter the number of such other shares
so receivable upon exercise of any Right shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the shares (and the related Purchase Price) contained
in this Section 11, and the provisions of Sections 7, 9, 10, 13 and 15 hereof
with respect to the Preferred Stock shall apply on like terms to any such other
shares.

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

                                       16
<PAGE>   20

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

            (i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-thousandths of a share of Preferred Stock
purchasable upon the exercise of a Right. Each of the Rights outstanding after
the adjustment in the number of Rights shall be exercisable for the number of
one one-thousandths of a share of Preferred Stock for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest one millionth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement and promptly notify 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 Purchase
Price is adjusted or any day thereafter, but, if the Rights Certificates have
been issued, shall be at least ten (10) days later than the date of the public
announcement. If Rights Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Rights
Certificates on such record date Rights Certificates evidencing, subject to
Section 15 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
Rights Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Rights Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the option
of the Company, the adjusted Purchase Price) and shall be registered in the
names of the holders of record of Rights Certificates on the record date
specified in the public announcement.

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

            (k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the number of one
one-thousandths of a share of Preferred Stock or shares of Common Stock or other
securities issuable upon exercise of the

                                       17
<PAGE>   21

Rights (aggregating, for this purpose, an appropriate amount of the Purchase
Price for fractional shares to compare such aggregated amount to the par value
for a whole share), the Company shall take any corporate action which may, in
the opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable one one-thousandths of a share of
Preferred Stock or shares of Common Stock or other securities at such adjusted
Purchase Price. If upon any exercise of the Rights, a holder is to receive a
combination of Common Stock and common stock equivalents, or Preferred Stock and
preferred stock equivalents, a portion of the consideration paid upon such
exercise, equal to at least the then par value, if any, of a share of Common
Stock or Preferred Stock of the Company, as the case may be, shall be allocated
as the payment for each share of Common Stock or Preferred Stock of the Company,
as the case may be, so received.

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

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

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

                                       18
<PAGE>   22

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

        12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever
an adjustment is made as provided in Sections 11 or 13 hereof, the Company shall
(a) promptly prepare a certificate setting forth such adjustment and a brief,
reasonably detailed statement of the facts and computations accounting for such
adjustment, (b) promptly file with the Rights Agent and with each transfer agent
for the Preferred Stock and the Common Stock a copy of such certificate and (c)
mail a brief summary thereof to each holder of a Rights Certificate in
accordance with Section 26 hereof. The Rights Agent shall be fully protected in
relying on any such certificate and on any adjustment therein contained and
shall not be deemed to have knowledge of any adjustment unless and until it
shall have received such certificate. Notwithstanding the foregoing provisions
of this Section 12, the failure of the Company to make such certification or
give such notice shall not affect the validity, or the force or effect, of the
requirement for such adjustment.

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

            (a) In the event that, following the Stock Acquisition Date,
directly or indirectly, (x) the Company shall consolidate with, or merge with
and into, any other Person, (y) any Person shall consolidate with the Company,
or merge with and into the Company and the Company shall be the continuing or
surviving corporation of such merger (other than, in the case of any transaction
described in (x) or (y), a merger or consolidation which would result in all of
the voting power represented by the securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into securities of the surviving entity) all
of the voting power represented by the securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation and
the holders of such securities not having changed as a result of such merger or
consolidation), 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 or more transactions, assets or earning power aggregating more than fifty
percent (50%) of the assets or earning power of the Company and its subsidiaries
(taken as a whole) to any other Person (any of the events described in the
foregoing clauses (x), (y) or (z) being herein referred to as a "Section 13
Event"), then, and in each such case, proper provision shall be made so that (i)
each holder of a Right (other than as provided in Section 7(e) hereof) shall
have the right to receive, upon the exercise thereof at the then current
Purchase Price in accordance with the terms of this Agreement, such number of
shares of freely tradable Common Stock of the Principal Party (as hereinafter
defined), free and clear of liens, rights of call or first refusal, encumbrances
or other adverse claims, as shall be equal to the result obtained by (x)
multiplying the then current Purchase Price by the number of one one-thousandths
of a share of Preferred Stock for which a Right is then exercisable (without
taking into account any adjustment previously made pursuant to Section 11(a)(ii)
hereof) and (y) dividing that product by fifty percent (50%) of the current
market price per share of the Common Stock of such Principal Party (determined
pursuant to Section 11(d) hereof) on the date of consummation of such
consolidation, merger, sale or transfer; (ii) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such consolidation,
merger, sale or

                                       19
<PAGE>   23

transfer, all the obligations and duties of the Company pursuant to this
Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such
Principal Party, it being specifically intended that the provisions of Section
11 hereof shall apply to such Principal Party; and (iv) such Principal Party
shall take such steps (including, but not limited to, the reservation of a
sufficient number of shares of its Common Stock in accordance with Section 9
hereof) in connection with such consummation as may be necessary to ensure that
the provisions hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to its shares of Common Stock thereafter deliverable upon
the exercise of the Rights.

            (b) "Principal Party" shall mean:

                (i) in the case of any transaction described in clauses (x) or
        (y) of the first sentence of this Section 13, the Person that is the
        issuer of any securities into which shares of Common Stock of the
        Company are converted in such merger or consolidation, and if no
        securities are so issued, the Person that is the other party to the
        merger or consolidation (including, if applicable, the Company, if it is
        the surviving corporation); and

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

        provided, however, that in any such case, (A) if the Common Stock of
        such Person is not at such time and has not been continuously over the
        preceding twelve (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; (B) in
        case such Person is a subsidiary, directly or indirectly, or Affiliate
        of more than one Person, the Common Stock of two or more of which are
        and have been so registered, "Principal Party" shall refer to whichever
        of such Persons is the issuer of the Common Stock having the greatest
        aggregate market value; and (C) 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 clauses (A) and (B) above shall apply to each of the chains of
        ownership having an interest in such joint venture as if such joint
        venture were a subsidiary of each such joint venturer 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 the
Principal Party shall have a sufficient number of authorized shares of its
Common Stock that have not been issued or reserved for issuance to permit the
exercise in full of the Rights in accordance with this Section 13 and unless
prior thereto the Company and each Principal Party and each other Person who may
become a Principal Party as a result of such Section 13 Event shall have
executed and delivered to the Rights Agent a supplemental agreement providing
for the terms set forth in paragraphs (a) and (b) of this Section 13 and further
providing that, as soon as practicable after the date of such Section 13 Event,
the Principal Party at its own expense shall:

                                       20
<PAGE>   24

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

                (ii) use its best efforts to (x) qualify or register the Rights
        and the securities purchasable upon exercise of the Rights under the
        blue sky laws of such jurisdictions as may be necessary or appropriate
        and (y) cause the Rights and the securities purchasable upon exercise of
        the Rights to be listed on any national securities exchange or national
        quotation system upon which its Common Stock is listed, traded or
        quoted; and

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

The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. The rights under this Section 13
shall be in addition to the rights to exercise Rights and adjustments under
Section 11(a)(ii) hereof and shall survive any exercise thereunder.

