<PAGE>   1
                                                                     EXHIBIT 4.1


                                S3 INCORPORATED

                                      AND

            STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.

                                   AS TRUSTEE





                                   INDENTURE

                         DATED AS OF SEPTEMBER 12, 1996



                 5-3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2003
<PAGE>   2
                               TABLE OF CONTENTS

<TABLE>
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         <S>              <C>                                                                                        <C>
                                                       ARTICLE I

                                                      DEFINITIONS

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

                                                      ARTICLE II

                                      ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
                                                 AND EXCHANGE OF NOTES

         Section 2.1      Designation, Amount and Issue of Notes  . . . . . . . . . . . . . . . . . . . . . . . .     7
         Section 2.2      Form of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     7
         Section 2.3      Date and Denomination of Notes; Payments of Interest  . . . . . . . . . . . . . . . . .     8
         Section 2.4      Execution of Notes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    10
         Section 2.5      Exchange and Registration of Transfer of Notes;
                          Restrictions on Transfer; Depositary  . . . . . . . . . . . . . . . . . . . . . . . . .    10
         Section 2.6      Mutilated, Destroyed, Lost or Stolen Notes  . . . . . . . . . . . . . . . . . . . . . .    22
         Section 2.7      Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    23
         Section 2.8      Cancellation of Notes Paid, Etc.  . . . . . . . . . . . . . . . . . . . . . . . . . . .    23

                                                      ARTICLE III

                                                  REDEMPTION OF NOTES

         Section 3.1      Redemption Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    23
         Section 3.2      Notice of Redemption; Selection of Notes  . . . . . . . . . . . . . . . . . . . . . . .    24
         Section 3.3      Payment of Notes Called for Redemption  . . . . . . . . . . . . . . . . . . . . . . . .    25
         Section 3.4      Conversion Arrangement on Call for Redemption . . . . . . . . . . . . . . . . . . . . .    26

                                                      ARTICLE IV

                                                 SUBORDINATION OF NOTES

         Section 4.1      Agreement of Subordination  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    27
         Section 4.2      Payments to Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    27
         Section 4.3      Subrogation of Notes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    29
         Section 4.4      Authorization by Noteholders  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    30
         Section 4.5      Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    30
         Section 4.6      Trustee's Relation to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . .    31
         Section 4.7      No Impairment of Subordination  . . . . . . . . . . . . . . . . . . . . . . . . . . . .    32
</TABLE>





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<TABLE>
         <S>              <C>                                                                                        <C>
         Section 4.8      Certain Conversions Deemed Payment  . . . . . . . . . . . . . . . . . . . . . . . . . .    32

                                                       ARTICLE V

                                          PARTICULAR COVENANTS OF THE COMPANY

         Section 5.1      Payment of Principal, Premium and Interest  . . . . . . . . . . . . . . . . . . . . . .    33
         Section 5.2      Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . .    33
         Section 5.3      Appointments to Fill Vacancies in Trustee's Office  . . . . . . . . . . . . . . . . . .    34
         Section 5.4      Provisions as to Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    34
         Section 5.5      Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    35
         Section 5.6      Rule 144A Information Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . .    35
         Section 5.7      Stay, Extension and Usury Laws  . . . . . . . . . . . . . . . . . . . . . . . . . . . .    35
         Section 5.8      Compliance Certificate  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    35
         Section 5.9      Further Instruments and Acts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    36

                                                      ARTICLE VI

                             NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE

         Section 6.1      Noteholders' Lists  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    36
         Section 6.2      Preservation and Disclosure of Lists  . . . . . . . . . . . . . . . . . . . . . . . . .    36
         Section 6.3      Reports by Trustee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    36
         Section 6.4      Reports by Company  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    37

                                                      ARTICLE VII

                                                 DEFAULTS AND REMEDIES

         Section 7.1      Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    37
         Section 7.2      Payments of Notes on Default; Suit Therefor . . . . . . . . . . . . . . . . . . . . . .    40
         Section 7.3      Application of Monies Collected by Trustee  . . . . . . . . . . . . . . . . . . . . . .    41
         Section 7.4      Proceedings by Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    42
         Section 7.5      Proceedings by Trustee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    43
         Section 7.6      Remedies Cumulative and Continuing  . . . . . . . . . . . . . . . . . . . . . . . . . .    43
         Section 7.7      Direction of Proceedings and Waiver of Defaults
                          by Majority of Noteholders  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    43
         Section 7.8      Notice of Defaults  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    44
         Section 7.9      Undertaking to Pay Costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    44
         Section 7.10     Delay or Omission Not Waiver  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    44

                                                      ARTICLE VIII

                                                 CONCERNING THE TRUSTEE

         Section 8.1      Duties and Responsibilities of Trustee  . . . . . . . . . . . . . . . . . . . . . . . .    45
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                                      -ii-
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         <S>              <C>                                                                                        <C>
         Section 8.2      Reliance on Documents, Opinions, Etc. . . . . . . . . . . . . . . . . . . . . . . . . .    46
         Section 8.3      No Responsibility for Recitals, Etc.  . . . . . . . . . . . . . . . . . . . . . . . . .    47
         Section 8.4      Trustee, Paying Agents, Conversion Agents or Registrar
                          May Own Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    47
         Section 8.5      Monies to Be Held in Trust  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    47
         Section 8.6      Compensation and Expenses of Trustee  . . . . . . . . . . . . . . . . . . . . . . . . .    47
         Section 8.7      Officers' Certificate as Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . .    48
         Section 8.8      Conflicting Interests of Trustee  . . . . . . . . . . . . . . . . . . . . . . . . . . .    48
         Section 8.9      Eligibility of Trustee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    48
         Section 8.10     Resignation or Removal of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . .    49
         Section 8.11     Acceptance by Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . .    50
         Section 8.12     Succession by Merger, Etc.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    50
         Section 8.13     Limitation on Rights of Trustee as Creditor . . . . . . . . . . . . . . . . . . . . . .    51

                                                      ARTICLE IX

                                               CONCERNING THE NOTEHOLDERS

         Section 9.1      Action by Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    51
         Section 9.2      Proof of Execution by Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . .    51
         Section 9.3      Who Are Deemed Absolute Owners  . . . . . . . . . . . . . . . . . . . . . . . . . . . .    52
         Section 9.4      Company-Owned Notes Disregarded . . . . . . . . . . . . . . . . . . . . . . . . . . . .    52
         Section 9.5      Revocation of Consents; Future Holders Bound  . . . . . . . . . . . . . . . . . . . . .    52

                                                       ARTICLE X

                                                 NOTEHOLDERS' MEETINGS

         Section 10.1     Purpose of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    53
         Section 10.2     Call of Meetings by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    53
         Section 10.3     Call of Meetings by Company or Noteholders  . . . . . . . . . . . . . . . . . . . . . .    54
         Section 10.4     Qualifications for Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    54
         Section 10.5     Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    54
         Section 10.6     Voting  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    54
         Section 10.7     No Delay of Rights by Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    55

                                                      ARTICLE XI

                                                SUPPLEMENTAL INDENTURES

         Section 11.1     Supplemental Indentures Without Consent of Noteholders  . . . . . . . . . . . . . . . .    55
         Section 11.2     Supplemental Indentures with Consent of Noteholders . . . . . . . . . . . . . . . . . .    56
         Section 11.3     Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . .    57
         Section 11.4     Notation on Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    58
         Section 11.5     Evidence of Compliance of Supplemental Indenture to
                          Be Furnished Trustee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    58
</TABLE>





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<TABLE>
         <S>              <C>                                                                                        <C>
                                                      ARTICLE XII

                                   CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE

         Section 12.1     Company May Consolidate, Etc. on Certain Terms  . . . . . . . . . . . . . . . . . . . .    58
         Section 12.2     Successor Corporation to Be Substituted . . . . . . . . . . . . . . . . . . . . . . . .    59
         Section 12.3     Opinion of Counsel to Be Given Trustee  . . . . . . . . . . . . . . . . . . . . . . . .    59

                                                      ARTICLE XIII

                                        SATISFACTION AND DISCHARGE OF INDENTURE

         Section 13.1     Discharge of Indenture  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    59
         Section 13.2     Deposited Monies to Be Held in Trust by Trustee . . . . . . . . . . . . . . . . . . . .    60
         Section 13.3     Paying Agent to Repay Monies Held . . . . . . . . . . . . . . . . . . . . . . . . . . .    60
         Section 13.4     Return of Unclaimed Monies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    60
         Section 13.5     Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    61

                                                      ARTICLE XIV

                                       IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
                                                 OFFICERS AND DIRECTORS

         Section 14.1     Indenture and Notes Solely Corporate Obligations  . . . . . . . . . . . . . . . . . . .    61

                                                      ARTICLE XV

                                                  CONVERSION OF NOTES

         Section 15.1     Right to Convert  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    61
         Section 15.2     Exercise of Conversion Privilege; Issuance of
                          Common Stock on Conversion; No Adjustment for
                          Interest or Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    62
         Section 15.3     Cash Payments in Lieu of Fractional Shares  . . . . . . . . . . . . . . . . . . . . . .    63
         Section 15.4     Conversion Price  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    64
         Section 15.5     Adjustment of Conversion Price  . . . . . . . . . . . . . . . . . . . . . . . . . . . .    64
         Section 15.6     Effect of Reclassification, Consolidation, Merger or Sale . . . . . . . . . . . . . . .    73
         Section 15.7     Taxes on Shares Issued  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    74
         Section 15.8     Reservation of Shares; Shares to Be Fully Paid; Listing
                          of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    74
         Section 15.9     Responsibility of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    74
         Section 15.10    Notice to Holders Prior to Certain Actions  . . . . . . . . . . . . . . . . . . . . . .    75
</TABLE>





                                      -iv-
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<TABLE>
         <S>            <C>                                                                                          <C>
                                                      ARTICLE XVI

                                           REPURCHASE UPON A DESIGNATED EVENT

         Section 16.1     Repurchase Right  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    76
         Section 16.2     Conditions to the Company's Election to Pay the
                          Repurchase Price in Common Stock  . . . . . . . . . . . . . . . . . . . . . . . . . . .    77
         Section 16.3     Notices; Method of Exercising Repurchase Right, Etc.  . . . . . . . . . . . . . . . . .    77
         Section 16.4     Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    80

                                                      ARTICLE XVII

                                                MISCELLANEOUS PROVISIONS

         Section 17.1     Provisions Binding on Company's Successors  . . . . . . . . . . . . . . . . . . . . . .    81
         Section 17.2     Official Acts by Successor Corporation  . . . . . . . . . . . . . . . . . . . . . . . .    81
         Section 17.3     Addresses for Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    81
         Section 17.4     Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    82
         Section 17.5     Evidence of Compliance with Conditions Precedent;
                          Certificates to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    82
         Section 17.6     Legal Holidays  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    83
         Section 17.7     No Security Interest Created  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    83
         Section 17.8     Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    83
         Section 17.9     Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    83
         Section 17.10    Table of Contents, Headings, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . .    83
         Section 17.11    Authenticating Agent  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    83
         Section 17.12    Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    84
</TABLE>

EXHIBIT A -      FORM OF NOTE

EXHIBIT B -      FORM OF PURCHASER LETTER FOR INSTITUTIONAL ACCREDITED
                 INVESTORS

EXHIBIT C -      FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
                 FROM RESTRICTED GLOBAL SECURITY TO REGULATION S GLOBAL
                 SECURITY

EXHIBIT D-       FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
                 FROM REGULATION S GLOBAL SECURITY TO RESTRICTED GLOBAL
                 SECURITY





                                      -v-
<PAGE>   7
         THIS INDENTURE, dated as of September 12, 1996, is entered into by and
between S3 INCORPORATED, a Delaware corporation (the "Company"), and STATE
STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., a national banking
association duly organized and existing under the laws of the United States of
America (the "Trustee").

                              W I T N E S S E T H:

         WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issue of its 5-3/4% Convertible Subordinated Notes due 2003 (the
"Notes"), in an aggregate principal amount not to exceed $103,500,000 and, to
provide the terms and conditions upon which the Notes are to be authenticated,
issued and delivered, the Company has duly authorized the execution and
delivery of this Indenture; and

         WHEREAS, all acts and things necessary to make the Notes, when
executed by the Company and authenticated and delivered by the Trustee or a
duly authorized authenticating agent, as in this Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute these presents
a valid agreement according to its terms, have been done and performed, and the
execution of this Indenture and the issue hereunder of the Notes have in all
respects been duly authorized.

                   NOW, THEREFORE, THIS INDENTURE WITNESSETH:

         That in order to declare the terms and conditions upon which the Notes
are, and are to be, authenticated, issued and delivered, and in consideration
of the premises and of the purchase and acceptance of the Notes by the holders
thereof, the Company covenants and agrees with the Trustee for the equal and
proportionate benefit of the respective holders from time to time of the Notes
(except as otherwise provided below), as follows:


                                   ARTICLE I

                                  DEFINITIONS

         SECTION 1.1      DEFINITIONS.  The terms defined in this Section 1.1
(except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Indenture and of any indenture supplemental
hereto shall have the respective meanings specified in this Section 1.1.  All
other terms used in this Indenture, which are defined in the Trust Indenture
Act or which are by reference therein defined in the Securities Act (except as
herein otherwise expressly provided or unless the context otherwise requires)
shall have the meanings assigned to such terms in said Trust Indenture Act and
in said Securities Act as in force at the date of the execution of this
Indenture.  The words "herein," "hereof,"  "hereunder," and words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other Subdivision.  The terms defined in this Article include the
plural as well as the singular.





                                      -1-
<PAGE>   8
         "Affiliate" of any specified person shall mean any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person.  For the purposes of this
definition, "control," when used with respect to any specified person means the
power to direct or cause the direction of the management and policies of such
person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.

         "Agent Members"  has the meaning specified in Section 2.5.

         "Applicable Procedures" has the meaning specified in Section 2.5.

         "Board of Directors" shall mean the Board of Directors of the Company
or a committee of such Board duly authorized to act for it hereunder.

         "Board Resolution" shall mean a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.

         "Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which the banking institutions in The City of
New York or the city in which the Corporate Trust Office is located are
authorized or obligated by law or executive order to close or be closed.

         "CEDEL" means Cedel Bank, societe anonyme.

         "Closing Price" has the meaning specified in Section 15.5.

         "Commission" shall mean the Securities and Exchange Commission.

         "Common Stock" shall mean any stock of any class of the Company which
has no preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Company and which is not subject to redemption by the Company.  Subject to the
provisions of Section 15.6, however, shares issuable on conversion of Notes
shall include only shares of the class designated as common stock of the
Company at the date of this Indenture or shares of any class or classes
resulting from any reclassification or reclassifications thereof and which have
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company
and which are not subject to redemption by the Company; provided that if at any
time there shall be more than one such resulting class, the shares of each such
class then so issuable shall be substantially in the proportion which the total
number of shares of such class resulting from all such reclassifications bears
to the total number of shares of all such classes resulting from all such
reclassifications.





                                      -2-
<PAGE>   9
         "Company" shall mean S3 Incorporated, a Delaware corporation, and
subject to the provisions of Article XII, shall include its successors and
assigns.

         "Conversion Price" shall have the meaning specified in Section 15.4.

         "Corporate Trust Office," or other similar term, shall mean the office
of the Trustee at which at any particular time its corporate trust business
shall be principally administered, which office is, at the date as of which
this Indenture is dated, located at 725 South Figueroa Street, Suite 3100, Los
Angeles, California 90017, Attention: Corporate Trust Department (S3
Incorporated, 5-3/4% Convertible Subordinated Notes due 2003).

         "Custodian" shall mean State Street Bank and Trust Company of
California, N.A., as custodian with respect to the Notes in global form, or any
successor entity thereto.

         "Default" or "default" shall mean any event that is, or after notice
or passage of time, or both, would be, an Event of Default.

         "Depositary" shall mean, with respect to the Notes issuable or issued
in whole or in part in global form, the person specified in Section 2.5(e) as
the Depositary with respect to such Notes, until a successor shall have been
appointed and become such pursuant to the applicable provisions of this
Indenture, and thereafter, "Depositary" shall mean or include such successor.

         "Designated Event" shall have the meaning specified in Section 16.4.

         "Euroclear" means the Euroclear System.

         "Event of Default" shall mean any event specified in Section 7.1(a),
(b), (c), (d), (e), (f), (g) or (h) continued for the period of time, if any,
and after the giving of notice, if any, therein designated.

         "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

         "Global Security" means any of the Restricted Global Security and the
Regulation S Global Security.

         "IAI Letter" has the meaning specified in Section 2.3.

         "Indebtedness" shall have the meaning specified in Section 7.1(e).

         "Initial Purchasers" shall mean Lehman Brothers Inc., PaineWebber
Incorporated, and Cowen & Company, as Initial Purchasers under the Purchase
Agreement.

         "Indenture" shall mean this instrument as originally executed or, if
amended or supplemented as herein provided, as so amended or supplemented.





                                      -3-
<PAGE>   10
         "Institutional Accredited Investor" means an institutional accredited
investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act.

         "Note" or "Notes" shall mean any note or notes, as the case may be,
authenticated and delivered under this Indenture.

         "Noteholder" or "holder" as applied to any Note, or other similar
terms (but excluding the term "beneficial holder"), shall mean any person in
whose name at the time a particular Note is registered on the Note register.

         "Note register" shall have the meaning specified in Section 2.5.

         "Officers' Certificate", when used with respect to the Company, shall
mean a certificate signed by (a) one of the President, the Chief Executive
Officer, Executive or Senior Vice President or any Vice President (whether or
not designated by a number or numbers or word added before or after the title
"Vice President") and (b) one of the Treasurer or any Assistant Treasurer,
Secretary or any Assistant Secretary or Controller of the Company, which is
delivered to the Trustee.  Each such certificate shall include the statements
provided for in Section 17.5 if and to the extent required by the provisions of
such Section.

         "Opinion of Counsel" shall mean an opinion in writing signed by legal
counsel, who may be an employee of or counsel to the Company, or other counsel
acceptable to the Trustee, which is delivered to the Trustee.  Each such
opinion shall include the statements provided for in Section 17.5 if and to the
extent required by the provisions of such Section.

         "Outstanding," when used with reference to Notes, shall, subject to
the provisions of Section 9.4, mean, as of any particular time, all Notes
authenticated and delivered by the Trustee under this Indenture, except:

         (a) Notes theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;

         (b) Notes, or portions thereof, for the payment, or redemption of
which monies in the necessary amount shall have been deposited in trust with
the Trustee or with any paying agent (other than the Company) or shall have
been set aside and segregated in trust by the Company (if the Company shall act
as its own paying agent); provided that if such Notes are to be redeemed, as
the case may be, prior to the maturity thereof, notice of such redemption shall
have been given as provided in Section 3.2, or provision satisfactory to the
Trustee shall have been made for giving such notice;

         (c) Notes in lieu of which, or in substitution for which, other Notes
shall have been authenticated and delivered pursuant to the terms of Section
2.6 unless proof satisfactory to the Trustee is presented that any such Notes
are held by bona fide holders in due course; and





                                      -4-
<PAGE>   11
         (d) Notes converted into Common Stock pursuant to Article XV and Notes
deemed not outstanding pursuant to Section 3.2.

         "Person" or "person" shall mean a corporation, an association, a
partnership, an individual, a joint venture, a joint stock company, a trust, an
unincorporated organization or a government or an agency or a political
subdivision thereof.

         "PORTAL Market" shall mean the Private Offerings, Resales and Trading
through Automated Linkages Market operated by the National Association of
Securities Dealers, Inc.  or any successor thereto.

         "Predecessor Note" of any particular Note shall mean every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.6 in lieu of a lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the lost, destroyed or
stolen Note that it replaces.

         "Purchase Agreement" shall mean the Purchase Agreement dated September
12, 1996 by and among the Company and the Initial Purchasers.

         "QIB" shall mean a "qualified institutional buyer" as defined in Rule
144A.

         "Regulation S" shall mean Regulation S as promulgated under the
Securities Act.

         "Regulation S Global Security" has the meaning specified in Section
2.1.

         "Repurchase Price" has the meaning specified in Section 16.1.

         "Responsible Officer", when used with respect to the Trustee, shall
mean an officer of the Trustee assigned to the Corporate Trust Office, and any
officer of the Trustee to whom such matter is referred to because of his or her
knowledge of and familiarity with the particular subject.

         "Restricted Global Security" has the meaning specified in Section 2.2.

         "Restricted Period" has the meaning specified in Section 2.2.

         "Restricted Securities" has the meaning specified in Section 2.5(e).

         "Rule 144" means Rule 144 under the Securities Act (including any
successor rule thereto), as the same may be amended from time to time.

         "Rule 144A" shall mean Rule 144A as promulgated under the Securities
Act.

         "Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.





                                      -5-
<PAGE>   12
         "Senior Indebtedness" shall mean the principal of, premium, if any,
interest on (including any interest accruing after the filing of a petition by
or against the Company under any bankruptcy law, whether or not allowed as a
claim after such filing in any proceeding under such bankruptcy law) and any
other payment due pursuant to any of the following, whether outstanding on the
date of the Indenture or thereafter incurred or created:

                 (a)      All indebtedness of the Company for money borrowed or
         evidenced by notes, debentures, bonds or other securities (including,
         but not limited to, those which are convertible or exchangeable for
         securities of the Company);

                 (b)      All indebtedness of the Company due and owing with
         respect to letters of credit (including, but not limited to,
         reimbursement obligations with respect thereto);

                 (c)      All indebtedness or other obligations of the Company
         due and owing with respect to interest rate and currency swap
         agreements, cap, floor and collar agreements, currency spot and
         forward contracts and other similar agreements and arrangements;

                 (d)      All indebtedness consisting of commitment or standby
         fees due and payable to lending institutions with respect to credit
         facilities or letters of credit available to the Company;

                 (e)      All obligations of the Company under leases required
         or permitted to be capitalized under generally accepted accounting
         principles;

                 (f)      All indebtedness or obligations of others of the
         kinds described in any of the preceding clauses (a), (b), (c), (d) or
         (e) assumed by or guaranteed in any manner by the Company or in effect
         guaranteed (directly or indirectly) by the Company through an
         agreement to purchase, contingent or otherwise, and all obligations of
         the Company under any such guarantee or other arrangements; and

                 (g)      All renewals, extensions, refunds, deferrals,
         amendments or modifications of indebtedness or obligations of the
         kinds described in any of the preceding clauses (a), (b), (c), (d),
         (e) or (f);

unless in the case of any particular indebtedness, obligation, renewal,
extension, refunding, amendment, modification or supplement, the instrument or
other document creating or evidencing the same or the assumption or guarantee
of the same expressly provides that such indebtedness, obligation, renewal,
extension, refunding, amendment, modification or supplement is subordinate to,
or is not superior to, or is pari passu with, the Notes; provided that Senior
Indebtedness shall not include (i) any indebtedness of any kind of the Company
to any Subsidiary and (ii) indebtedness for trade payables or constituting the
deferred purchase price of assets or services incurred in the ordinary course
of business.





                                      -6-
<PAGE>   13
         "Significant Subsidiary" shall mean, with respect to any person, a
Subsidiary of such person organized under the laws of the United States of
America, any state thereof, or the District of Columbia that would constitute a
"significant subsidiary" as such term is defined under Rule 1-02 of Regulation
S-X of the Commission (as such Regulation is in effect on the date hereof).

         "Subsidiary" shall mean a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by
one or more other Subsidiaries, or by the Company and one or more other
Subsidiaries.  For the purposes of this definition, "voting stock" means stock
which ordinarily has voting power for the election of directors, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.

         "Trading Day" has the meaning specified in Section 15.5(g)(5).

         "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as
amended, as it was in force at the date of execution of this Indenture, except
as provided in Sections 11.3 and 15.6; provided, however, that in the event the
Trust Indenture Act of 1939 is amended after the date hereof, the term "Trust
Indenture Act" shall mean, to the extent required by such amendment, the Trust
Indenture Act of 1939 as so amended.

         "Trustee" shall mean State Street Bank and Trust Company of
California, N.A. and its successors and any corporation resulting from or
surviving any consolidation or merger to which it or its successors may be a
party and any successor trustee at the time serving as successor trustee
hereunder.

         The definitions of certain other terms are as specified in Article XV
and Article XVI.


                                   ARTICLE II

                  ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
                             AND EXCHANGE OF NOTES


         SECTION 2.1      DESIGNATION, AMOUNT AND ISSUE OF NOTES.  The Notes
shall be designated as "5-3/4% Convertible Subordinated Notes due 2003".  Notes
not to exceed the aggregate principal amount of $90,000,000 (or $103,500,000 if
the over-allotment option set forth in Section 2(b) of the Purchase Agreement
is exercised in full) upon the execution of this Indenture, or from time to
time thereafter, may be executed by the Company and delivered to the Trustee
for authentication, and the Trustee shall thereupon authenticate and deliver
said Notes upon the written order of the Company, signed by the Company's (a)
President, Executive or Senior Vice President or any Vice President (whether or
not designated by a number or numbers or word or words added before or after
the title "Vice President") and (b) Treasurer or Assistant Treasurer or its
Secretary or any Assistant Secretary, without any further action by the Company
hereunder.





                                      -7-
<PAGE>   14
         SECTION 2.2      FORM OF NOTES.  The Notes and the Trustee's
certificate of authentication to be borne by such Notes shall be substantially
in the form set forth in Exhibit A, which is incorporated in and made a part of
this Indenture.

         Any of the Notes may have such letters, numbers or other marks of
identification and such notations, legends and endorsements as the officers
executing the same may approve (execution thereof to be conclusive evidence of
such approval) and as are not inconsistent with the provisions of this
Indenture, 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
securities exchange or automated quotation system on which the Notes may be
listed or designated for issuance, or to conform to usage.

         Notes offered and sold in their initial distribution in reliance on
Regulation S shall be initially represented by one or more Global Securities
(collectively, the "Regulation S Global Security") issued in fully registered
form without interest coupons, substantially in the form of Note set forth in
Exhibit A, with such applicable legends as are provided for in Exhibit A.  Such
Regulation S Global Security shall be registered in the name of the Depositary
or its nominee and deposited with the Custodian, duly executed by the Company
and authenticated by the Trustee as hereinafter provided, for credit to the
respective accounts at the Depositary of the depositories for Morgan Guaranty
Trust Company of New York, Brussels office, as operator of Euroclear, or CEDEL.
Until such time as the Restricted Period shall have terminated, investors may
hold beneficial interests in such Regulation S Global Securities only through
Euroclear and CEDEL, unless delivery of such beneficial interest shall be made
through the Restricted Global Security in accordance with the certification
requirements discussed below in Section 2.5(b)(3).  After such time as the
Restricted Period shall have terminated, such certification requirements shall
no longer be required for such transfers.  As used herein, the term "Restricted
Period" means the period up to (but not including) the 40th day following the
later of (i) the date of the commencement of the offering of Notes and (ii) the
last original issuance date of the Notes.

         Notes offered and sold in their initial distribution in reliance on
Rule 144A shall be issued in the form of one or more Global Securities
(collectively, the "Restricted Global Security") in fully registered form
without interest coupons, substantially in the form of Note set forth in
Exhibit A, with such applicable legends as are provided for in Exhibit A.  Such
Restricted Global Security shall be registered in the name of the Depositary or
its nominee and deposited with the Custodian, duly executed by the Company and
authenticated by the Trustee as hereinafter provided.  The aggregate principal
amount of the Restricted Global Security may be increased or decreased from
time to time by adjustments made on the records of the Custodian in connection
with a corresponding decrease or increase in the aggregate principal amount of
the Regulation S Global Security, as hereinafter provided.

         The terms and provisions contained in the form of Note attached as
Exhibit A hereto shall constitute, and is hereby expressly made, a part of this
Indenture and to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.





                                      -8-
<PAGE>   15
         SECTION 2.3      DATE AND DENOMINATION OF NOTES; PAYMENTS OF INTEREST.
The Notes shall be issuable in registered form without coupons in denominations
of $1,000 principal amount and integral multiples thereof, except that Notes
offered other than in reliance on Regulation S or to QIBs will be issued only
in definitive certificated form and will be issued initially in minimum
denominations of $250,000 and integral multiples of $1,000 in excess thereof.
Such Notes (i.e., Notes sold to Institutional Accredited Investors) will be
subject to restrictions on transfer in accordance with a form of Letter for
Institutional Accredited Investors (the "IAI Letter"), that such investors will
be required to sign, the form of which is attached hereto as Exhibit B.  Every
Note shall be dated the date of its authentication, shall bear interest from
the applicable date and shall be payable on the dates specified on the face of
the form of Note, attached as Exhibit A hereto.  Interest on the Notes shall be
computed on the basis of a 360-day year comprised of twelve 30-day months.

         The person in whose name any Note (or its Predecessor Note) is
registered at the close of business on any record date with respect to any
interest payment date (including any Note that is converted after the record
date and on or before the interest payment date) shall be entitled to receive
the interest payable on such interest payment date notwithstanding the
cancellation of such Note upon any transfer, exchange or conversion subsequent
to the record date and on or prior to such interest payment date; provided that
in the case of any Note, or portion thereof, called for redemption pursuant to
Article III on a redemption date or repurchased by the Company pursuant to
Article XVI on a repurchase date during the period from the close of business
on the record date to the close of business on the Business Day next preceding
the following interest payment date, interest shall not be paid to the person
in whose name the Note, or portion thereof, is registered on the close of
business on such record date, and the Company shall have no obligation to pay
interest on such Note or portion thereof except to the extent required to be
paid upon such redemption or repurchase in accordance with Article III or
Article XVI.  The term "record date" with respect to any interest payment date
shall mean the March 15 or September 15 preceding said April 1 or October 1.

         Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any said April 1 or October 1 (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Noteholder on
the relevant record date by virtue of its having been such Noteholder; and such
Defaulted Interest shall be paid by the Company, at its election in each case,
as provided in clause (1) or (2) below:

                 (1)      The Company may elect to make payment of any
         Defaulted Interest to the persons in whose names the Notes (or their
         respective Predecessor Notes) are registered at the close of business
         on a special record date for the payment of such Defaulted Interest,
         which shall be fixed in the following manner.  The Company shall
         notify the Trustee in writing of the amount of Defaulted Interest to
         be paid on each Note and the date of the payment (which shall be not
         less than twenty-five (25) days after the receipt by the Trustee of
         such notice, unless the Trustee shall consent to an earlier date), and
         at the same time the Company shall deposit with the Trustee an amount
         of money equal to the aggregate amount to be paid in respect of such
         Defaulted Interest or shall make arrangements satisfactory to the
         Trustee for such





                                      -9-
<PAGE>   16
         deposit prior to the date of the proposed payment, such money when
         deposited to be held in trust for the benefit of the persons entitled
         to such Defaulted Interest as in this clause provided.  Thereupon the
         Trustee shall fix a special record date for the payment of such
         Defaulted Interest which shall be not more than fifteen (15) days and
         not less than ten (10) days prior to the date of the proposed payment
         and not less than ten (10) days after the receipt by the Trustee of
         the notice of the proposed payment.  The Trustee shall promptly notify
         the Company of such special record date and, in the name and at the
         expense of the Company, shall cause notice of the proposed payment of
         such Defaulted Interest and the special record date therefor to be
         mailed, first-class postage prepaid, to each Noteholder at its address
         as it appears in the Note register, not less than ten (10) days prior
         to such special record date.  Notice of the proposed payment of such
         Defaulted Interest and the special record date therefor having been so
         mailed, such Defaulted Interest shall be paid to the persons in whose
         names the Notes (or their respective Predecessor Notes) were
         registered at the close of business on such special record date and
         shall no longer be payable pursuant to the following clause (2).