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

        15. Additional Covenants.

            (a) The Company covenants and agrees that after the Stock
Acquisition Date it shall not (i) consolidate with, (ii) merge with or into or
(iii) sell or transfer to any other Person, in one or more transactions, assets
or earning power aggregating more than fifty percent (50%) of the assets or
earning power of the Company and its subsidiaries taken as a whole, if at the
time of or after such consolidation, merger or sale there are any charter or
by-law provisions or any rights, warrants or other instruments outstanding or
any other action taken which would diminish or otherwise eliminate the benefits
intended to be afforded by the Rights. The Company shall not consummate any such
consolidation, merger or sale unless prior thereto the Company and such other
Person shall have executed and delivered to the Rights Agent a supplemental
agreement evidencing compliance with this subsection.

                                       21
<PAGE>   25

            (b) The Company covenants and agrees that, after the Stock
Acquisition Date, it will not, except as permitted by Section 24 hereof, take
any action the purpose or effect of which is to diminish or otherwise eliminate
the benefits intended to be afforded by the Rights.

        15. Fractional Rights and Fractional Shares.

            (a) The Company shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section 11(n) hereof, or to
distribute Rights Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders of the Rights
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 15(a), the current
market value of a whole Right shall be (except as otherwise provided in the last
sentence of this Section 15(a)) the closing price of the Rights for the Trading
Day immediately prior to the date on which such fractional Rights would have
been otherwise issuable. The closing price of the Rights for any day shall be
the last sale price, the last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
The Nasdaq Stock Market or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Rights selected by the Board. If on any such date no such market maker is
making a market in the Rights, the fair value of the Rights on such date as
determined reasonably and with good faith to the holders of Rights by the Board
shall be used and shall be binding on the Rights Agent and conclusive for all
purposes.

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

            (c) Following the occurrence of a Triggering Event, the Company
shall not be required to issue fractions of shares of Common Stock upon exercise
of the Rights or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of fractional shares of Common Stock, the Company may pay
to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same

                                       22
<PAGE>   26

fraction of the current market value of a share of Common Stock. For purposes of
this Section 15(c), the current market value shall be determined in the manner
set forth in Section 11(d) hereof for the Trading Day immediately prior to the
date of such exercise.

            (d) Except as otherwise expressly provided herein, the holder of a
Right by the acceptance of the Right expressly waives such holder's right to
receive any fractional Rights or any fractional shares (other than, in the case
of Preferred Stock, fractions which are integral multiples of one one-thousandth
of a share of Preferred Stock) upon exercise of a Right.

        16. Rights of Action. All rights of action in respect of this Agreement,
except those rights of action expressly vested in the Rights Agent under this
Agreement, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in such holder's own behalf and
for such holder's own benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Company to enforce, or otherwise act in respect
of, such holder's right to exercise the Rights evidenced by such Rights
Certificate in the manner provided in such Rights Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
shall be entitled to specific performance of the obligations hereunder and
injunctive relief against actual or threatened violations of the obligations
hereunder of any Person subject to this Agreement. Holders of Rights shall be
entitled to recover the reasonable costs and expenses, including attorneys'
fees, incurred by them in any action to enforce the provisions of this
Agreement.

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

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

            (b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent and only if
surrendered at the office of the Rights Agent set forth in Section 26 hereof,
duly endorsed or accompanied by a proper instrument of transfer and with the
appropriate forms and certificates attached;

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

                                       23
<PAGE>   27

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

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

        19. Concerning the Rights Agent.

            (a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the preparation, delivery,
administration, amendment and execution of this Agreement and the exercise and
performance of its duties hereunder. The Company also agrees to indemnify the
Rights Agent for, and to hold it harmless against, any loss, liability, damage,
judgment, fine, penalty, claim, demand, settlement cost, or expense, incurred
without gross negligence, bad faith or willful misconduct on the part of the
Rights Agent as finally determined by a court of competent jurisdiction, for any
action taken, suffered or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability arising therefrom, directly
or indirectly. The indemnity provided herein shall survive the termination of
this Agreement, the termination and expiration of the Rights and the resignation
or removal of the Rights Agreement. The costs and expenses incurred in enforcing
this right of indemnification shall be paid by the Company.

            (b) The Rights Agent shall be authorized to rely on, 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 acceptance and administration
of this Agreement in reliance upon any Rights Certificate or certificate for
Common Stock or for other securities of the Company, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement or other paper or document believed by it to be
genuine and to be

                                       24
<PAGE>   28

signed, executed and, where necessary, verified or acknowledged by the proper
Person or Persons.

        20. 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
corporate trust or stockholder services business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto, provided that such Person would be eligible
for appointment as a successor Rights Agent under the provisions of Section 22
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Rights Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.

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

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

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

            (b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person and the
determination of current market price) be proved or established by the Company
prior to taking, suffering or omitting any action hereunder, such fact or matter
(unless other evidence in respect thereof shall be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by the Chief Executive Officer, the President, any Vice
President, the Chief

                                       25
<PAGE>   29

Financial Officer, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent and the Rights Agent
shall incur no liability on or in respect of any action taken, suffered or
omitted in good faith by it under the provisions of this Agreement in reliance
upon such certificate.

            (c) The Rights Agent shall be liable hereunder only for its own
gross negligence, bad faith or willful misconduct. In no case will the Rights
Agent be liable for special, indirect, punitive, incidental or consequential
loss or damages of any kind whatsoever (including but not limited to lost
profits), even if the Rights Agent has been advised of the possibility of such
damages. Notwithstanding anything to the contrary, the liability of the Rights
Agent under this Rights Agreement will be limited to the amount of fees paid by
the Company to the Rights Agent hereunder.

            (d) The Rights Agent shall not have any liability for nor be liable
for or by reason of any of the statements of fact or recitals contained in this
Agreement or in the Rights Certificates (except as to the fact that it has
countersigned the Rights Certificates) 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 Rights Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Rights Certificate; nor shall it be responsible for any adjustment required
under the provisions of Section 11 or 13 hereof or responsible for the manner,
method or amount of any such adjustment or the ascertaining of the existence of
facts that would require any such adjustment (except with respect to the
exercise of Rights evidenced by Rights Certificates after receipt of a
certificate pursuant to Section 12 describing any such adjustment); nor shall it
be responsible for any determination by the Board of the current market value of
the Rights or Preferred Stock or Common Stock pursuant to the provisions of
Section 15 hereof; nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any shares
of Preferred Stock or other securities to be issued pursuant to this Agreement
or any Rights Certificate or as to whether any shares of Preferred Stock or
other securities will, when so issued, be validly authorized and issued, fully
paid and nonassessable.

            (f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performance 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 the Chief Executive
Officer, the President, any Vice President, the Chief Financial Officer, the
Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of
the Company, and is authorized to apply to such officers for advice or
instructions

                                       26
<PAGE>   30

in connection with its duties, and such advice or instructions shall be full
authorization and protection to the Rights Agent and the Rights Agent shall
incur no liability for or in respect of any action taken or suffered to be taken
by it in good faith in accordance with the advice or written instructions of any
such officer. Any application by the Rights Agent for written instructions from
the Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent with respect to its
duties or obligations under this Agreement and the date on and/or after which
such action shall be taken or omitted and the Rights Agent shall not be liable
for any action taken or omitted in accordance with a proposal included in any
such application on or after the date specified therein (which date shall not be
less than three (3) Business Days after the date any such officer actually
receives such application, unless any such officer shall have consented in
writing to an earlier date) unless, prior to taking or omitting any such action,
the Rights Agent has received written instructions in response to such
application specifying the action to be taken or omitted.

            (h) The Rights Agent and any stockholder, Affiliate, 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, omission, default, neglect or misconduct of any such
attorneys or agents or for any loss to the Company, the holders of the Rights or
any other Person resulting from any such act, omission, default, neglect or
misconduct, provided reasonable care was exercised in the selection and
continued employment thereof.

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

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

        22. 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 Stock and Preferred Stock by registered or certified mail,
and to the holders of the Rights Certificates by first-class mail. The Company
may remove the Rights Agent or any successor Rights Agent upon thirty (30) days'
notice in writing, mailed to the Rights Agent or successor Rights Agent, as the
case

                                       27
<PAGE>   31

may be, and to each transfer agent of the Common Stock and Preferred Stock by
registered or certified mail, and to the holders of the Rights Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor 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 Rights Certificate (who shall,
with such notice, submit such holder's Rights Certificate for inspection by the
Company), then the registered holder of any Rights Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be (a) a Person organized and doing business under the laws of the United
States or of the State of New York or the State of California (or of any other
state of the United States so long as such Person is authorized to do business
in the State of New York or the State of California), in good standing, having a
principal office in the State of New York or the State of California, which is
authorized under such laws to exercise corporate trust or stockholder services
powers and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50,000,000.00 or (b) an affiliate of a
Person described in clause (a) of this sentence. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall mail notice thereof in writing to the predecessor Rights Agent and
each transfer agent of the Common Stock and Preferred Stock, 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 22, 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.

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

                                       28
<PAGE>   32

issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.

        24. Redemption, Termination and Exchange.

            (a) (i) The Board may, at its option, at any time prior to the
earlier of (x) the Stock Acquisition Date or (y) Close of Business on the Final
Expiration Date, redeem all but not less than all of the then outstanding Rights
at a redemption price of $0.001 per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the "Redemption
Price"). The Company may, at its option, pay the Redemption Price in any form of
consideration deemed appropriate by the Board.

                (ii) In addition, and notwithstanding the provisions of Section
24(a)(i) hereof, the Board may redeem all but not less than all of the then
outstanding Rights at the Redemption Price on or after the Stock Acquisition
Date but prior to any Section 13 Event either (x) in connection with any Section
13 Event in which all holders of Common Stock are treated alike and not
involving (other than as a holder of Common Stock being treated like all other
such holders) an Acquiring Person or an Affiliate or Associate thereof or any
other Person in which such Acquiring Person or Affiliate or Associate thereof
has any interest, or any other Person acting directly or indirectly on behalf of
or in association with any such Acquiring Person or Affiliate or Associate
thereof, or (y) following the occurrence of a Section 11 Event, and the
expiration of any period during which the holder of Rights may exercise the
rights under Section 11(a)(ii) hereof as a result thereof, if and for as long as
any Acquiring Person having triggered the Section 11 Event at issue is not
thereafter the Beneficial Owner of fifteen percent (15%) or more of the
outstanding shares of Common Stock, and at the time of redemption there are no
other Persons who are Acquiring Persons.

            (b) (i) In the case of a redemption permitted under Section 24(a)(i)
hereof, immediately upon the action of the Board ordering the redemption of the
Rights, evidence of which shall have been filed with the Rights Agent 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. In the case of a redemption permitted
only under Section 24(a)(ii) hereof, evidence of which shall have been filed
with the Rights Agent, the right to exercise the Rights will terminate and
represent only the right to receive the Redemption Price only after ten (10)
Business Days following the giving of notice of such redemption to the holders
of such Rights if no Section 11 Event shall have occurred, and, if a Section 11
Event shall have occurred, upon the later of ten (10) Business Days following
the giving of such notice or the expiration of any period during which the
rights under Section 11(a)(ii) hereof may be exercised as a result thereof.
Within ten (10) days after the action of the Board ordering any such redemption
of the Rights, the Company shall give notice of such redemption to the Rights
Agent and the holders of the then outstanding Rights by mailing such notice to
the Rights Agent and to all such holders at their last addresses as they appear
upon the registry books of the Rights Agent or, prior to the Distribution Date,
on the registry books of the transfer agent for the Common Stock. Any notice
that is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of redemption will state
the method by which the payment of the Redemption Price will be made.

                                       29
<PAGE>   33

                (ii) In the case of a redemption permitted under Section
24(a)(i) or (ii), the Company may, at its option, discharge all of its
obligations with respect to the Rights by (i) issuing a press release announcing
the manner of redemption of the Rights and (ii) mailing payment of the
Redemption Price to the registered holders of the Rights at their last addresses
as they appear on the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent of the Common
Stock, and upon such action, all outstanding Rights Certificates shall be null
and void without any further action by the Company.