                 (2)      The Company may make payment of any Defaulted
         Interest in any other lawful manner not inconsistent with the
         requirements of any securities exchange or automated quotation system
         on which the Notes may be listed or designated for issuance, and upon
         such notice as may be required by such exchange or automated quotation
         system, if, after notice given by the Company to the Trustee of the
         proposed payment pursuant to this clause, such manner of payment shall
         be deemed practicable by the Trustee.

         SECTION 2.4      EXECUTION OF NOTES.  The Notes shall be signed in the
name and on behalf of the Company by the facsimile signature of its Chairman of
the Board, its President and Chief Executive Officer, any of its Senior Vice
Presidents, or any of its Vice Presidents (whether or not designated by a
number or numbers or word or words added before or after the title "Vice
President") and attested by the facsimile signature of its Secretary or any of
its Assistant Secretaries (which may be printed, engraved or otherwise
reproduced thereon, by facsimile or otherwise).  Only such Notes as shall bear
thereon a certificate of authentication substantially in the form set forth on
the form of Note attached as Exhibit A hereto, manually executed by the Trustee
(or an authenticating agent appointed by the Trustee as provided by Section
17.11), shall be entitled to the benefits of this Indenture or be valid or
obligatory for any purpose.  Such certificate by the Trustee (or such an
authenticating agent) upon any Note executed by the Company shall be conclusive
evidence that the Note so authenticated has been duly authenticated and
delivered hereunder and that the holder is entitled to the benefits of this
Indenture.

         In case any officer of the Company who shall have signed any of the
Notes shall cease to be such officer before the Notes so signed shall have been
authenticated and delivered by the Trustee, or disposed of by the Company, such
Notes nevertheless may be authenticated and delivered or disposed of as though
the person who signed such Notes had not ceased to be such officer of the
Company; and any Note may be signed on behalf of the Company by such persons
as, at the actual date of the execution of such Note, shall be the





                                      -10-
<PAGE>   17
proper officers of the Company, although at the date of the execution of this
Indenture any such person was not such an officer.

         SECTION 2.5      EXCHANGE AND REGISTRATION OF TRANSFER OF NOTES; 
RESTRICTIONS ON TRANSFER; DEPOSITARY.

                 (a)      The Company shall cause to be kept at the Corporate
         Trust Office a register (the register maintained in such office and in
         any other office or agency of the Company designated pursuant to
         Section 5.2 being herein sometimes collectively referred to as the
         "Note register") in which, subject to such reasonable regulations as
         it may prescribe, the Company shall provide for the registration of
         Notes and of transfers of Notes.  Such register shall be in written
         form or in any form capable of being converted into written form
         within a reasonable period of time.  The Trustee is hereby appointed
         "Note registrar" for the purpose of registering Notes and transfers of
         Notes as herein provided.  The Company may appoint one or more
         co-registrars in accordance with Section 5.2.

                 Upon surrender for registration of transfer of any Note to the
         Note registrar or any co-registrar, and satisfaction of the
         requirements for such transfer set forth in this Section 2.5, the
         Company shall execute, and the Trustee shall authenticate and deliver,
         in the name of the designated transferee or transferees, one or more
         new Notes of any authorized denominations and of a like aggregate
         principal amount and bearing such restrictive legends as may be
         required by this Indenture.

                 Subject to the other provisions of this Section 2.5(a), Notes
         may be exchanged for other Notes of any authorized denominations and
         of a like aggregate principal amount, upon surrender of the Notes to
         be exchanged at any such office or agency.  Whenever any Notes are so
         surrendered for exchange, the Company shall execute, and the Trustee
         shall authenticate and deliver, the Notes which the Noteholder making
         the exchange is entitled to receive, bearing registration numbers not
         contemporaneously outstanding.

                 All Notes presented or surrendered for registration of
         transfer or for exchange shall (if so required by the Company, the
         Trustee, the Note registrar or any co-registrar) be duly endorsed, or
         be accompanied by a written instrument or instruments of transfer in
         form satisfactory to the Company and the Trustee and duly executed, by
         the Noteholder thereof or its attorney duly authorized in writing.

                 No service charge shall be charged to the Noteholder for any
         exchange or registration of transfer of Notes, but the Company may
         require payment of a sum sufficient to cover any tax, assessments or
         other governmental charges that may be imposed in connection
         therewith.

                 None of the Company, the Trustee, the Note registrar or any
         co-registrar shall be required to exchange or register a transfer of
         (a) any Notes for a period of fifteen (15) days next preceding any
         selection of Notes to be redeemed or (b) any Notes





                                      -11-
<PAGE>   18
         called for redemption or, if a portion of any Note is selected or
         called for redemption, such portion thereof selected or called for
         redemption or (c) any Notes surrendered for conversion or, if a
         portion of any Note is surrendered for conversion, such portion
         thereof surrendered for conversion.

                 All Notes issued upon any transfer or exchange of Notes in
         accordance with this Indenture shall be the valid obligations of the
         Company, evidencing the same debt, and entitled to the same benefits
         under this Indenture as the Notes surrendered upon such registration
         of transfer or exchange.

                 (b)      Notwithstanding any other provisions of this
         Indenture or the Notes (but subject to Section 2.2), transfers of a
         Global Security, in whole or in part, transfers and exchanges of
         interests therein of the kinds described in clauses (2), (3), (4) and
         (5) below and exchanges of interests in Global Securities, and
         transfers or exchanges of other Notes as described in clause (6)
         below, shall be made only in accordance with this Section 2.5(b).
         Transfers and exchanges subject to this Section 2.5 shall also be
         subject to the other provisions of this Indenture that are not
         inconsistent with this Section 2.5.

                          (1)     Limitation on Transfers of a Global Security.
                 A Global Security may not be transferred, in whole or in part,
                 to any Person other than the Depositary or a nominee thereof,
                 and no such transfer to any such other Person may be
                 registered; provided that this clause (1) shall not prohibit
                 any transfer of a Note that is issued in exchange for a Global
                 Security but is not itself a Global Security.  No transfer of
                 a Note to any Person shall be effective under this Indenture
                 or the Notes unless and until such Note has been registered in
                 the name of such Person.  Nothing in this Section 2.5(b)(1)
                 shall prohibit or render ineffective any transfer of a
                 beneficial interest in a Global Security effected in
                 accordance with the other provisions of this Section 2.5(b).

                          (2)     Restricted Global Security to Regulation S
                 Global Security.  If the holder of a beneficial interest in
                 the Restricted Global Security wishes at any time to transfer
                 such interest to a Person who wishes to take delivery thereof
                 in the form of a beneficial interest in the Regulation S
                 Global Security, such transfer may be effected, subject to the
                 rules and procedures of the Depositary, Euroclear and CEDEL,
                 in each case to the extent applicable (the "Applicable
                 Procedures"), only in accordance with this Section 2.5(b)(2).
                 Upon receipt by the Trustee, as Note registrar, at its office
                 in The City of New York of (A) written instructions given in
                 accordance with the Applicable Procedures from an Agent Member
                 directing the Trustee to credit or cause to be credited to a
                 specified Agent Member's account a beneficial interest in the
                 Regulation S Global Security in a principal amount equal to
                 that of the beneficial interest in the Restricted Global
                 Security to be so transferred, (B) a written order given in
                 accordance with the Applicable Procedures containing
                 information regarding the account of the Agent Member (and, if
                 applicable,





                                      -12-
<PAGE>   19
         the Euroclear or CEDEL account, as the case may be) to be credited
         with, and the account of the Agent Member to be debited for, such
         beneficial interest and (C) a certificate in substantially the form
         set forth in Exhibit C given by the holder of such beneficial
         interest; the Trustee, as Note registrar, shall instruct the
         Depositary to reduce the principal amount of the Restricted Global
         Security, and to increase the principal amount of the Regulation S
         Global Security, by the principal amount of the beneficial interest in
         the Restricted Global Security to be so transferred, and to credit or
         cause to be credited to the account of the Person specified in such
         instructions (which during the Restricted Period shall be the Agent
         Member for Euroclear or CEDEL or both, as the case may be) a
         beneficial interest in the Regulation S Global Security having a
         principal amount equal to the amount by which the principal amount of
         the Restricted Global Security was reduced upon such transfer.

                          (3)     Regulation S Global Security to Restricted
                 Global Security.  If during the Restricted Period the holder
                 of a beneficial interest in the Regulation S Global Security
                 wishes to transfer such interest to a Person who wishes to
                 take delivery thereof in the form of a beneficial interest in
                 the Restricted Global Security, such transfer may be effected,
                 subject to the Applicable Procedures, only in accordance with
                 this Section 2.5(b)(3).  Upon receipt by the Trustee, as Note
                 registrar, at its office in The City of New York of (A)
                 written instructions given in accordance with the Applicable
                 Procedures from an Agent Member directing the Trustee to
                 credit or cause to be credited to a specified Agent Member's
                 account a beneficial interest in the Restricted Global
                 Security in a principal amount equal to that of the beneficial
                 interest in the Regulation S Global Security to be so
                 transferred, (B) a written order given in accordance with the
                 Applicable Procedures containing information regarding the
                 account of the Agent Member to be credited with, and the
                 account of the Agent Member (and, if applicable, the Euroclear
                 or CEDEL account, as the case may be) to be debited for, such
                 beneficial interest and (C) a certificate in substantially the
                 form set forth in Exhibit D given by the holder of such
                 beneficial interest, the Trustee, as Note registrar, shall
                 instruct the Depositary to reduce the principal amount of the
                 Regulation S Global Security and to increase the principal
                 amount of the Restricted Global Security, by the principal
                 amount of the beneficial interest in the Regulation S Global
                 Security to be so transferred, and to credit or cause to be
                 credited to the account of the Person specified in such
                 instructions a beneficial interest in the Restricted Global
                 Security having a principal amount equal to the amount by
                 which the principal amount of the Regulation S Global
                 Security, as the case may be, was reduced upon such transfer.

                          (4)     Exchanges.  In the event that a Restricted
                 Global Security or any portion thereof is exchanged for a
                 Regulation S Global Security or Notes other than Global
                 Securities, such Security or Notes may in turn be





                                      -13-
<PAGE>   20
         exchanged (on transfer or otherwise) for Notes that are not Global
         Securities or for beneficial interests in a Global Security (if any is
         then outstanding) only in accordance with such procedures, which shall
         be substantially consistent with the provisions of clauses (1) through
         (3) above and (5) below (including the certification requirements
         intended to insure that the transfers and exchanges of beneficial
         interests in a Global Security comply with Rule 144A, Rule 144 or
         Regulation S, as the case may be) and any Applicable Procedures, as
         may be from time to time adopted by the Company and the Trustee.

                          (5)     Interests in Regulation S Global Security to
                 be Held Through Euroclear or CEDEL.  Until the termination of
                 the Restricted Period, interests in the Regulation S Global
                 Security may be held only through Agent Members acting for an
                 on behalf of Euroclear and CEDEL, provided that this Clause
                 (5) shall not prohibit any transfer in accordance with Section
                 2.5(b)(3) hereof.

                          (6)     Notes originally issued to Institutional
                 Accredited Investors.  Notes may be issued other than in
                 reliance on Rule 144A or Regulation S, and such Notes will be
                 issued only in definitive certificated form and, initially,
                 only in minimum denominations of $250,000 and integral
                 multiples of $1,000 in excess thereof.  Such Notes (i.e.,
                 Notes sold to Institutional Accredited Investors) will be
                 subject to restrictions on transfer in accordance with the IAI
                 Letter.  Furthermore, in case a Note held by an Institutional
                 Accredited Investor is to be transferred (whether during or
                 after the Restricted Period) in a transaction exempt (i)
                 pursuant to Rule 144A, then the transferor shall deliver a
                 certificate substantially in the form of Exhibit D hereto, or
                 (ii) pursuant to Regulation S, then the transferor shall
                 deliver a certificate substantially in the form of Exhibit C
                 hereto, in each case with such changes in the second paragraph
                 thereof as are appropriate to reflect the facts and
                 circumstances, including that the Holder will be transferring
                 a Note in the form of a definitive registered certificate.
                 (However, a transfer or exchange that does not involve any
                 change in beneficial ownership shall not be considered to be a
                 transfer that triggers these certification requirements.)  The
                 Company may vary these procedures or impose other reasonable
                 procedures to ensure compliance with the agreement of such
                 Holder contained in its IAI Letter.

                 (c)      Each Restricted Security and Global Security issued
         hereunder shall, upon issuance, bear the legends required by Section
         2.5(e) to be applied and such required legends shall not be removed
         except as provided in the next sentence or paragraph (d) of this
         Section 2.5.  The legend required for a Restricted Security may be
         removed if there is delivered to the Company such satisfactory
         evidence, which may include an opinion of independent counsel licensed
         to practice law in the State of New York, as may be reasonably
         required by the Company that neither such legend nor the restrictions
         on transfer set forth therein are required to ensure that





                                      -14-
<PAGE>   21
         transfers of such Note will not violate the registration requirements
         of the Securities Act.  Upon provision of such satisfactory evidence,
         the Trustee, at the written direction of the Company, shall
         authenticate and deliver in exchange for such Notes another Note or
         Notes having an equal aggregate principal amount that does not bear
         such legend.  If such a legend required for a Restricted Security has
         been removed from a Note as provided above, no other Note issued in
         exchange for all or any part of such Note shall bear such legend,
         unless the Company has reasonable cause to believe that such other
         Note is a "restricted security" within the meaning of Rule 144 and
         instructs the Trustee in writing to cause a legend to appear thereon.

                 (d)      The provisions of clauses (1), (2), (3) and (4) below
         shall apply only to Global Securities:

                          (1)     Each Global Security authenticated under this
                 Indenture shall be registered in the name of the Depositary or
                 a nominee thereof and delivered to such Depositary or a
                 nominee thereof or custodian therefor, and each such Global
                 Security shall constitute a single Note for all purposes of
                 this Indenture.