            (c) (i) Subject to the limitations of applicable laws, the Board
may, at its option and at any time after any Person becomes an Acquiring Person,
exchange all or part of the then outstanding and exercisable Rights (which shall
not include Rights that have become null and void pursuant to the provisions of
Section 7(e) hereof) for (A) shares of Common Stock at an exchange ratio of one
share of Common Stock per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(the "Exchange Shares"), or (B) Substitute Consideration (as that term is
defined below). The Board may determine, in its sole discretion, whether to
deliver Exchange Shares or Substitute Consideration. Notwithstanding the
foregoing, the Board shall not be empowered to effect such exchange at any time
after any Person (other than the Company, any subsidiary of the Company, any
employee benefit plan of the Company or any such subsidiary, or any entity
holding Common Stock for or pursuant to the terms of any such plan), together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of fifty percent (50%) or more of the Common Stock then outstanding.

                (ii) In the event the Board shall determine to deliver
Substitute Consideration in exchange for Rights, the Company shall (1) determine
the value of the Exchange Shares (the "Exchange Value"), and (2) with respect to
each Right to be exchanged, make adequate provision to substitute for Exchange
Shares the following (the "Substitute Consideration"): (v) cash, (w) Common
Stock or common stock equivalents (as that term is defined in Section 11(a)(iii)
hereof) or Preferred Stock or equivalent preferred stock (as that term is
defined in Section 11(b) hereof), (x) debt securities of the Company, (y) other
assets, or (z) any combination of the foregoing, having an aggregate value equal
to the Exchange Value, where such aggregate value has been determined by the
Board based upon the advice of a nationally recognized investment banking firm
selected by the Board. For purposes of this Section 24(c), the value of a share
of Common Stock shall be the current market price (as determined pursuant to
Section 11(d) hereof) per share of Common Stock on the day that is the later of
(x) the first occurrence of a Section 11 Event or (y) the date on which the
Company's right of redemption pursuant to Section 24(a)(i) hereof expires; and
the value of any common stock equivalent shall be deemed to have the same value
as the Common Stock on such date.

                (iii) Immediately upon the action of the Board ordering the
exchange of any Rights pursuant to this Section 24(c), 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
Exchange Shares or Substitute Consideration for each Right exchanged by such
holder. The Company shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Company promptly shall mail a
notice of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of

                                       30
<PAGE>   34

the Rights Agent. Any notice that is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of Common Stock (or
Substitute Consideration) 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.

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

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

        25. Notice of Certain Events.

            (a) In case the Company shall propose (i) to pay any dividend
payable in stock of any class to the holders of Preferred Stock or to make any
other distribution to the holders of Preferred Stock (other than a regular
quarterly cash dividend out of earnings or retained earnings of the Company),
(ii) to offer to the holders of Preferred Stock rights or warrants to subscribe
for or to purchase any additional shares of Preferred Stock or shares of stock
of any class or any other securities, rights or options, (iii) to effect any
reclassification of Preferred Stock (other than a reclassification involving
only the subdivision of outstanding shares of Preferred Stock), (iv) to effect
any consolidation or merger into or with, or to effect any sale or other
transfer (or to permit one or more of its subsidiaries to effect any sale or
other transfer), in one or more transactions, of more than fifty percent (50%)
of the assets or earning power of the Company and its subsidiaries (taken as a
whole) to, any other Person or (v) to effect the liquidation, dissolution or
winding up of the Company, then, in each such case, the Company shall give to
each holder of a Rights Certificate, in accordance with Section 26 hereof, a
notice of such proposed action, which shall specify the record date for the
purposes of such stock dividend, distribution of rights or warrants, or the date
on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up is to take place and the date of
participation therein by the holders of the shares of Preferred Stock, if any
such date is to be fixed, and such notice shall be so given in the case of any
action covered by clause (i) or (ii) above at least twenty (20) days prior to
the record date for determining holders of the shares of Preferred Stock for
purposes of such action, and in the case of any such other action, at least
twenty (20) days prior to the date of the taking of such proposed action or the
date of

                                       31
<PAGE>   35

participation therein by the holders of the shares of Preferred Stock, whichever
shall be the earlier.

            (b) In case any Triggering Event shall occur, then, in any such
case, the Company or the Principal Party, as the case may be, shall as soon as
practicable thereafter give to each holder of a Rights Certificate and the
Rights Agent, in accordance with Section 26 hereof, a notice of the occurrence
of such Triggering Event, which shall specify the event and the consequences of
the Triggering Event to holders of Rights under Section 11(a)(ii) or 13(a)
hereof, as the case may be.

            (c) The failure to give notice required by this Section 25 or any
defect therein shall not affect the legality or validity of the action taken by
the Company or the vote upon any such action.

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

            Alliance Fiber Optic Products, Inc.
            735 North Pastoria Avenue
            Sunnyvale, CA  94085
            Attention:  Corporate Secretary

Subject to the provisions of Section 22, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, or sent by nationwide overnight
delivery, addressed (until another address is filed in writing with the Company)
as follows:

            Mellon Investor Services LLC
            400 South Hope Street
            4th Floor
            Los Angeles, CA  70071
            Attention:  Relationship Manager

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

        27. Supplements and Amendments. The Company and the Rights Agent may
from time to time supplement or amend this Agreement without approval of any
holders of Rights or Rights Certificates in order (i) to cure any ambiguity,
(ii) to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provisions herein, (iii) prior to the
Distribution Date, to change or supplement any provision hereunder in any

                                       32
<PAGE>   36

manner which the Company may deem necessary or desirable or (iv) on or following
the Distribution Date, to change or supplement any provision hereunder in any
manner which the Company may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Rights Certificates. 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;
provided, that such supplement or amendment does not change or increase the
Rights Agent's duties, liabilities or obligations hereunder. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Stock.

        28. Determination and Actions by the Board. For all purposes of this
Agreement, any calculation of the number of shares of Common Stock outstanding
at any particular time, including for purposes of determining the particular
percentage of such outstanding shares of Common Stock or any other securities 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 General Rules and Regulations under
the Exchange Act as in effect on the date of this Agreement. Except as otherwise
provided herein, the Board shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board or to the Company, or as may be necessary or advisable in
the administration of this Agreement, including, without limitation, the right
and power to (i) interpret the provisions of this Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights or to
amend this Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions with
respect to the foregoing) which are done or made by the Board in good faith,
shall (x) be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights Certificates and all other parties and (y) not subject the
Board to any liability to the holders of the Rights Certificates.

        29. 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.

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

        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.

        32. Governing Law. This Agreement, each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for

                                       33
<PAGE>   37

all purposes shall be governed by and construed in accordance with the laws of
such state applicable to contracts to be made and to be performed entirely
within such state.

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

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

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

                                        ALLIANCE FIBER OPTIC PRODUCTS, INC.