                          (2)     Notwithstanding any other provision in this
                 Indenture or the Notes, no Global Security may be exchanged in
                 whole or in part for Notes registered, and no transfer of a
                 Global Security in whole or in part may be registered, in the
                 name of any Person other than the Depositary or a nominee
                 thereof unless (A) the Depositary (i) has notified the Company
                 that it is unwilling or unable to continue as Depositary for
                 such Global Security or (ii) has ceased to be a clearing
                 agency registered under the Exchange Act, (B) in the case of a
                 Global Security held for an account of Euroclear or CEDEL,
                 Euroclear or CEDEL, as the case may be, (i) is closed for
                 business for a continuous period of 14 days (other than by
                 reason of statutory or other holidays) or (ii) announces an
                 intention permanently to cease business or does in fact do so,
                 (C) there shall have occurred and be continuing an Event of
                 Default with respect to such Global Security or (D) a request
                 for certificates has been made upon the Trustee in accordance
                 with the Depositary's customary procedures and a copy of such
                 notice has been received by the Company from the Trustee.  Any
                 Global Security exchanged pursuant to clause (A) or (B) above
                 shall be so exchanged in whole and not in part and any Global
                 Security exchanged pursuant to clause (C) or (D) above may be
                 exchanged in whole or from time to time in part as directed by
                 the Depositary.  Any Note issued in exchange for a Global
                 Security or any portion thereof shall be a Global Security,
                 provided that any such Note so issued that is registered in
                 the name of a Person other than the Depositary or a nominee
                 thereof shall not be a Global Security.

                          (3)     Notes issued in exchange for a Global
                 Security or any portion thereof pursuant to clause (2) above
                 shall be issued in definitive, fully registered form, without
                 interest coupons, shall have an aggregate principal





                                      -15-
<PAGE>   22
                 amount equal to that of such Global Security or portion thereof
                 to be so exchanged, shall be registered in such names and be in
                 such authorized denominations as the Depositary shall designate
                 and shall bear any legends required hereunder.  Any Global
                 Security to be exchanged in whole shall be surrendered by the
                 Depositary to the Trustee, as Note registrar.  With regard to
                 any Global Security to be exchanged in part, either such Global
                 Security shall be so surrendered for exchange or, if the
                 Trustee is acting as custodian for the Depositary or its
                 nominee with respect to such Global Security, the principal
                 amount thereof shall be reduced, by an amount equal to the
                 portion thereof to be so exchanged, by means of an appropriate
                 adjustment made on the records of the Trustee.  Upon any such
                 surrender or adjustment, the Trustee shall authenticate and
                 make available for delivery the Note issuable on such exchange
                 to or upon the written order of the Depositary or an authorized
                 representative thereof.

                          (4)     In the event of the occurrence of any of the
                 events specified in clause (2) above, the Company will
                 promptly make available to the Trustee a reasonable supply of
                 certificated Notes in definitive, fully registered form,
                 without interest coupons.

                          (5)     Neither any members of, or participants in,
                 the Depositary ("Agent Members") nor any other Persons on
                 whose behalf Agent Members may act (including Euroclear and
                 CEDEL and account holders and participants therein) shall have
                 any rights under this Indenture with respect to any Global
                 Security, or under any Global Security, and the Depositary or
                 such nominee, as the case may be, may be treated by the
                 Company, the Trustee and any agent of the Company or the
                 Trustee as the absolute owner and holder of such Global
                 Security for all purposes whatsoever.  Notwithstanding the
                 foregoing, nothing herein shall prevent the Company, the
                 Trustee or any agent of the Company or the Trustee from giving
                 effect to any written certification, proxy or other
                 authorization furnished by the Depositary or such nominee, as
                 the case may be, or impair, as between the Depositary, its
                 Agent Members and any other person on whose behalf an Agent
                 Member may act, the operation of customary practices of such
                 Persons governing the exercise of the rights of a holder of
                 any Note.

                 (e)      Every Note that bears or is required under this
         Section 2.5(e) to bear the legend set forth in this Section 2.5(e)
         (together with any Common Stock issued upon conversion of the Notes
         and required to bear the legend set forth in Section 2.5(f),
         collectively, the "Restricted Securities") shall be subject to the
         restrictions on transfer set forth in this Section 2.5(e) (including
         the legend set forth below), unless such restrictions on transfer
         shall be waived by written consent of the Company, and the holder of
         each such Restricted Security, by such holder's acceptance thereof,
         agrees to be bound by all such restrictions on transfer.  As used in
         Sections 2.5(e) and 2.5(f), the term "transfer" encompasses any sale,
         pledge, transfer or other disposition whatsoever of any Restricted
         Security.





                                      -16-
<PAGE>   23
                 Until three (3) years after the original issuance date of any
         Note, any certificate evidencing such Note (and all securities issued
         in exchange therefor or substitution thereof, other than Common Stock,
         if any, issued upon conversion thereof which shall bear the legend set
         forth in Section 2.5(f), if applicable) shall bear a legend in
         substantially the following form (unless such Notes have been
         transferred pursuant to a registration statement that has been
         declared effective under the Securities Act (and which continues to be
         effective at the time of such transfer) or unless otherwise agreed by
         the Company in writing, with notice thereof to the Trustee):

                 THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
                 U.S.  SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
                 ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR
                 SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
                 BENEFIT OF U.S.  PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
                 SENTENCE.  BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
                 THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
                 IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
                 INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
                 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT)
                 ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S.
                 PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN
                 OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT WITHIN THREE
                 YEARS AFTER THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY
                 RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE
                 COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A)
                 TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
                 UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
                 WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED
                 STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO
                 SUCH TRANSFER, FURNISHES TO STATE STREET BANK AND TRUST
                 COMPANY OF CALIFORNIA, N.A., AS TRUSTEE, A SIGNED LETTER
                 CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
                 THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE
                 FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D)
                 OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER
                 THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
                 REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
                 AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH
                 HAS BEEN DECLARED EFFECTIVE UNDER THE ACT (AND WHICH CONTINUES
                 TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND (3) AGREES
                 THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED
                 HEREBY IS





                                      -17-
<PAGE>   24
         TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE) A
         NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.  IN CONNECTION WITH
         ANY TRANSFER OF THE NOTE EVIDENCED HEREBY WITHIN THREE YEARS AFTER THE
         ORIGINAL ISSUANCE OF SUCH NOTE (OTHER THAN A TRANSFER PURSUANT TO
         CLAUSE 2(F) ABOVE), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET
         FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER
         AND SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND TRUST COMPANY OF
         CALIFORNIA, N.A., AS TRUSTEE (OR SUCCESSOR TRUSTEE AS APPLICABLE).  IF
         THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(C) OR 2(E) ABOVE, THE
         HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO STATE STREET BANK AND
         TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR SUCCESSOR TRUSTEE AS
         APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION
         AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS
         BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
         SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.  THIS
         LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE NOTE
         EVIDENCED HEREBY PURSUANT TO CLAUSE 2(F) ABOVE OR THE EXPIRATION OF
         THREE YEARS FROM THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY.
         AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND
         "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER
         THE SECURITIES ACT.

         Any Note (or security issued in exchange or substitution therefor) as
to which such restrictions on transfer shall have expired in accordance with
their terms or as to which the conditions for removal of the foregoing legend
as set forth therein have been satisfied may, upon surrender of such Note for
exchange to the Note registrar in accordance with the provisions of this
Section 2.5, be exchanged for a new Note or Notes, of like tenor and aggregate
principal amount, which shall not bear the restrictive legend required by this
Section 2.5(e).

         The Depositary shall be a clearing agency registered under the
Exchange Act.  The Company initially appoints The Depository Trust Company to
act as Depositary with respect to the Global Securities.  Initially, the Global
Securities shall be issued to the Depositary, registered in the name of Cede &
Co., as the nominee of the Depositary, and deposited with the Trustee as
Custodian for Cede & Co.

         If at any time the Depositary for a Global Security notifies the
Company that it is unwilling or unable to continue as Depositary for a Global
Security, the Company may appoint a successor Depositary with respect to such
Global Security.  If a successor Depositary for a Global Security is not
appointed by the Company within ninety (90) days





                                      -18-
<PAGE>   25
after the Company receives such notice, the Company will execute, and the
Trustee, upon receipt of an Officers' Certificate for the authentication and
delivery of Notes, will authenticate and deliver, Notes in certificated form,
in an aggregate principal amount equal to the principal amount of the Global
Security in exchange for such Global Security and upon delivery of such Global
Security to the Trustee such Global Security shall be canceled.

         Notes in certificated form issued in exchange for all or a part of a
Global Security pursuant to this Section 2.5 shall be registered in such names
and in such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee.  Upon execution and authentication, the Trustee shall
deliver such Notes in certificated form to the persons in whose names such
Notes in certificated form are so registered.

         At such time as all interests in a Global Security have been redeemed,
converted, canceled, repurchased or transferred, such Note in global form shall
be, upon receipt thereof, canceled by the Trustee in accordance with standing
procedures and instructions existing between the Depositary and the Custodian.
At any time prior to such cancellation, if any interest in a Global Security is
exchanged for Notes in certificated form, redeemed, converted, canceled,
repurchased or transferred to a transferee who receives Notes in certificated
form therefor or any Note in certificated form is exchanged or transferred for
part of a Global Security, the principal amount of such Global Security shall,
in accordance with the standing procedures and instructions existing between
the Depositary and the Custodian, be appropriately reduced or increased, as the
case may be, and an endorsement shall be made on such Global Security, by the
Trustee or the Custodian, at the direction of the Trustee, to reflect such
reduction or increase.

         (f)     Until three (3) years after the original issuance date of any
Note, any stock certificate representing Common Stock issued upon conversion of
such Note shall bear a legend in substantially the following form (unless such
Common Stock has been sold pursuant to a registration statement that has been
declared effective under the Securities Act (and which continues to be
effective at the time of such transfer) or such Common Stock has been issued
upon conversion of Notes that have been transferred pursuant to a registration
statement that has been declared effective under the Securities Act or unless
otherwise agreed by the Company with written notice thereof to the Trustee and
any transfer agent for the Common Stock):

                 THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED
                 UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
                 "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
                 OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE
                 ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN
                 THE FOLLOWING SENTENCE.  THE HOLDER HEREOF AGREES THAT UNTIL
                 THE EXPIRATION OF THREE YEARS AFTER THE ORIGINAL ISSUANCE OF
                 THE NOTE UPON THE CONVERSION OF WHICH THE COMMON STOCK
                 EVIDENCED HEREBY WAS ISSUED, (1) IT WILL NOT RESELL OR





                                      -19-
<PAGE>   26
         OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT (A) TO THE
         COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A
         "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
         SECURITIES ACT) IN COMPLIANCE WITH RULE 144A, (C) INSIDE THE UNITED
         STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
         501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT PRIOR TO
         SUCH TRANSFER, FURNISHES TO THE FIRST NATIONAL BANK OF BOSTON, AS
         TRANSFER AGENT, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
         AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE COMMON
         STOCK EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM
         SUCH TRANSFER AGENT), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH
         RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
         REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
         AVAILABLE), OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
         DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE
         EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2) PRIOR TO ANY SUCH
         TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE), IT
         WILL FURNISH TO THE FIRST NATIONAL BANK OF BOSTON, AS TRANSFER AGENT,
         SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE
         COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
         MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
         TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (3) IT
         WILL DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY
         IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE) A
         NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.  THIS LEGEND WILL
         BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE COMMON STOCK
         EVIDENCED HEREBY PURSUANT TO CLAUSE 1(F) ABOVE OR THE EXPIRATION OF
         THREE YEARS FROM THE ORIGINAL ISSUANCE OF THE NOTE UPON THE CONVERSION
         OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED OR UPON THE
         EARLIER SATISFACTION OF THE FIRST NATIONAL BANK OF BOSTON, AS TRANSFER
         AGENT (OR SUCCESSOR TRANSFER AGENT AS APPLICABLE), THAT THE COMMON
         STOCK HAS BEEN OR IS BEING OFFERED AND SOLD IN COMPLIANCE WITH RULE
         904 UNDER THE SECURITIES ACT.  AS USED HEREIN, THE TERMS "UNITED
         STATES" AND "U.S.  PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
         REGULATION S UNDER THE SECURITIES ACT.





                                      -20-
<PAGE>   27
         Any such Common Stock as to which such restrictions on transfer shall
have expired in accordance with their terms or as to which the conditions for
removal of the foregoing legend as set forth therein have been satisfied may,
upon surrender of the certificates representing such shares of Common Stock for
exchange in accordance with the procedures of the transfer agent for the Common
Stock, be exchanged for a new certificate or certificates for a like aggregate
number of shares of Common Stock, which shall not bear the restrictive legend
required by this Section 2.5(f).

         (g)     Any certificate evidencing a Note that has been transferred to
an Affiliate of the Company within three years after the original issuance date
of the Note, as evidenced by a notation on the assignment form for such
transfer or in the representation letter delivered in respect thereof, for so
long as such Note is held by such Affiliate, shall, until three years after the
last date on which the Company or any Affiliate of the Company was an owner of
such Note, in each case, bear a legend in substantially the following form,
unless otherwise agreed by the Company (with written notice thereof to the
Trustee):

         THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
         SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
         ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR
         TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET
         FORTH IN THE FOLLOWING SENTENCE.  BY ITS ACQUISITION HEREOF, THE
         HOLDER AGREES (1) THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE
         NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF
         SUCH NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) IN
         A TRANSACTION REGISTERED UNDER THE SECURITIES ACT OR (C) PURSUANT TO
         THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
         SECURITIES ACT (IF AVAILABLE) AND (2) THAT IT WILL DELIVER TO EACH
         PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE
         SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.  THIS LEGEND SHALL BE
         REMOVED UPON THE TRANSFER OF THE NOTE EVIDENCED HEREBY OR THE COMMON
         STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE PURSUANT TO THE
         IMMEDIATELY PRECEDING SENTENCE.  IF THE PROPOSED TRANSFER IS PURSUANT
         TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
         SECURITIES ACT, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
         STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE,
         SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE
         COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
         MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
         TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.  AS USED
         HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
         GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.





                                      -21-
<PAGE>   28
         Any stock certificate representing Common Stock issued upon conversion
         of such Note shall also bear a legend in substantially the form
         indicated above, unless otherwise agreed by the Company (with written
         notice thereof to the Trustee).

                 (h)      Notwithstanding any provision of Section 2.5 to the
         contrary, in the event Rule 144(k) as promulgated under the Securities
         Act (or any successor rule) is amended to shorten the three-year
         period under Rule 144(k) (or the corresponding period under any
         successor rule), from and after receipt by the Trustee of the
         Officers' Certificate and Opinion of Counsel provided for in this
         Section 2.5(h), (i) the references in the first sentence of the second
         paragraph of Section 2.5(e) to "three (3) years" and in the
         restrictive legend set forth in such paragraph to "THREE YEARS" shall
         be deemed for all purposes hereof to be references to such shorter
         period, (ii) the references in the first paragraph of Section 2.5(f)
         to "three (3) years" and in the restrictive legend set forth in such
         paragraph to "THREE YEARS" shall be deemed for all purposes hereof to
         be references to such shorter period and (iii) all corresponding
         references in the Notes and the restrictive legends on the Restricted
         Securities shall be deemed for all purposes hereof to be references to
         such shorter period, provided that such changes shall not become
         effective if they are otherwise prohibited by, or would otherwise
         cause a violation of, the then-applicable federal securities laws.  As
         soon as practicable after the Company has knowledge of the
         effectiveness of any such amendment to shorten the three-year period
         under Rule 144(k) (or the corresponding period under any successor
         rule), unless such changes would otherwise be prohibited by, or would
         otherwise cause a violation of, the then-applicable securities law,
         the Company shall provide to the Trustee an Officers' Certificate and
         Opinion of Counsel informing the Trustee of the effectiveness of such
         amendment and the effectiveness of the foregoing changes to Sections
         2.5(e) and 2.5(f) and the restrictive legends on the Restricted
         Securities.  The provisions of this Section 2.5(h) will not be
         effective until such time as the Opinion of Counsel and Officer's
         Certificate have been received by the Trustee hereunder.  This Section
         2.5(h) shall apply to successive amendments to Rule 144(k) (or any
         successor rule) shortening the holding period thereunder.