                                        By /s/ John M. Harland
                                            -------------------------------
                                        Title: Vice President & CFO

                                        MELLON INVESTOR SERVICES LLC, as
                                        Rights Agent

                                        By: /s/ Michael E. Dzieciolowski
                                            -------------------------------

                                        Title: Michael E. Dzieciolowski
                                               Assistant Vice President

                                       34
<PAGE>   38

                                    EXHIBIT A

                           CERTIFICATE OF DESIGNATION

                    OF SERIES A PARTICIPATING PREFERRED STOCK

                                       OF

                       ALLIANCE FIBER OPTIC PRODUCTS, INC.

        The undersigned, being the Chief Executive Officer and the Secretary of
Alliance Fiber Optic Products, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware, DO HEREBY CERTIFY:

        That pursuant to the authority conferred upon the Board of Directors by
the Certificate of Incorporation of the Corporation, the Board of Directors on
May 18, 2001, adopted the following resolution creating a series of Five Hundred
Thousand (500,000) shares of Preferred Stock designated as Series A
Participating Preferred Stock:

        RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of its
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
powers, preferences and relative, participating, optional and other special
rights of the shares of such series, and the qualifications, limitations or
restrictions thereof are as follows:

        1. Designation and Amount. The shares of such series shall be designated
as "Series A Participating Preferred Stock," par value $0.001 per share, and the
number of shares constituting such series shall be Five Hundred Thousand
(500,000). Such number of shares may be increased or decreased by resolution of
the Board of Directors; provided, that no decrease shall reduce the number of
shares of Series A Participating Preferred Stock to a number less than that of
the shares then outstanding plus the number of shares issuable upon exercise of
outstanding rights, options or warrants or upon conversion of outstanding
securities issued by the Corporation.

        2. Dividends and Distributions.

           (A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Participating Preferred Stock with respect to dividends, the holders
of shares of Series A Participating Preferred Stock in preference to the holders
of shares of Common Stock, par value $0.001 per share (the "Common Stock"), of
the Corporation and any other junior stock, shall be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a

                                      A-1
<PAGE>   39
share of Series A Participating Preferred Stock in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $25.00 or, (b) subject to the
provision for adjustment hereinafter set forth, 1,000 times the aggregate per
share amount of all cash dividends, and 1,000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions other
than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock, since the immediately preceding Quarterly Dividend Payment
Date, or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A Participating
Preferred Stock. In the event the Corporation shall at any time after the close
of business on June 12, 2001 (the "Rights Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, by reclassification or otherwise, then in each such
case the amount to which holders of shares of Series A Participating Preferred
Stock were entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

           (B) The Corporation shall declare a dividend or distribution on the
Series A Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $25.00 per share on
the Series A Participating Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.

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

                                      A-2
<PAGE>   40

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

           (A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Participating Preferred Stock shall entitle the holder
thereof to 1,000 votes on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock into a greater number
of shares or (iii) combine the outstanding Common Stock into a smaller number of
shares, by reclassification or otherwise, then in each such case the number of
votes per share to which holders of shares of Series A Participating Preferred
Stock were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock outstanding
immediately prior to such event.

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

           (C) (i)If at any time dividends on any Series A Participating
Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, the holders of the Series A Participating Preferred Stock,
voting as a separate series from all other series of Preferred Stock and classes
of capital stock, shall be entitled to elect two members of the Board of
Directors in addition to any Directors elected by any other series, class or
classes of securities and the authorized number of Directors will automatically
be increased by two. Promptly thereafter, the Board of Directors of this
Corporation shall, as soon as may be practicable, call a special meeting of
holders of Series A Participating Preferred Stock for the purpose of electing
such members of the Board of Directors. Said special meeting shall in any event
be held within 45 days of the occurrence of such arrearage.

               (ii) During any period when the holders of Series A Participating
Preferred Stock, voting as a separate series, shall be entitled and shall have
exercised their right to elect two Directors, then and during such time as such
right continues (a) the then authorized number of Directors shall remain
increased by two, and the holders of Series A Participating Preferred Stock,
voting as a separate series, shall remain entitled to elect the additional
Directors so provided for, and (b) each such additional Director shall not be a
member of any existing class of the Board of Directors, but shall serve until
the next annual meeting of stockholders for the election of Directors, or until
his or her successor shall be elected and shall qualify, or until his or her
right to hold such office terminates pursuant to the provisions of this Section
3(C).

               (iii) A Director elected pursuant to the terms hereof may be
removed with or without cause by the holders of Series A Participating Preferred
Stock entitled to vote in an election of such Director.

                                      A-3
<PAGE>   41

               (iv) If, during any interval between annual meetings of
stockholders for the election of Directors and while the holders of Series A
Participating Preferred Stock shall be entitled to elect two Directors, there
are fewer than two such Directors in office by reason of resignation, death or
removal, then, promptly thereafter, the Board of Directors shall call a special
meeting of the holders of Series A Participating Preferred Stock for the purpose
of filling such vacancy(ies) and such vacancy(ies) shall be filled at such
special meeting. Such special meeting shall in any event be held within 45 days
of the occurrence of any such vacancy(ies).

               (v) At such time as the arrearage is fully cured, and all
dividends accumulated and unpaid on any shares of Series A Participating
Preferred Stock outstanding are paid, and, in addition thereto, at least one
regular dividend has been paid subsequent to curing such arrearage, the term of
office of any Director elected pursuant to this Section 3(C), or his or her
successor, shall automatically terminate, and the authorized number of Directors
shall automatically decrease by two, and the rights of the holders of the shares
of the Series A Participating Preferred Stock to vote as provided in this
Section 3(C) shall cease, subject to renewal from time to time upon the same
terms and conditions.

           (D) Except as set forth herein or as otherwise provided by law,
holders of Series A Participating Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock and any other capital stock of the
Corporation having general voting rights as set forth herein) for taking any
corporate action.

        4. Certain Restrictions.

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

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

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

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

                                      A-4
<PAGE>   42

any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Participating Preferred
Stock; or

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

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

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

        6. Liquidation, Dissolution or Winding Up.

           (A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock unless,
prior thereto, the holders of shares of Series A Participating Preferred Stock
shall have received per share, the greater of $1,000.00 or 1,000 times the
payment made per share of Common Stock, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the date
of such payment (the "Series A Liquidation Preference"). Following the payment
of the full amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series A Participating
Preferred Stock unless, prior thereto, the holders of shares of Common Stock
shall have received an amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Series A Liquidation Preference by (ii)
1,000 (as appropriately adjusted as set forth in subparagraph (C) below to
reflect such events as stock splits, stock dividends and recapitalization with
respect to the Common Stock) (such number in clause (ii), the "Adjustment
Number"). Following the payment of the full amount of the Series A Liquidation
Preference and the Common Adjustment in respect of all outstanding shares of
Series A Participating Preferred Stock and Common Stock, respectively, holders
of Series A Participating Preferred Stock and holders of shares of Common Stock
shall receive their ratable and proportionate share of the remaining assets to
be distributed in the ratio of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.

                                      A-5
<PAGE>   43

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

           (C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, by reclassification or
otherwise, then in each such case the Adjustment Number in effect immediately
prior to such event shall be adjusted by multiplying such Adjustment Number by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.

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

        8. Redemption. The shares of Series A Participating Preferred Stock
shall not be redeemable.

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

        10. Amendment. The Certificate of Incorporation and the By-Laws of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A
Participating Preferred Stock so as to

                                      A-6
<PAGE>   44

affect them adversely without the affirmative vote of the holders of at least
66-2/3% of the outstanding shares of Series A Participating Preferred Stock
voting separately as a class.

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

        IN WITNESS WHEREOF, we have executed and subscribed this Certificate and
do affirm the foregoing as true under the penalties of perjury as of the 29th
day of May, 2001.

                                        _______________________________________
                                        Peter C. Chang
                                        Chief Executive Officer and Secretary

                                      A-7
<PAGE>   45

                                    EXHIBIT B

                          [FORM OF RIGHTS CERTIFICATE]

Certificate No. R-______________            _____________ Rights

        NOT EXERCISABLE AFTER MAY 29, 2011, OR EARLIER IF NOTICE OF REDEMPTION
        OR EXCHANGE IS GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE
        OPTION OF THE COMPANY, AT $0.001 PER RIGHT AND TO EXCHANGE ON THE TERMS
        SET FORTH IN THE RIGHTS AGREEMENT. [THE RIGHTS REPRESENTED BY THIS
        RIGHTS CERTIFICATE WERE ISSUED TO A PERSON WHO WAS AN ACQUIRING PERSON
        OR AN ASSOCIATE OR AN AFFILIATE OF AN ACQUIRING PERSON (AS SUCH TERMS
        ARE DEFINED IN THE RIGHTS AGREEMENT). THIS RIGHTS CERTIFICATE AND THE
        RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID UNDER THE
        CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT.]*

                               Rights Certificate
                               ------------------

                       ALLIANCE FIBER OPTIC PRODUCTS, INC.
                       ----------------------------------

        This certifies that ____________________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement dated as of May 29, 2001 (the "Rights Agreement") between Alliance
Fiber Optic Products, Inc., a Delaware corporation (the "Company"), and Mellon
Investor Services LLC, a New Jersey limited liability company (the "Rights
Agent"), to purchase from the Company at any time after the Distribution Date
(as such term is defined in the Rights Agreement) and prior to 5:00 p.m. (San
Francisco time) on May 29, 2011, unless earlier redeemed or exchanged by the
Company as set forth in the Rights Agreement, at the office of the Rights Agent
designated for such purpose, one one-thousandth of a fully paid, nonassessable
share of Series A Participating Preferred Stock, par value $0.001 per share (the
"Preferred Stock"), of the Company, at a purchase price of $80.00 per one
one-thousandth of a share (the "Purchase Price"), upon presentation and
surrender of this Rights Certificate with the appropriate Form of Election to
Purchase and Certificate duly executed.

        The number of Rights evidenced by this Rights Certificate (and the
number of one one-thousandths of a share which may be purchased upon exercise
thereof) set forth above, and the Purchase Price set forth above, are the number
and Purchase Price as of the close of business on the record date relating to
the initial distribution of the Rights, based on the Preferred Stock as
constituted at such date.

        Upon the occurrence of a Triggering Event (as such term is defined in
the Rights Agreement), if the Rights evidenced by this Rights Certificate are
beneficially owned by (i) an

----------
* The portion of the legend in brackets shall be inserted only if applicable.

                                      B-1
<PAGE>   46

Acquiring Person (as such term is defined in the Rights Agreement) or an
Associate or Affiliate thereof (as such terms are defined in the Rights
Agreement) or, (iii) under certain circumstances specified in the Rights
Agreement, a transferee of an Acquiring Person, or an Affiliate or Associate of
an Acquiring Person, such Rights shall become null and void and no holder hereof
shall have any rights with respect to such Rights from and after the occurrence
of any such Triggering Event.

        As provided in the Rights Agreement, the Purchase Price and the number
of one one-thousandths of a share of Preferred Stock or other securities which
may be purchased upon the exercise of the Rights evidenced by this Rights
Certificate are subject to modification and adjustment upon the happening of
certain events.

        This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates. Copies of
the Rights Agreement are on file at the principal office of the Company and are
also available upon written request to the Company.

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

        Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may, in certain instances, be (i) redeemed by the Company at
its option at a redemption price of $0.001 per Right or (ii) exchanged in whole
or in part for shares of the Company's Common Stock, par value $0.001 per share,
or substitute consideration. Subject to the provisions of the Rights Agreement,
the Company, at its option, may elect to mail payment of the redemption price to
the registered holder of the Rights at the time of redemption, in which event
this certificate may become null and void without any further action by the
Company.

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

                                      B-2
<PAGE>   47

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

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

        WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.

        Dated:  ____________, 20__.

Attest:                                      ALLIANCE FIBER OPTIC PRODUCTS, INC.

________________________________             By: _______________________________

Title: _________________________             Title:  ___________________________

Countersigned:

MELLON INVESTOR SERVICES LLC,
as Rights Agent

By:

                                      B-3
<PAGE>   48

                  [Form of Reverse Side of Rights Certificate]

                               FORM OF ASSIGNMENT

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

        FOR VALUE RECEIVED, _______________________________ hereby sells,
assigns and transfers unto _____________________________________________________

________________________________________________________________________________
            (please print name, address and social security or other
                        identifying number of transferee)

________________________________________________________________________________

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

        Dated:  ____________, 20___.

        __________________________________
        Signature

        Signature Guaranteed:

        Signatures must be guaranteed by an Eligible Guarantor Institution, as
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934.

                                      B-4
<PAGE>   49

                                   CERTIFICATE

        The undersigned hereby certifies by checking the appropriate boxes that:

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

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

        Dated:  ____________, 20___.

        __________________________________
        Signature

                                     NOTICE

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

        In the event the Certificate set forth above is not completed, the
Company will deem the beneficial owner of the Rights evidenced by this Rights
Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement) and will affix a legend to that effect on any
Rights Certificate issued in exchange for this Rights Certificate.

                                      B-5
<PAGE>   50

                          FORM OF ELECTION TO PURCHASE

                      (To be executed if holder desires to
                   exercise the Rights Certificate pursuant to
                   Section 11(a)(ii) of the Rights Agreement.)