         SECTION 2.6      MUTILATED, DESTROYED, LOST OR STOLEN NOTES.  In case
any Note shall become mutilated or be destroyed, lost or stolen, the Company in
its discretion may execute, and upon its request the Trustee or an
authenticating agent appointed by the Trustee shall authenticate and deliver, a
new Note, bearing a number not contemporaneously outstanding, in exchange and
substitution for the mutilated Note, or in lieu of and in substitution for the
Note so destroyed, lost or stolen.  In every case the applicant for a
substituted Note shall furnish to the Company, to the Trustee and, if
applicable, to such authenticating agent such security or indemnity as may be
required by them to save each of them harmless for any loss, liability, cost or
expense caused by or connected with such substitution, and, in every case of
destruction, loss or theft, the applicant shall also furnish to the Company, to
the Trustee and, if applicable, to such authenticating agent evidence to their
satisfaction of the destruction, loss or theft of such Note and of the
ownership thereof.





                                      -22-
<PAGE>   29
         The Trustee or such authenticating agent may authenticate any such
substituted Note and deliver the same upon the receipt of such security or
indemnity as the Trustee, the Company and, if applicable, such authenticating
agent may require.  Upon the issuance of any substituted Note, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses connected
therewith.  In case any Note which has matured or is about to mature or has
been called for redemption or is about to be converted into Common Stock shall
become mutilated or be destroyed, lost or stolen, the Company may, instead of
issuing a substitute Note, pay or authorize the payment of or convert or
authorize the conversion of the same (without surrender thereof except in the
case of a mutilated Note), as the case may be, if the applicant for such
payment or conversion shall furnish to the Company, to the Trustee and, if
applicable, to such authenticating agent such security or indemnity as may be
required by them to save each of them harmless for any loss, liability, cost or
expense caused by or connected with such substitution, and, in case of
destruction, loss or theft, evidence satisfactory to the Company, the Trustee
and, if applicable, any paying agent or conversion agent of the destruction,
loss or theft of such Note and of the ownership thereof.

         Every substitute Note issued pursuant to the provisions of this
Section 2.6 by virtue of the fact that any Note is destroyed, lost or stolen
shall constitute an additional contractual obligation of the Company, whether
or not the destroyed, lost or stolen Note shall be found at any time, and shall
be entitled to all the benefits of (but shall be subject to all the limitations
set forth in) this Indenture equally and proportionately with any and all other
Notes duly issued hereunder.  To the extent permitted by law, all Notes shall
be held and owned upon the express condition that the foregoing provisions are
exclusive with respect to the replacement or payment or conversion of
mutilated, destroyed, lost or stolen Notes and shall preclude any and all other
rights or remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement or payment or
conversion of negotiable instruments or other securities without their
surrender.

         SECTION 2.7      TEMPORARY NOTES.  Pending the preparation of Notes in
certificated form, the Company may execute and the Trustee or an authenticating
agent appointed by the Trustee shall, upon written request of the Company,
authenticate and deliver temporary Notes (printed or lithographed).  Temporary
Notes shall be issuable in any authorized denomination, and substantially in
the form of the Notes in certificated form but with such omissions, insertions
and variations as may be appropriate for temporary Notes, all as may be
determined by the Company.  Every such temporary Note shall be executed by the
Company and authenticated by the Trustee or such authenticating agent upon the
same conditions and in substantially the same manner, and with the same effect,
as the Notes in certificated form.  Without unreasonable delay the Company will
execute and deliver to the Trustee or such authenticating agent Notes in
certificated form (other than in the case of Notes in global form) and
thereupon any or all temporary Notes (other than any such Note in global form)
may be surrendered in exchange therefor, at each office or agency maintained by
the Company pursuant to Section 5.2 and the Trustee or such authenticating
agent shall authenticate and deliver in exchange for such temporary Notes an
equal aggregate principal amount of Notes in certificated form.  Such exchange
shall be made by the Company at its own expense and without any charge
therefor.  Until so exchanged, the





                                      -23-
<PAGE>   30
temporary Notes shall in all respects be entitled to the same benefits and
subject to the same limitations under this Indenture as Notes in certificated
form authenticated and delivered hereunder.

         SECTION 2.8      CANCELLATION OF NOTES PAID, ETC.  All Notes
surrendered for the purpose of payment, redemption, repurchase, conversion,
exchange or registration of transfer, shall, if surrendered to the Company or
any paying agent or any Note registrar or any conversion agent, be surrendered
to the Trustee and promptly canceled by it, or, if surrendered to the Trustee,
shall be promptly canceled by it, and no Notes shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Indenture.  Upon
written instructions of the Company, the Trustee shall destroy canceled Notes
and, after such destruction, shall deliver a certificate of such destruction to
the Company.  If the Company shall acquire any of the Notes, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Notes unless and until the same are delivered to the
Trustee for cancellation.


                                  ARTICLE III

                              REDEMPTION OF NOTES

         SECTION 3.1      REDEMPTION PRICES.  The Company may, at its option,
redeem all or from time to time, but in no circumstance prior to October 8,
1999, any part of the Notes on any date prior to maturity, upon notice as set
forth in Section 3.2, at the redemption price as set forth in the following
schedule (expressed in percentage of the principal amount), together with
accrued interest, if any, to, but excluding, the date fixed for redemption:
                 If redeemed during the 12-month period beginning October 1
                 (October 8 in the case of 1999):

<TABLE>
<CAPTION>
                 YEAR                                    REDEMPTION PRICE
                 ----                                    ----------------
                 <S>                                           <C>
                 1999                                          102%
                 2000                                          101%

                 2001 and thereafter                           100%
</TABLE>

         SECTION 3.2      NOTICE OF REDEMPTION; SELECTION OF NOTES.  In case
the Company shall desire to exercise the right to redeem all or, as the case
may be, any part of the Notes pursuant to Section 3.1, it shall fix a date for
redemption, and it, or at its request (which must be received by the Trustee at
least ten (10) Business Days prior to the date the Trustee is requested to give
notice as described below unless a shorter period is agreed to by the Trustee),
the Trustee in the name of and at the expense of the Company, shall mail or
cause to be mailed a notice of such redemption at least twenty (20) and not
more than sixty (60) days prior to the date fixed for redemption to the holders
of Notes so to be redeemed as a whole or in part at their last addresses as the
same appear on the Note register (provided that if the Company shall give such
notice, it shall also give such notice, and notice of the





                                      -24-
<PAGE>   31
Notes to be redeemed to the Trustee).  Such mailing shall be by first class
mail.  The notice if mailed in the manner herein provided shall be conclusively
presumed to have been duly given, whether or not the holder receives such
notice.  In any case, failure to give such notice by mail or any defect in the
notice to the holder of any Note designated for redemption as a whole or in
part shall not affect the validity of the proceedings for the redemption of any
other Note.

         Each such notice of redemption shall specify the aggregate principal
amount of Notes to be redeemed, the date fixed for redemption, the redemption
price at which Notes are to be redeemed, the place or places of payment, that
payment will be made upon presentation and surrender of such Notes, that
interest accrued to, but excluding, the date fixed for redemption will be paid
as specified in said notice, and that on and after said date interest thereon
or on the portion thereof to be redeemed will cease to accrue.  Such notice
shall also state the current Conversion Price and the date on which the right
to convert such Notes or portions thereof into Common Stock will expire.  If
fewer than all the Notes are to be redeemed, the notice of redemption shall
identify the Notes to be redeemed.  In case any Note is to be redeemed in part
only, the notice of redemption shall state the portion of the principal amount
thereof to be redeemed and shall state that on and after the date fixed for
redemption, upon surrender of such Note, a new Note or Notes in principal
amount equal to the unredeemed portion thereof will be issued.

         On or prior to the redemption date specified in the notice of
redemption given as provided in this Section, the Company will deposit with the
Trustee or with one or more paying agents (or, if the Company is acting as its
own paying agent, set aside, segregate and hold in trust as provided in Section
5.4) an amount of money sufficient to redeem on the redemption date all the
Notes (or portions thereof) so called for redemption (other than those
theretofore surrendered for conversion into Common Stock) at the appropriate
redemption price, together with accrued interest to, but excluding, the date
fixed for redemption; provided that if such payment is made on the redemption
date it must be received by the Trustee or paying agent, as the case may be, by
10:00 a.m.  New York City time, on such date.  If any Note called for
redemption is converted pursuant hereto, any money deposited with the Trustee
or any paying agent or so segregated and held in trust for the redemption of
such Note shall be paid to the Company upon its request, or, if then held by
the Company shall be discharged from such trust.  If fewer than all the Notes
are to be redeemed the Company will give the Trustee written notice in the form
of an Officers' Certificate not fewer than forty-five (45) days (or such
shorter period of time as may be acceptable to the Trustee) prior to the
redemption date as to the aggregate principal amount of Notes to be redeemed.

         If fewer than all the Notes are to be redeemed, the Trustee shall
select the Notes or portions thereof to be redeemed (in principal amounts of
$1,000 or integral multiples thereof), by lot or, in its sole discretion, on a
pro rata basis, with such adjustments, up to $1,000, in order to retain the
minimum denominations of the Notes.  If any Note selected for partial
redemption is converted in part after such selection, the converted portion of
such Note shall be deemed (so far as may be) to be the portion to be selected
for redemption.  The Notes (or portions thereof) so selected shall be deemed
duly selected for redemption for





                                      -25-
<PAGE>   32
all purposes hereof, notwithstanding that any such Note is converted as a whole
or in part before the mailing of the notice of redemption.  If any Note is to
be redeemed in part only, a new Note or Notes in principal amount equal to the
unredeemed principal portion thereof shall be issued.

         Upon any redemption of less than all Notes, the Company and the
Trustee may (but need not) treat as outstanding any Notes surrendered for
conversion during the period of fifteen (15) days next preceding the mailing of
a notice of redemption and may (but need not) treat as not outstanding any Note
authenticated and delivered during such period in exchange for the unconverted
portion of any Note converted in part during such period.

         SECTION 3.3      PAYMENT OF NOTES CALLED FOR REDEMPTION.  If notice of
redemption has been given as above provided, the Notes or portion of Notes with
respect to which such notice has been given shall, unless converted into Common
Stock pursuant to the terms hereof, become due and payable on the date and at
the place or places stated in such notice at the applicable redemption price,
together with interest accrued to, but excluding, the date fixed for
redemption, and on and after said date (unless the Company shall default in the
payment of such Notes at the redemption price, together with interest accrued
to, but excluding said date) interest on the Notes or portion of Notes so
called for redemption shall cease to accrue and such Notes shall cease after
the close of business on the fifth Business Day next preceding the date fixed
for redemption to be convertible into Common Stock and, except as provided in
Sections 8.5 and 13.4, to be entitled to any benefit or security under this
Indenture, and the holders thereof shall have no right in respect of such Notes
except the right to receive the redemption price thereof and unpaid interest
to, but excluding, the date fixed for redemption.  On presentation and
surrender of such Notes at a place of payment in said notice specified, the
said Notes or the specified portions thereof to be redeemed shall be paid and
redeemed by the Company at the applicable redemption price, together with
interest accrued thereon to, but excluding, the date fixed for redemption;
provided that, if the applicable redemption date is an interest payment date,
the semi-annual payment of interest becoming due on such date shall be payable
to the holders of such Notes registered as such on the relevant record date
subject to the terms and provisions of Section 2.3 hereof.

         Upon presentation of any Note redeemed in part only, the Company shall
execute and the Trustee shall authenticate and deliver to the holder thereof,
at the expense of the Company, a new Note or Notes, of authorized
denominations, in principal amount equal to the unredeemed portion of the Notes
so presented.

         Notwithstanding the foregoing, the Trustee shall not redeem any Notes
or mail any notice of optional redemption during the continuance of a default
in payment of interest or premium on the Notes or of any Event of Default of
which, in the case of any Event of Default other than under Section 7.1(a) or
(b), a Responsible Officer of the Trustee has knowledge.  If any Note called
for redemption shall not be so paid upon surrender thereof for redemption, the
principal and premium, if any, shall, until paid or duly provided for, bear
interest from the date fixed for redemption at the rate borne by the Note and
such Note





                                      -26-
<PAGE>   33
shall remain convertible into Common Stock until the principal and premium, if
any, shall have been paid or duly provided for.

         SECTION 3.4      CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION.  In
connection with any redemption of Notes, the Company may arrange for the
purchase and conversion of any Notes by an agreement with one or more
investment bankers or other purchasers to purchase such Notes by paying to the
Trustee in trust for the Noteholders, on or before the date fixed for
redemption, an amount not less than the applicable redemption price, together
with interest accrued to the date fixed for redemption, of such Notes.
Notwithstanding anything to the contrary contained in this Article III, the
obligation of the Company to pay the redemption price of such Notes, together
with interest accrued to, but excluding, the date fixed for redemption, shall
be deemed to be satisfied and discharged to the extent such amount is so paid
by such purchasers.  If such an agreement is entered into, a copy of which will
be filed with the Trustee prior to the date fixed for redemption, any Notes not
duly surrendered for conversion by the holders thereof may, at the option of
the Company, be deemed, to the fullest extent permitted by law, acquired by
such purchasers from such holders and (notwithstanding anything to the contrary
contained in Article XV) surrendered by such purchasers for conversion, all as
of immediately prior to the close of business on the date fixed for redemption
(and the right to convert any such Notes shall be deemed to have been extended
through such time), subject to payment of the above amount as aforesaid.  At
the direction of the Company, the Trustee shall hold and dispose of any such
amount paid to it in the same manner as it would monies deposited with it by
the Company for the redemption of Notes.  Without the Trustee's prior written
consent, no arrangement between the Company and such purchasers for the
purchase and conversion of any Notes shall increase or otherwise affect any of
the powers, duties, responsibilities or obligations of the Trustee as set forth
in this Indenture, and the Company agrees to indemnify the Trustee from, and
hold it harmless against, any loss, liability or expense arising out of or in
connection with any such arrangement for the purchase and conversion of any
Notes between the Company and such purchasers to which the Trustee has not
consented in writing, including the costs and expenses incurred by the Trustee
in the defense of any claim or liability arising out of or in connection with
the exercise or performance of any of its powers, duties, responsibilities or
obligations under this Indenture.


                                   ARTICLE IV

                             SUBORDINATION OF NOTES

         SECTION 4.1      AGREEMENT OF SUBORDINATION.  The Company covenants
and agrees, and each holder of Notes issued hereunder by its acceptance thereof
likewise covenants and agrees, that all Notes shall be issued subject to the
provisions of this Article IV; and each person holding any Note, whether upon
original issue or upon transfer, assignment or exchange thereof, accepts and
agrees to be bound by such provisions.

         The payment of the principal of, premium, if any, and interest on all
Notes (including, but not limited to, the redemption price or repurchase price
with respect to the





                                      -27-
<PAGE>   34
Notes to be redeemed or repurchased, as provided in this Indenture) issued
hereunder shall, to the extent and in the manner hereinafter set forth, be
subordinated and subject in right of payment to the prior payment in full of
all Senior Indebtedness, whether outstanding at the date of this Indenture or
thereafter incurred.

         No provision of this Article IV shall prevent the occurrence of any
default or Event of Default hereunder.

         SECTION 4.2      PAYMENTS TO NOTEHOLDERS.  In the event and during the
continuation of any default in the payment of principal, premium, interest or
any other payment due on any Senior Indebtedness (or, in the case of Senior
Indebtedness for which there is a period of grace, in the event of such a
default that continues beyond the period of grace, if any, specified in the
instrument or lease evidencing such Senior Indebtedness), then, unless and
until such default shall have been cured or waived or shall have ceased to
exist, no payment shall be made by the Company with respect to the principal
of, or premium, if any, or interest on the Notes (including, but not limited
to, the redemption price or repurchase price with respect to the Notes to be
redeemed or repurchased, as provided in this Indenture) except payments made
pursuant to Article XIII from monies deposited with the Trustee pursuant
thereto prior to the happening of such default.

         In the event (i) any event of default with respect to any Senior
Indebtedness shall have occurred and be continuing which permits the holders of
such Senior Indebtedness (or a trustee or other representative on behalf of the
holders thereof) to declare such Senior Indebtedness due and payable prior to
the date on which it would otherwise have become due and payable, upon written
notice thereof to the Company and the Trustee by any holders of Senior
Indebtedness to which such event of default relates (or a trustee or other
representative on behalf of the holders thereof) (a "Senior Default Notice"),
unless and until such event of default shall have been cured or waived or shall
have ceased to exist and such acceleration shall have been rescinded or
annulled, or (ii) any judicial proceeding shall be pending with respect to any
such event of default, then no payment shall be made by the Company, directly
or indirectly, with respect to principal of, premium, if any, or interest on
the Notes, provided, however, that clause (i) of this paragraph shall not
prevent the making of any such payment for more than 179 days after a Senior
Default Notice shall have been received by the Trustee unless the Senior
Indebtedness in respect of which such event of default exists has been declared
due and payable in its entirety, in which case no such payment may be made
until such acceleration has been rescinded or annulled or such Senior
Indebtedness has been paid in full.  Notwithstanding the foregoing, no event of
default which existed or was continuing on the date of any Senior Default
Notice shall be made the basis for the giving of a second Senior Default
Notice; and, provided, further, that only one such Senior Default Notice may be
given during any period of 360 consecutive days, regardless of the number of
defaults with respect to Senior Indebtedness during such 360-day period.
Notwithstanding the foregoing, the Company may make and the Trustee may receive
and shall apply any payment in respect of the Notes (for principal, and
premium, if any, or interest) if such payment was made prior to the occurrence
of any of the contingencies specified in clauses (i) and (ii) above.  In
addition, nothing in this paragraph shall prevent the Company from making or
the Trustee from receiving or applying any





                                      -28-
<PAGE>   35
payment in connection with the redemption of the Notes if the first publication
of notice of redemption (whether by mail or otherwise in accordance with this
Indenture) has been made prior to the occurrence of any of the contingencies
specified in clauses (i) and (ii) above.

         Upon any payment by the Company, or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding-up or total or partial liquidation or
reorganization of the Company, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due or
to become due upon all Senior Indebtedness shall first be paid in full, or
payment thereof provided for in money in accordance with its terms, before any
payment is made on account of the principal (and premium, if any) or interest
on the Notes (except payments made pursuant to Article XIII from monies
deposited with the Trustee pursuant thereto prior to the happening of such
dissolution, winding-up, liquidation or reorganization or bankruptcy,
insolvency, receivership or other such proceedings); and upon any such
dissolution or winding-up or liquidation or reorganization or bankruptcy,
insolvency, receivership or other such proceedings, any payment by the Company,
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to which the holders of the Notes or the Trustee
under this Indenture would be entitled, except for the provision of this
Article IV, shall (except as aforesaid) be paid by the Company or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, or by the holders of the Notes or by the
Trustee under this Indenture if received by them or it, directly to the holders
of Senior Indebtedness (pro rata to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders, or as otherwise required
by law or a court order) or their respective representative or representatives,
or to the trustee or trustees under any indenture pursuant to which any
instruments evidencing any Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all Senior
Indebtedness in full after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness, before any payment
or distribution is made to the holders of the Notes or to the Trustee under
this Indenture.

         In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities (including, without limitation, by way of setoff
or otherwise), prohibited by the foregoing, shall be received by the Trustee
under this Indenture or by any holders of the Notes before all Senior
Indebtedness is paid in full, or provision is made for such payment in
accordance with its terms, such payment or distribution shall be held by the
recipient or recipients in trust for the benefit of, and shall be paid over or
delivered to, the holders of Senior Indebtedness or their respective
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior Indebtedness
may have been issued, as their respective interests may appear, as calculated
by the Company, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in accordance with its terms, after giving effect to any concurrent payment or
distribution (or provision therefor) to or for the holders of such Senior
Indebtedness.





                                      -29-
<PAGE>   36
         For purposes of this Article IV, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated (at least to the extent provided in this
Article IV with respect to the Notes) to the payment of all Senior Indebtedness
which may at the time be outstanding; provided that (i) the Senior Indebtedness
is assumed by the new corporation, if any, resulting from such reorganization
or adjustment, and (ii) the rights of the holders of Senior Indebtedness (other
than leases which are not assumed by the Company or by the new corporation, as
the case may be) are not, without the consent of such holders, altered by such
reorganization or readjustment.  The consolidation of the Company with, or the
merger of the Company into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer of all or
substantially all its property to another corporation upon the terms and
conditions provided for in Article XII shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 4.2
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article XII.
Nothing in this Section 4.2 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 8.6.  This Section 4.2 shall be subject to
the further provisions of Section 4.5.

         SECTION 4.3      SUBROGATION OF NOTES.  Subject to the payment in full
of all Senior Indebtedness, the rights of the holders of the Notes shall be
subrogated to the extent of the payments or distributions made to the holders
of such Senior Indebtedness pursuant to the provisions of this Article IV
(equally and ratably with the holders of all indebtedness of the Company which
by its express terms is subordinated to other indebtedness of the Company to
substantially the same extent as the Notes are subordinated and is entitled to
like rights of subrogation) to the rights of the holders of Senior Indebtedness
to receive payments or distributions of cash, property or securities of the
Company applicable to the Senior Indebtedness until the principal of (and
premium, if any) and interest on the Notes shall be paid in full; and, for the
purposes of such subrogation, no payments or distributions to the holders of
the Senior Indebtedness of any cash, property or securities to which the
holders of the Notes or the Trustee would be entitled except for the provisions
of this Article IV, and no payment over pursuant to the provisions of this
Article IV, to or for the benefit of the holders of Senior Indebtedness by
holders of the Notes or the Trustee, shall, as between the Company, its
creditors other than holders of Senior Indebtedness, and the holders of the
Notes, be deemed to be a payment by the Company to or on account of the Senior
Indebtedness; and no payments or distributions of cash, property or securities
to or for the benefit of the holders of the Notes pursuant to the subrogation
provisions of this Article IV, which would otherwise have been paid to the
holders of Senior Indebtedness shall be deemed to be a payment by the Company
to or for the account of the Notes.  It is understood that the provisions of
this Article IV are and are intended solely for the purposes of defining the
relative rights of the holders of the Notes, on the one hand, and the holders
of the Senior Indebtedness, on the other hand.

         Nothing contained in this Article IV or elsewhere in this Indenture or
in the Notes is intended to or shall impair, as among the Company, its
creditors other than the holders of Senior Indebtedness, and the holders of the
Notes, the obligation of the Company, which is





                                      -30-
<PAGE>   37
absolute and unconditional, to pay to the holders of the Notes the principal of
(and premium, if any) and interest on the Notes as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the holders of the Notes and creditors of
the Company other than the holders of the Senior Indebtedness, nor shall
anything herein or therein prevent the Trustee or the holder of any Note from
exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article IV of
the holders of Senior Indebtedness in respect of cash, property or securities
of the Company received upon the exercise of any such remedy.

         Upon any payment or distribution of assets of the Company referred to
in this Article IV, the Trustee, subject to the provisions of Section 8.1, and
the holders of the Notes shall be entitled to rely upon any order or decree
made by any court of competent jurisdiction in which such bankruptcy,
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making such payment or distribution, delivered to the
Trustee or to the holders of the Notes, for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article IV.

         SECTION 4.4      AUTHORIZATION BY NOTEHOLDERS.  Each holder of a Note
by its acceptance thereof authorizes and directs the Trustee on its behalf to
take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article IV and appoints the Trustee its
attorney-in-fact for any and all such purposes.

         SECTION 4.5      NOTICE TO TRUSTEE.  The Company shall give prompt
written notice in the form of an Officers' Certificate to a Responsible Officer
of the Trustee and to any paying agent of any fact known to the Company which
would prohibit the making of any payment of monies to or by the Trustee or any
paying agent in respect of the Notes pursuant to the provisions of this Article
IV.  Notwithstanding the provisions of this Article IV or any other provision
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any Senior Indebtedness or of any default or event of default with
respect to any Senior Indebtedness or of any other facts which would prohibit
the making of any payment of monies to or by the Trustee in respect of the
Notes pursuant to the provisions of this Article IV, unless and until a
Responsible Officer of the Trustee shall have received written notice thereof
at the Corporate Trust Office from the Company (in the form of an Officers'
Certificate) or a holder or holders of Senior Indebtedness or from any trustee
thereof who shall have been certified by the Company or otherwise established
to the reasonable satisfaction of the Trustee to be such holder or trustee; and
before the receipt of any such written notice, the Trustee, subject to the
provisions of Section 8.1, shall be entitled in all respects to assume that no
such facts exist; provided that if on a date at least two (2) Business Days
prior to the date upon which by the terms hereof any such monies may become
payable for any purpose (including, without limitation, the payment of the
principal of, or premium, if any, or interest on any Note), the Trustee shall
not have received with respect to such monies the notice provided for in this
Section 4.5, then,





                                      -31-
<PAGE>   38
anything herein contained to the contrary notwithstanding, the Trustee shall
have full power and authority to receive such monies and to apply the same to
the purpose for which they were received, and shall not be affected by any
notice to the contrary which may be received by it on or after such prior date.

         Notwithstanding anything to the contrary hereinbefore set forth,
nothing shall prevent (a) any payment by the Company or the Trustee to the
Noteholders of amounts in connection with a redemption of Notes if (i) notice
of such redemption has been given pursuant to Article III prior to the receipt
by the Trustee of written notice as aforesaid, and (ii) such notice of
redemption is given not earlier than sixty (60) days before the redemption
date, (b) any payment by the Company or the Trustee to the Noteholders of
amounts in connection with a repurchase of Notes if (i) notice of such
repurchase has been given pursuant to Article XVI prior to the receipt by the
Trustee of written notice as aforesaid, and (ii) such notice of repurchase is
given not earlier than forty (40) days before the repurchase date, or (c) any
payment by the Trustee to the Noteholders of monies deposited with it pursuant
to Section 13.1.

         The Trustee, subject to the provisions of Section 8.1, shall be
entitled to rely on the delivery to it of a written notice by a person
representing itself to be a holder of Senior Indebtedness (or a trustee on
behalf of such holder) to establish that such notice has been given by a holder
of Senior Indebtedness or a trustee on behalf of any such holder or holders.
In the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article IV, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such person, the extent to which such person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such person under this Article IV, and if such evidence is not furnished the
Trustee may defer any payment to such person pending judicial determination as
to the right of such person to receive such payment.

         SECTION 4.6      TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS.  The
Trustee and any agent of the Company or the Trustee in its individual capacity
shall be entitled to all the rights set forth in this Article IV in respect of
any Senior Indebtedness at any time held by it, to the same extent as any other
holder of Senior Indebtedness, and nothing in Section 8.13 or elsewhere in this
Indenture shall deprive the Trustee or any such agent of any of its rights as
such holder.  Nothing in this Article IV shall apply to claims of, or payments
to, the Trustee under or pursuant to Section 8.6.

         With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article IV, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee.  The Trustee shall not be deemed to
owe any fiduciary duty to the holders of Senior Indebtedness and, subject to
the provisions of Section 4.2 and Section 8.1, the Trustee shall not be liable
to any holder of Senior Indebtedness if it shall pay over or deliver to holders
of Notes, the Company or any





                                      -32-
<PAGE>   39
other person money or assets to which any holder of Senior Indebtedness shall
be entitled by virtue of this Article IV or otherwise.

         SECTION 4.7      NO IMPAIRMENT OF SUBORDINATION.  No right of any
present or future holder of any Senior Indebtedness to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the Company
with the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.

         SECTION 4.8      CERTAIN CONVERSIONS DEEMED PAYMENT.  For the purposes
of this Article only, (1) the issuance and delivery of junior securities upon
conversion of Notes in accordance with Article XV shall not be deemed to
constitute a payment or distribution on account of the principal of (or
premium, if any) or interest on Notes or on account of the purchase or other
acquisition of Notes, and (2) the payment, issuance or delivery of cash (except
in satisfaction of fractional shares pursuant to Section 15.3), property or
securities (other than junior securities) upon conversion of a Note shall be
deemed to constitute payment on account of the principal of such Note.  For the
purposes of this Section, the term "junior securities" means (a) shares of any
stock of any class of the Company and (b) securities of the Company which are
subordinated in right of payment to all Senior Indebtedness which may be
outstanding at the time of issuance or delivery of such securities to
substantially the same extent as, or to a greater extent than, the Notes are so
subordinated aa provided in this Article.  Nothing contained in this Article or
elsewhere in this Indenture or in the Notes is intended to or shall impair, as
among the Company, its creditors other than holders of Senior Indebtedness and
the holders of the Notes, the right, which is absolute and unconditional, of
the holder of any Note to convert such Note in accordance with Article XV.


                                   ARTICLE V

                      PARTICULAR COVENANTS OF THE COMPANY

         SECTION 5.1      PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.  The
Company covenants and agrees that it will duly and punctually pay or cause to
be paid the principal of and premium, if any, and interest on each of the Notes
at the places, at the respective times and in the manner provided herein and in
the Notes.  Each installment of interest on the Notes due on any semi-annual
interest payment date may be paid by mailing checks for the interest payable to
or upon the written order of the holders of Notes entitled thereto as they
shall appear on the Note register, provided that, with respect to any holder of
Notes with an aggregate principal amount equal to or in excess of $5,000,000,
at the request of such holder in writing to the Company (who shall then furnish
written notice to the Trustee), interest on such holder's Notes shall be paid
by wire transfer in immediately available funds in accordance with the wire
transfer instructions supplied by such holder to the Trustee and paying agent
(if different from Trustee).





                                      -33-
<PAGE>   40
         SECTION 5.2      MAINTENANCE OF OFFICE OR AGENCY.  The Company will
maintain in the Borough of Manhattan, The City of New York, an office or agency
where the Notes may be surrendered for registration of transfer or exchange or
for presentation for payment or for conversion, redemption or repurchase and
where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served.  The Company will give prompt written notice to
the Trustee of the location, and any change in the location, of such office or
agency not designated or appointed by the Trustee.  If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office or the
office or agency of the Trustee in the Borough of Manhattan, The City of New
York.

         The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided
that no such designation or recision shall in any manner relieve the Company of
its obligation to maintain an office or agency in the Borough of Manhattan, The
City of New York, for such purposes.  The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change
in the location of any such other office or agency.

         The Company hereby initially designates the Trustee as paying agent,
Note registrar, Custodian and conversion agent and the Corporate Trust Office
and the office or agency of the Trustee in the Borough of Manhattan, The City
of New York (which shall initially be State Street Bank and Trust Company,
N.A., an Affiliate of the Trustee, at 61 Broadway, Concourse Level, Corporate
Trust Window, New York, New York, 10006) as one such office or agency of the
Company for each of the aforesaid purposes.