To:  ALLIANCE FIBER OPTIC PRODUCTS, INC.

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

________________________________________________________________________________
           (Please insert social security or other identifying number)

________________________________________________________________________________
                         (Please print name and address)

        The Rights Certificate indicating the balance, if any, of such Rights
which may still be exercised pursuant to Section 11(a)(ii) of the Rights
Agreement shall be returned to the undersigned unless the undersigned requests
that the Rights Certificate be registered in the name of and delivered to:

________________________________________________________________________________
Please insert social security or other identifying number (complete only if
Rights Certificate is to be registered in a name other than the undersigned)

________________________________________________________________________________
                         (Please print name and address)

        Dated:  ____________, 20___.

        __________________________________
        Signature

Signature Guaranteed:

        Signatures must be guaranteed by an Eligible Guarantor Institution, as
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934.

                                      B-6
<PAGE>   51

                                   CERTIFICATE

        The undersigned hereby certifies by checking the appropriate boxes that:

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

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

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

        Dated:  ____________, 20___.

        __________________________________
        Signature

                                     NOTICE

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

        In the event the Certificate set forth above is not completed, the
Company will deem the beneficial owner of the Rights evidenced by this Rights
Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement).

                                      B-7
<PAGE>   52

                          FORM OF ELECTION TO PURCHASE

                  (To be executed if holder desires to exercise
                  the Rights Certificate other than pursuant to
                   Section 11(a)(ii) of the Rights Agreement.)

To:  ALLIANCE FIBER OPTIC PRODUCTS, INC.

        The undersigned hereby irrevocably elects to exercise __________ Rights
represented by this Rights Certificate to purchase the one one-thousandths of a
share of Preferred Stock (or such other securities of the Company or any other
Person) issuable upon the exercise of the Rights and requests that certificates
for such shares be issued in the name of:

________________________________________________________________________________
           (Please insert social security or other identifying number)

________________________________________________________________________________
                         (Please print name and address)

________________________________________________________________________________

        If applicable, the Rights Certificate indicating the balance, if any, of
such Rights which may still be exercised pursuant to Section 11(a)(ii) of the
Rights Agreement shall be returned to the undersigned unless such Person
requests that the Rights Certificate be registered in the name of and delivered
to:

________________________________________________________________________________
Please insert social security or other identifying number (complete only if
Rights Certificate is to be registered in a name other than the undersigned)

________________________________________________________________________________
                         (Please print name and address)

        Dated:  ____________, 20__.

        __________________________________
        Signature

Signature Guaranteed:

        Signatures must be guaranteed by an Eligible Guarantor Institution, as
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934.

                                      B-8
<PAGE>   53

                                   CERTIFICATE

        The undersigned hereby certifies by checking the appropriate boxes that:

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

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

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

        Dated:  ____________, 20__.

        __________________________________
        Signature

                                     NOTICE

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

        In the event the Certificate set forth above is not completed, the
Company will deem the beneficial owner of the Rights evidenced by this Rights
Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement).

                                      B-9
<PAGE>   54

                                    EXHIBIT C

                                SUMMARY OF RIGHTS

        On May 18, 2001, the Board of Directors of Alliance Fiber Optic
Products, Inc. (the "Company") declared a dividend distribution of one "Right"
for each outstanding share of common stock, par value $0.001 per share (the
"Common Stock"), of the Company to stockholders of record at the close of
business on June 12, 2001 (the "Record Date"). Except as set forth below, each
Right, when exercisable, entitles the registered holder to purchase from the
Company one one-thousandth of a share of a new series of preferred stock,
designated as Series A Participating Preferred Stock, par value $0.001 per share
(the "Preferred Stock"), at a price of $80.00 per one one-thousandth of a share
(the "Purchase Price"), subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement (the "Rights Agreement") between the
Company and Mellon Investor Services LLC, as "Rights Agent."

        Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights certificates will
be distributed. The Rights will separate from the Common Stock and a
"Distribution Date" will occur upon the earliest of the following: (i) a public
announcement that a person, entity or group of affiliated or associated persons
and/or entities (an "Acquiring Person") has acquired, or obtained the right to
acquire, beneficial ownership of fifteen percent (15%) or more of the
outstanding shares of Common Stock (other than (A) as a result of repurchases of
stock by the Company or certain inadvertent actions by institutional or certain
other stockholders, (B) the Company, any subsidiary of the Company or any
employee benefit plan of the Company or any subsidiary, (C) Foxconn Holding
Limited (which currently owns in excess of fifteen percent (15%) of the
outstanding shares of Common Stock), so long as such entity, together with its
affiliated or associated persons and/or entities, does not increase its
beneficial ownership by more than one percent (1%) of the outstanding shares of
Common Stock above the percentage held on May 18, 2001 (or such lesser
percentage as may result following any transfer of securities after such date
until Foxconn beneficially owns less than fifteen percent (15%) of the
outstanding shares of Common Stock)) and (D) certain other instances set forth
in the Rights Agreement); or (ii) ten (10) business days (unless such date is
extended by the Board of Directors) following the commencement of a tender offer
or exchange offer which would result in any person, entity or group of
affiliated or associated persons and/or entities becoming an Acquiring Person
(unless such tender offer or exchange offer is a Permitted Offer (defined
below)).

        Until the Distribution Date (or earlier redemption or expiration of the
Rights, if applicable), (i) the Rights will be evidenced by certificates for
Common Stock and will be transferred only with such Common Stock certificates,
(ii) new Common Stock certificates issued after the Record Date upon transfers
or new issuances of the Common Stock will contain a notation incorporating the
Rights Agreement by reference and (iii) the surrender for transfer of any
certificates for outstanding Common Stock will also constitute the transfer of
the Rights associated with such Common Stock. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date, and the separate Rights Certificates
alone will evidence the Rights.

                                      C-1
<PAGE>   55

        The Rights are not exercisable until the Distribution Date. The Rights
will expire on the earliest of (i) May 29, 2011, (ii) consummation of a merger
transaction with a person, entity or group who (x) acquired Common Stock
pursuant to a Permitted Offer (as defined below) and (y) is offering in the
merger the same price per share and form of consideration paid in the Permitted
Offer or (iii) redemption or exchange of the Rights by the Company as described
below.