         So long as the Trustee is the Note registrar, the Trustee agrees to
mail, or cause to be mailed, the notices set forth in Section 8.10(a) and the
third paragraph of Section 8.11.

         SECTION 5.3      APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE.
The Company, whenever necessary to avoid or fill a vacancy in the office of
Trustee, will appoint, in the manner provided in Section 8.10, a Trustee, so
that there shall at all times be a Trustee hereunder.

         SECTION 5.4      PROVISIONS AS TO PAYING AGENT.

                 (a) If the Company shall appoint a paying agent other than the
         Trustee or if the Trustee shall appoint such a paying agent, it will
         cause such paying agent to execute and deliver to the Trustee an
         instrument in which such agent shall agree with the Trustee, subject
         to the provisions of this Section 5.4:

                          (1) that it will hold all sums held by it as such
                 agent for the payment of the principal of and premium, if any,
                 or interest on the Notes (whether such sums have been paid to
                 it by the Company or by any other obligor on the Notes) in
                 trust for the benefit of the holders of the Notes;





                                      -34-
<PAGE>   41
                          (2) that it will give the Trustee notice of any
                 default by the Company (or by any other obligor on the Notes)
                 in the making of any payment of the principal of and premium,
                 if any, or interest on the Notes when the same shall be due
                 and payable; and

                          (3) that at any time during the continuance of any
                 such default, upon request of the Trustee, it will forthwith
                 pay to the Trustee all sums so held in trust.

                 The Company shall, on or before each due date of the principal
         of, premium, if any, or interest on the Notes, deposit with the paying
         agent a sum sufficient to pay such principal, premium, if any, or
         interest, and (unless such paying agent is the Trustee) the Company
         will promptly notify the Trustee of any failure to take such action,
         provided that if such deposit is made on the due date, such deposit
         must be received by the paying agent by 10:00 a.m., New York City
         time, on such date.

                 (b) If the Company shall act as its own paying agent, it will,
         on or before each due date of the principal of, premium, if any, or
         interest on the Notes, set aside, segregate and hold in trust for the
         benefit of the holders of the Notes a sum sufficient to pay such
         principal, premium, if any, or interest so becoming due and will
         notify the Trustee of any failure to take such action and of any
         failure by the Company (or any other obligor under the Notes) to make
         any payment of the principal of, premium, if any, or interest on the
         Notes when the same shall become due and payable.

                 (c) Anything in this Section 5.4 to the contrary
         notwithstanding, the Company may, at any time, for the purpose of
         obtaining a satisfaction and discharge of this Indenture, or for any
         other reason, pay or cause to be paid to the Trustee all sums held in
         trust by the Company or any paying agent hereunder as required by this
         Section 5.4, such sums to be held by the Trustee upon the trusts
         herein contained and upon such payment by the Company or any paying
         agent to the Trustee, the Company or such paying agent shall be
         released from all further liability with respect to such sums.

                 (d) Anything in this Section 5.4 to the contrary
         notwithstanding, the agreement to hold sums in trust as provided in
         this Section 5.4 is subject to Sections 13.3 and 13.4.

         SECTION 5.5      EXISTENCE.  Subject to Article XII, the Company will
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence.

         SECTION 5.6      RULE 144A INFORMATION REQUIREMENT.  During the period
beginning on the latest date of the original issuance of any of the Notes and
ending on the date that is three years from such date, the Company covenants
and agrees that it shall, during any period in which it is not subject to
Section 13 or 15(d) under the Exchange Act, make





                                      -35-
<PAGE>   42
available to any holder or beneficial holder of Notes or any Common Stock
issued upon conversion thereof, in each case which continue to be Restricted
Securities, in connection with any sale thereof and any prospective purchaser
(as identified by such holder or beneficial holder) of Notes or such Common
Stock from such holder or beneficial holder, the information required pursuant
to Rule 144A(d)(4) under the Securities Act upon the request of any holder or
beneficial holder of the Notes or such Common Stock and it will take such
further action as any holder or beneficial holder of such Notes or such Common
Stock may reasonably request, all to the extent required from time to time to
enable such holder or beneficial holder to sell its Notes or Common Stock
without registration under the Securities Act within the limitation of the
exemption provided by Rule 144A, as such rule may be amended from time to time.
Upon the request of any holder or any beneficial holder of the Notes or such
Common Stock, the Company will deliver to such holder a written statement as to
whether it has complied with such requirements.

         SECTION 5.7      STAY, EXTENSION AND USURY LAWS.  The Company
covenants (to the extent that it may lawfully do so) that it shall not at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay, extension or usury law or other law which would
prohibit or forgive the Company from paying all or any portion of the principal
of or interest on the Notes as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and the Company (to the extent it may lawfully
do so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law has been
enacted.

         SECTION 5.8      COMPLIANCE CERTIFICATE.  The Company shall deliver to
the Trustee within 120 days after the end of each fiscal year of the Company
(beginning with the fiscal year ending on December 31, 1996) an Officers'
Certificate stating whether or not the signers know of any Event of Default
that occurred during such period.  If they do, such Officers' Certificate shall
describe the Event of Default and its status.

         SECTION 5.9      FURTHER INSTRUMENTS AND ACTS.  Upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purposes of this Indenture.


                                   ARTICLE VI

         NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE

         SECTION 6.1      NOTEHOLDERS' LISTS.  The Company covenants and agrees
that it will furnish or cause to be furnished to the Trustee, semi-annually,
not more than fifteen (15) days after each March 15 and September 15 in each
year beginning with March 15, 1997,





                                      -36-
<PAGE>   43
and at such other times as the Trustee may request in writing, within thirty
(30) days after receipt by the Company of any such request (or such lesser time
as the Trustee may reasonably request in order to enable it to timely provide
any notice to be provided by it hereunder), a list in such form as the Trustee
may reasonably require of the names and addresses of the holders of Notes as of
a date not more than fifteen (15) days (or such other date as the Trustee may
reasonably request in order to so provide any such notices) prior to the time
such information is furnished, except that no such list need be furnished so
long as the Trustee is acting as Note registrar.

         SECTION 6.2      PRESERVATION AND DISCLOSURE OF LISTS.

                 (a) The Trustee shall preserve, in as current a form as is
         reasonably practicable, all information as to the names and addresses
         of the holders of Notes contained in the most recent list furnished to
         it as provided in Section 6.1 or maintained by the Trustee in its
         capacity as Note registrar, if so acting.  The Trustee may destroy any
         list furnished to it as provided in Section 6.1 upon receipt of a new
         list so furnished.

                 (b) The rights of Noteholders to communicate with other
         holders of Notes with respect to their rights under this Indenture or
         under the Notes and the corresponding rights and duties of the
         Trustee, shall be as provided by the Trust Indenture Act.

                 (c) Every Noteholder, by receiving and holding the same,
         agrees with the Company and the Trustee that neither the Company nor
         the Trustee nor any agent of either of them shall be held accountable
         by reason of any disclosure of information as to names and addresses
         of holders of Notes made pursuant to the Trust Indenture Act.

         SECTION 6.3      REPORTS BY TRUSTEE.

                 (a) Within 60 days after September 15 of each year commencing
         with the year 1997, the Trustee shall transmit to holders of Notes
         such reports dated as of September 15 of the year in which such
         reports are made concerning the Trustee and its actions under this
         Indenture as may be required pursuant to the Trust Indenture Act at
         the times and in the manner provided pursuant thereto.

                 (b) A copy of such report shall, at the time of such
         transmission to holders of Notes, be filed by the Trustee with each
         stock exchange and automated quotation system upon which the Notes are
         listed and with the Company.  The Company will notify the Trustee when
         the Notes are listed on any stock exchange or automated quotation
         system and when any such listing is discontinued.

         SECTION 6.4      REPORTS BY COMPANY.  The Company shall file with the
Trustee (and the Commission if at any time after the Indenture becomes
qualified under the Trust Indenture Act) for transmission to holders of Notes
such information, documents and other





                                      -37-
<PAGE>   44
reports and such summaries thereof, as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant to such Act;
provided that any such information, documents or reports required to be filed
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall
be filed with the Trustee within 15 days after the same is so required to be
filed with the Commission.

         The Company will deliver to the Trustee (a) as soon as available and
in any event within ninety (90) days after the end of each fiscal year of the
Company (i) a consolidated balance sheet of the Company and its subsidiaries as
of the end of such fiscal year and the related consolidated statements of
operations, stockholders' equity and cash flows for such fiscal year, all
reported on by an independent public accountant of nationally recognized
standing and (ii) a report containing a management's discussion and analysis of
the financial condition and results of operations and a description of the
business and properties of the Company and (b) as soon as available and in any
event within forty five (45) days after the end of each of the first three
quarters of each fiscal year of the Company (i) an unaudited consolidated
balance sheet of the Company and its subsidiaries as of the end of each such
quarter and the related consolidated statements of operations and cash flows
for such fiscal quarter and (ii) a report containing a management's discussion
and analysis of the financial condition and results of operations of the
Company for such quarter; provided that the foregoing statements and reports
shall not be required for any fiscal year or quarter, as the case may be, with
respect to which the Company files or expects to file with the Trustee an
annual report or quarterly report, as the case may be, pursuant to the
preceding paragraph of this Section 6.4.  The Trustee shall have no liability
as regards the substance of the information provided by the Company or its
agents pursuant to this Section 6.4.


                                  ARTICLE VII

                             DEFAULTS AND REMEDIES

         SECTION 7.1      EVENTS OF DEFAULT.  In case one or more of the
following Events of Default (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body) shall have occurred and
be continuing:

                 (a) default in the payment of the principal of and premium on
         any of the Notes as and when the same shall become due and payable
         either at maturity or in connection with any redemption, by
         declaration or otherwise, whether or not such payment is prohibited by
         the provisions of Article IV; or

                 (b) default in the payment of any installment of interest upon
         any of the Notes as and when the same shall become due and payable,
         and continuance of such default for a period of thirty (30) days,
         whether or not such payment is prohibited by the provisions of Article
         IV; or





                                      -38-
<PAGE>   45
                 (c) a default in the payment of the Repurchase Price in
         respect of any Note on the repurchase date therefor in accordance with
         the provisions of Article XVI, whether or not such payment is
         prohibited by the provisions of Article IV; or

                 (d) failure on the part of the Company duly to observe or
         perform any other of the covenants or agreements on the part of the
         Company in the Notes or in this Indenture (other than a covenant or
         agreement a default in whose performance or whose breach is elsewhere
         in this Section specifically dealt with) continued for a period of
         sixty (60) days after the date on which written notice of such
         failure, requiring the Company to remedy the same, shall have been
         given to the Company by the Trustee, or to the Company and a
         Responsible Officer of the Trustee by the holders of at least 25% in
         aggregate principal amount of the outstanding Notes at the time
         outstanding determined in accordance with Section 9.4; or

                 (e) failure by the Company or any Significant Subsidiary to
         make any payment when due and payable, including any applicable grace
         period, in respect of indebtedness, which term as used herein means
         obligations (other than the Notes or non-recourse obligations) of, or
         guaranteed or assumed by, the Company, or any Significant Subsidiary,
         for borrowed money or evidenced by bonds, debentures, notes or other
         similar instruments ("Indebtedness") in an amount in excess of
         $15,000,000 or the equivalent thereof in any other currency or
         composite currency and such failure shall have continued for thirty
         (30) days after written notice thereof shall have been given to the
         Company by the Trustee or to the Company and a Responsible Officer of
         the Trustee by the holders of at least 25% in aggregate principal
         amount of the outstanding Notes at the time outstanding determined in
         accordance with Section 9.4; or

                 (f) a default by the Company or any Significant Subsidiary
         with respect to any Indebtedness, which default results in the
         acceleration of Indebtedness in an amount in excess of $15,000,000 or
         the equivalent thereof in any other currency or composite currency
         without such Indebtedness having been discharged or such acceleration
         having been cured, waived, rescinded or annulled for a period of
         thirty (30) days after written notice thereof shall have been given to
         the Company by the Trustee or to the Company and the Responsible
         Officer of the Trustee by the holders of at least 25% in aggregate
         principal amount of the outstanding Notes at the time outstanding
         determined in accordance with Section 9.4; or

                 (g) the Company or any Significant Subsidiary shall commence a
         voluntary case or other proceeding seeking liquidation, reorganization
         or other relief with respect to itself or its debts under any
         bankruptcy, insolvency or other similar law now or hereafter in effect
         or seeking the appointment of a trustee, receiver, liquidator,
         custodian or other similar official of it or any substantial part of
         its property, or shall consent to any such relief or to the
         appointment of or taking possession by any such official in an
         involuntary case or other proceeding commenced against it, or shall
         make a general assignment for the benefit of creditors, or shall fail
         generally to pay its debts as they become due; or





                                      -39-
<PAGE>   46
                 (h) an involuntary case or other proceeding shall be commenced
         against the Company or any Significant Subsidiary seeking liquidation,
         reorganization or other relief with respect to it or its debts under
         any bankruptcy, insolvency or other similar law now or hereafter in
         effect or seeking the appointment of a trustee, receiver, liquidator,
         custodian or other similar official of it or any substantial part of
         its property, and such involuntary case or other proceeding shall
         remain undismissed and unstayed for a period of ninety (90)
         consecutive days;

then, and in each and every such case (other than an Event of Default specified
in Section 7.1(g) or (h)), unless the principal of all of the Notes shall have
already become due and payable, either the Trustee or the holders of not less
than 25% in aggregate principal amount of the Notes then outstanding hereunder
determined in accordance with Section 9.4, by notice in writing to the Company
(and to a Responsible Officer of the Trustee if given by Noteholders), may
declare the principal of and premium, if any, on all the Notes and the interest
accrued thereon to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately due and payable,
anything in this Indenture or in the Notes contained to the contrary
notwithstanding.  If an Event of Default specified in Section 7.1(g) or (h)
occurs and is continuing, the principal of all the Notes and the interest
accrued thereon shall be immediately due and payable.  This provision, however,
is subject to the conditions that if, at any time after the principal of the
Notes shall have been so declared due and payable, and before any judgment or
decree for the payment of the monies due shall have been obtained or entered as
hereinafter provided, the Company shall pay or shall deposit with the Trustee a
sum sufficient to pay all matured installments of interest upon all Notes and
the principal of and premium, if any, on any and all Notes which shall have
become due otherwise than by acceleration (with interest on overdue
installments of interest (to the extent that payment of such interest is
enforceable under applicable law) and on such principal and premium, if any, at
the rate borne by the Notes, to the date of such payment or deposit) and
amounts due to the Trustee pursuant to Section 8.6, and if any and all defaults
under this Indenture, other than the nonpayment of principal of and premium, if
any, and accrued interest on Notes which shall have become due by acceleration,
shall have been cured or waived pursuant to Section 7.7, then and in every such
case the holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Company and to a Responsible Officer of
the Trustee, may waive all defaults or Events of Default and rescind and annul
such declaration and its consequences; but no such waiver or rescission and
annulment shall extend to or shall affect any subsequent default or Event of
Default, or shall impair any right consequent thereon.  The Company shall
notify the Responsible Officer of the Trustee, promptly upon becoming aware
thereof, of any Event of Default.

         In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
because of such waiver or rescission and annulment or for any other reason or
shall have been determined adversely to the Trustee, then and in every such
case the Company, the holders of Notes, and the Trustee shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the holders of Notes, and the Trustee shall
continue as though no such proceeding had been instituted.