        The number of Rights associated with each share of Common Stock shall be
proportionately adjusted to prevent dilution in the event of a stock dividend
on, or a subdivision, combination or reclassification of, the Common Stock. The
Purchase Price payable, and the number of one one-thousandths of a share of
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of the Preferred Stock, (ii) upon the grant to holders of the
Preferred Stock of certain rights, options or warrants to subscribe for
Preferred Stock, certain convertible securities or securities having the same or
more favorable rights, privileges and preferences as the Preferred Stock at less
than the current market price of the Preferred Stock or (iii) upon the
distribution to holders of the Preferred Stock of evidences of indebtedness or
assets (excluding regular quarterly cash dividends out of earnings or retained
earnings) or of subscription rights, options or warrants (other than those
referred to above). With certain exceptions, no adjustments in the Purchase
Price will be required until cumulative adjustments require an adjustment of at
least one percent (1%) in such Purchase Price.

        In the event that, after the first date of public announcement by the
Company or an Acquiring Person that an Acquiring Person has become such, the
Company is involved in a merger or other business combination transaction
(whether or not the Company is the surviving corporation) or fifty percent (50%)
or more of the Company's assets or earning power are sold (in one transaction or
a series of transactions), proper provision shall be made so that each holder of
a Right (other than an Acquiring Person) shall thereafter have the right to
receive, upon the exercise thereof at the then current Purchase Price, that
number of shares of common stock of either the Company, in the event that it is
the surviving corporation of a merger or consolidation, or the acquiring company
(or, in the event there is more than one acquiring company, the acquiring
company receiving the greatest portion of the assets or earning power
transferred) which at the time of such transaction would have a market value of
two (2) times the Purchase Price (such

                                      C-2

<PAGE>   56

right being called the "Merger Right"). In the event that a person, entity or
group becomes the beneficial owner of fifteen percent (15%) or more of the
outstanding shares of Common Stock (unless pursuant to a tender offer or
exchange offer for all outstanding shares of Common Stock at a price and on
terms determined prior to the date of the first acceptance of payment for any of
such shares by at least a majority of the members of the Board of Directors who
are not officers of the Company and are not Acquiring Persons (or affiliated or
associated persons and/or entities thereof) to be both adequate and otherwise in
the best interests of the Company and its stockholders (a "Permitted Offer")),
then proper provision shall be made so that each holder of a Right will, for a
sixty (60) day period (subject to extension under certain circumstances)
thereafter, have the right to receive upon exercise that number of shares of
Common Stock (or, at the election of the Company, which election may be
obligatory if sufficient authorized shares of Common Stock are not available, a
combination of Common Stock, property, other securities (e.g., Preferred Stock)
and/or cash (including by way of a reduction in the Purchase Price)) having a
market value of two (2) times the Purchase Price (such right being called the
"Subscription Right"). The holder of a Right will continue to have the Merger
Right whether or not such holder exercises the Subscription Right.
Notwithstanding the foregoing, upon the occurrence of any of the events giving
rise to the exercisability of the Merger Right or the Subscription Right, any
Rights that are or were at any time after the Distribution Date owned by an
Acquiring Person (or affiliated or associated persons and/or entities thereof)
shall immediately become null and void.

        At any time prior to the earlier to occur of (i) a person, entity or
group becoming an Acquiring Person or (ii) the expiration of the Rights, the
Company may redeem the Rights in whole, but not in part, at a price of $0.001
per Right (the "Redemption Price"), which redemption shall be effective upon the
action of the Board of Directors. Additionally, the Company may, following a
person, entity or group becoming an Acquiring Person, redeem the then
outstanding Rights in whole, but not in part, at the Redemption Price (i) if
such redemption is incidental to a merger or other business combination
transaction or series of transactions involving the Company but not involving an
Acquiring Person (or certain related persons and/or entities) or (ii) following
an event giving rise to, and the expiration of the exercise period for, the
Subscription Right if and for as long as the Acquiring Person triggering the
Subscription Right beneficially owns securities representing less than fifteen
percent (15%) of the outstanding shares of Common Stock and at the time of
redemption there are no other Acquiring Persons. The redemption of Rights
described in the preceding sentence shall be effective only as of such time when
the Subscription Right is not exercisable, and in any event, only after ten (10)
business days' prior notice. Upon the effective date of the redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.

        Subject to applicable law, the Board of Directors, at its option, may at
any time after a person, group or entity becomes an Acquiring Person (but not
after the acquisition by such Acquiring Person of fifty percent (50%) or more of
the outstanding shares of Common Stock), exchange all or part of the then
outstanding and exercisable Rights (except for Rights which have become void)
for shares of Common Stock at a rate of one share of Common Stock per Right
(subject to adjustment) or, alternatively, for substitute consideration
consisting of cash, securities of the Company or other assets (or any
combination thereof).

        The Preferred Stock purchasable upon exercise of the Rights will be
nonredeemable and junior to any other series of preferred stock the Company may
issue (unless otherwise provided in the terms of such stock). Each share of
Preferred Stock will have a preferential quarterly dividend in an amount equal
to 1,000 times the dividend declared on each share of Common Stock, but in no
event less than $25.00. In the event of liquidation, the holders of shares of
Preferred Stock will receive a preferred liquidation payment equal, per share,
to the greater of $1,000.00 or 1,000 times the payment made per share of Common
Stock. Each share of Preferred Stock will have 1,000 votes, voting together with
the shares of Common Stock. In the event of any merger, consolidation or other
transaction in which shares of Common Stock are exchanged, each share of
Preferred Stock will be entitled to receive 1,000 times the amount and type of
consideration received per share of Common Stock. The rights of the Preferred
Stock as to dividends, liquidation and voting, and in the event of mergers and
consolidations, are protected by customary antidilution provisions. Fractional
shares of Preferred Stock will be issuable; however, the Company may elect to
(i) distribute depositary receipts in lieu of such

                                      C-3

<PAGE>   57

fractional shares and (ii) make an adjustment in cash, in lieu of fractional
shares other than fractions that are multiples of one one-thousandth of a share,
based on the market price of the Preferred Stock prior to the date of exercise.

        Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights should not
be taxable to stockholders or to the Company, holders of Rights may, depending
upon the circumstances, recognize taxable income in the event (i) that the
Rights become exercisable for (x) Common Stock or Preferred Stock (or other
consideration) or (y) common stock of an acquiring company in the instance of
the Merger Right as set forth above or (ii) of any redemption or exchange of the
Rights as set forth above.

        The Company and the Rights Agent retain broad authority to amend the
Rights Agreement; however, following any Distribution Date any amendment may not
adversely affect the interests of holders of Rights.

        A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company. THIS
SUMMARY DESCRIPTION OF THE RIGHTS DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE RIGHTS AGREEMENT, WHICH IS
INCORPORATED HEREIN BY REFERENCE.

                                      C-4

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