                                      -40-
<PAGE>   47
         SECTION 7.2      PAYMENTS OF NOTES ON DEFAULT; SUIT THEREFOR.  The
Company covenants that (a) in case default shall be made in the payment by the
Company of any installment of interest upon any of the Notes as and when the
same shall become due and payable, and such default shall have continued for a
period of thirty (30) days, or (b) in case default shall be made in the payment
of the principal of or premium, if any, on any of the Notes as and when the
same shall have become due and payable, whether at maturity of the Notes or in
connection with any redemption or repurchase, by declaration under this
Indenture or otherwise, then, upon demand of the Trustee, the Company will pay
to the Trustee, for the benefit of the holders of the Notes, the whole amount
that then shall have become due and payable on all such Notes for principal and
premium, if any, or interest, or both, as the case may be, with interest upon
the overdue principal and premium, if any, and (to the extent that payment of
such interest is enforceable under applicable law) upon the overdue
installments of interest at the rate borne by the Notes; and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including reasonable compensation to the Trustee, its
agents, attorneys and counsel, and any reasonable expenses or liabilities
incurred by the Trustee hereunder other than through its negligence or bad
faith.  Until such demand by the Trustee, the Company may pay the principal of
and premium, if any, and interest on the Notes to the registered holders,
whether or not the Notes are overdue.

         In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or any other obligor on the Notes
and collect in the manner provided by law out of the property of the Company or
any other obligor on the Notes wherever situated the monies adjudged or decreed
to be payable.

         In the case there shall be pending proceedings for the bankruptcy or
for the reorganization of the Company or any other obligor on the Notes under
Title 11 of the United States Code, or any other applicable law, or in case a
receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
sequestrator or similar official shall have been appointed for or taken
possession of the Company or such other obligor, the property of the Company or
such other obligor, or in the case of any other judicial proceedings relative
to the Company or such other obligor upon the Notes, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of the Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand pursuant to the provisions of this Section
7.2, shall be entitled and empowered, by intervention in such proceedings or
otherwise, to file and prove a claim or claims for the whole amount of
principal, premium, if any, and interest owing and unpaid in respect of the
Notes, and, in case of any judicial proceedings, to file such proofs of claim
and other papers or documents as may be necessary or advisable in order to have
the claims of the Trustee and of the Noteholders allowed in such judicial
proceedings relative to the Company or any other obligor on the Notes, its or
their creditors, or its or their property, and to collect and receive any
monies or other





                                      -41-
<PAGE>   48
property payable or deliverable on any such claims, and to distribute the same
after the deduction of any amounts due the Trustee under Section 8.6; and any
receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
custodian or similar official is hereby authorized by each of the Noteholders
to make such payments to the Trustee, and, in the event that the Trustee shall
consent to the making of such payments directly to the Noteholders, to pay to
the Trustee any amount due it for reasonable compensation, expenses, advances
and disbursements, including counsel fees incurred by it up to the date of such
distribution.  To the extent that such payment of reasonable compensation,
expenses, advances and disbursements out of the estate in any such proceedings
shall be denied for any reason, payment of the same shall be secured by a lien
on, and shall be paid out of, any and all distributions, dividends, monies,
securities and other property which the holders of the Notes may be entitled to
receive in such proceedings, whether in liquidation or under any plan of
reorganization or arrangement or otherwise.

         All rights of action and of asserting claims under this Indenture, or
under any of the Notes, may be enforced by the Trustee without the possession
of any of the Notes or the production thereof at any trial or other proceeding
relative thereto, and any such suit or proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the holders of the Notes.

         ln any proceedings brought by the Trustee (and in any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the
holders of the Notes, and it shall not be necessary to make any holders of the
Notes parties to any such proceedings.

         SECTION 7.3      APPLICATION OF MONIES COLLECTED BY TRUSTEE.  Any
monies collected by the Trustee pursuant to this Article VII shall be applied
in the order following, at the date or dates fixed by the Trustee for the
distribution of such monies, upon presentation of the several Notes, and the
notation thereon of the payment, if only partially paid, and upon surrender
thereof, if fully paid:

         First: To the payment of all amounts due the Trustee under Section
8.6;

         Second: Subject to the provisions of Article IV, in case the principal
of the outstanding Notes shall not have become due and be unpaid, to the
payment of interest on the Notes in default in the order of the maturity of the
installments of such interest, with interest (to the extent that such interest
has been collected by the Trustee) upon the overdue installments of interest at
the rate borne by the Notes, such payments to be made ratably to the persons
entitled thereto;

         Third: Subject to the provisions of Article IV, in case the principal
of the outstanding Notes shall have become due, by declaration or otherwise,
and be unpaid, to the payment of the whole amount then owing and unpaid upon
the Notes for principal and premium, if any, and interest, with interest on the
overdue principal and premium, if any, and (to the extent





                                      -42-
<PAGE>   49
that such interest has been collected by the Trustee) upon overdue installments
of interest at the rate borne by the Notes; and in case such monies shall be
insufficient to pay in full the whole amounts so due and unpaid upon the Notes,
then to the payment of such principal and premium, if any, and interest without
preference or priority of principal and premium, if any, over interest, or of
interest over principal and premium, if any, or of any installment of interest
over any other installment of interest, or of any Note over any other Note,
ratably to the aggregate of such principal and premium, if any, and accrued and
unpaid interest; and

         Fourth: Subject to the provisions of Article IV, to the payment of the
remainder, if any, to the Company or any other person lawfully entitled
thereto.

         SECTION 7.4      PROCEEDINGS BY NOTEHOLDER.  No holder of any Note
shall have any right by virtue of or by availing of any provision of this
Indenture to institute any suit, action or proceeding in equity or at law upon
or under or with respect to this Indenture, or for the appointment of a
receiver, trustee, liquidator, custodian or other similar official, or for any
other remedy hereunder, unless such holder previously shall have given to a
Responsible Officer of the Trustee written notice of an Event of Default and of
the continuance thereof, as hereinbefore provided, and unless also the holders
of not less than 25% in aggregate principal amount of the Notes then
outstanding determined in accordance with Section 9.4 shall have made written
request upon a Responsible Officer of the Trustee to institute such action,
suit or proceeding in its own name as Trustee hereunder and shall have offered
to the Trustee such reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred therein or thereby, and the Trustee for
sixty (60) days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit
or proceeding and no direction inconsistent with such written request shall
have been given to the Trustee pursuant to Section 7.7; it being understood and
intended, and being expressly covenanted by the taker and holder of every Note
with every other taker and holder and the Trustee, that no one or more holders
of Notes shall have any right in any manner whatever by virtue of or by
availing of any provision of this Indenture to affect, disturb or prejudice the
rights of any other holder of Notes, or to obtain or seek to obtain priority
over or preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Notes (except as otherwise provided herein).
For the protection and enforcement of this Section 7.4, each and every
Noteholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.

         Notwithstanding any other provision of this Indenture and any
provision of any Note, the right of any holder of any Note to receive payment
of the principal of and premium, if any, and interest on such Note, on or after
the respective due dates expressed in such Note, or to institute suit for the
enforcement of any such payment on or after such respective dates against the
Company shall not be impaired or affected without the consent of such holder.

         Anything in this Indenture or the Notes to the contrary
notwithstanding, the holder of any Note, without the consent of either the
Trustee or the holder of any other Note, in its own behalf and for its own
benefit, may enforce, and may institute and maintain any proceeding suitable to
enforce, its rights of conversion as provided herein.





                                      -43-
<PAGE>   50
         SECTION 7.5      PROCEEDINGS BY TRUSTEE.  In case of an Event of
Default the Trustee may in its discretion proceed to protect and enforce the
rights vested in it by this Indenture by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any of such
rights, either by suit in equity or by action at law or by proceeding in
bankruptcy or otherwise, whether for the specific enforcement of any covenant
or agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law.

         SECTION 7.6      REMEDIES CUMULATIVE AND CONTINUING.  Except as
otherwise provided in the last paragraph of Section 2.6, all powers and
remedies given by this Article VII to the Trustee or to the Noteholders shall,
to the extent permitted by law, be deemed cumulative and not exclusive of any
thereof or of any other powers and remedies available to the Trustee or the
holders of the Notes, by judicial proceedings or otherwise, to enforce the
performance or observance of the covenants and agreements contained in this
Indenture, and no delay or omission of the Trustee or of any holder of any of
the Notes to exercise any right or power accruing upon any default or Event of
Default occurring and continuing as aforesaid shall impair any such right or
power, or shall be construed to be a waiver of any such default or any
acquiescence therein; and, subject to the provisions of Section 7.4, every
power and remedy given by this Article VII or by law to the Trustee or to the
Noteholders may be exercised from time to time, and as often as shall be deemed
expedient, by the Trustee or by the Noteholders.

         SECTION 7.7      DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS BY
MAJORITY OF NOTEHOLDERS.  The holders of a majority in aggregate principal
amount of the Notes at the time outstanding determined in accordance with
Section 9.4 shall have the right to direct the time, method, and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; provided, however, that (a) such
direction shall not be in conflict with any rule of law or with this Indenture,
and (b) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.  The holders of a majority in
aggregate principal amount of the Notes at the time outstanding determined in
accordance with Section 9.4 may on behalf of the holders of all of the Notes
waive any past default or Event of Default hereunder and its consequences
except (i) a default in the payment of interest or premium, if any, on, or the
principal of, or any redemption price or repurchase price of, the Notes, (ii) a
failure by the Company to convert any Notes into Common Stock or (iii) a
default in respect of a covenant or provisions hereof which under Article XI
cannot be modified or amended without the consent of the holders of all Notes
then outstanding.  Upon any such waiver the Company, the Trustee and the
holders of the Notes shall be restored to their former positions and rights
hereunder; but no such waiver shall extend to any subsequent or other default
or Event of Default or impair any right consequent thereon.  Whenever any
default or Event of Default hereunder shall have been waived as permitted by
this Section 7.7, said default or Event of Default shall for all purposes of
the Notes and this Indenture be deemed to have been cured and to be not
continuing; but no such waiver shall extend to any subsequent or other default
or Event of Default or impair any right consequent thereon.





                                      -44-
<PAGE>   51
         SECTION 7.8      NOTICE OF DEFAULTS.  The Trustee shall, within ninety
(90) days after the occurrence of a default, mail to all Noteholders, as the
names and addresses of such holders appear upon the Note register, notice of
all defaults known to a Responsible Officer, unless such defaults shall have
been cured or waived before the giving of such notice; and provided that,
except in the case of default in the payment of the principal of, or premium,
if any or interest on any of the Notes the Trustee shall be protected in
withholding such notice if and so long as a trust committee of directors and/or
Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interests of the Noteholders.

         SECTION 7.9      UNDERTAKING TO PAY COSTS.  All parties to this
Indenture agree, and each holder of any Note by its acceptance thereof shall be
deemed to have agreed, that any court may, in its discretion, require, in any
suit for the enforcement of any right or remedy under this Indenture, or in any
suit against the Trustee for any action taken or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the costs of
such suit and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made
by such party litigant; provided that the provisions of this Section 7.9 shall
not apply to any suit instituted by the Trustee, to any suit instituted by any
Noteholder, or group of Noteholders, holding in the aggregate more than 10% in
principal amount of the Notes at the time outstanding determined in accordance
with Section 9.4, or to any suit instituted by any Noteholder for the
enforcement of the payment of the principal of or premium, if any, or interest
on any Note (including, but not limited to, the redemption price or repurchase
price with respect to the Notes being redeemed or repurchased as provided in
this Indenture) on or after the due date expressed in such Note or to any suit
for the enforcement of the right to convert any Note in accordance with the
provisions of Article XV.

         SECTION 7.10     DELAY OR OMISSION NOT WAIVER.  No delay or omission
of the Trustee or of any holder of any Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or any acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
holders of Notes may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the holders of Notes, as the case may
be.


                                  ARTICLE VIII

                             CONCERNING THE TRUSTEE

         SECTION 8.1      DUTIES AND RESPONSIBILITIES OF TRUSTEE.  The Trustee,
prior to the occurrence of an Event of Default and after the curing of all
Events of Default which may have occurred, undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture.  In case
an Event of Default has occurred (which has not been cured or waived) the
Trustee shall exercise such of the rights and powers vested in it by this





                                      -45-
<PAGE>   52
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.

         No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that

                 (a) prior to the occurrence of an Event of Default and after
         the curing or waiving of all Events of Default which may have
         occurred:

                          (1) the duties and obligations of the Trustee shall
                 be determined solely by the express provisions of this
                 Indenture and the Trust Indenture Act, and the Trustee shall
                 not be liable except for the performance of such duties and
                 obligations as are specifically set forth in this Indenture
                 and no implied covenants or obligations shall be read into
                 this Indenture and the Trust Indenture Act against the
                 Trustee; and

                          (2) in the absence of bad faith and willful
                 misconduct on the part of the Trustee, the Trustee may
                 conclusively rely, as to the truth of the statements and the
                 correctness of the opinions expressed therein, upon any
                 certificates or opinions furnished to the Trustee and
                 conforming to the requirements of this Indenture; but, in the
                 case of any such certificates or opinions which by any
                 provisions hereof are specifically required to be furnished to
                 the Trustee, the Trustee shall be under a duty to examine the
                 same to determine whether or not they conform to the
                 requirements of this Indenture;

                 (b) the Trustee shall not be liable for any error of judgment
         made in good faith by a Responsible Officer or Officers of the
         Trustee, unless it shall be provided that the Trustee was negligent in
         ascertaining the pertinent facts;

                 (c) the Trustee shall not be liable to any Noteholder with
         respect to any action taken or omitted to be taken by it in good faith
         in accordance with the direction of the holders of not less than a
         majority in principal amount of the Notes at the time outstanding
         determined as provided in Section 9.4 relating to the time, method and
         place of conducting any proceeding for any remedy available to the
         Trustee, or exercising any trust or power conferred upon the Trustee,
         under this Indenture; and

                 (d) whether or not therein provided, every provision of this
         Indenture relating to the conduct or affecting the liability of, or
         affording protection to, the Trustee shall be subject to the
         provisions of this Section.

                 None of the provisions contained in this Indenture shall
         require the Trustee to expend or risk its own funds or otherwise incur
         personal financial liability in the performance of any of its duties
         or in the exercise of any of its rights or powers, if





                                      -46-
<PAGE>   53
         there is reasonable ground for believing that the repayment of such
         funds or adequate indemnity against such risk or liability is not
         reasonably assured to it.

         SECTION 8.2      RELIANCE ON DOCUMENTS, OPINIONS, ETC.  Except as
otherwise provided in Section 8.1:

                 (a) the Trustee may rely and shall be protected in acting upon
         any resolution, certificate, statement, instrument, opinion, report,
         notice, request, consent, order, bond, note, coupon or other paper or
         document believed by it in good faith to be genuine and to have been
         signed or presented by the proper party or parties;

                 (b) any request, direction, order or demand of the Company
         mentioned herein shall be sufficiently evidenced by an Officers'
         Certificate (unless other evidence in respect thereof be herein
         specifically prescribed); and any resolution of the Board of Directors
         may be evidenced to the Trustee by a copy thereof certified by the
         Secretary or an Assistant Secretary of the Company;

                 (c) the Trustee may consult with counsel and any advice or
         Opinion of Counsel shall be full and complete authorization and
         protection in respect of any action taken or omitted by it hereunder
         in good faith and in accordance with such advice or Opinion of
         Counsel;

                 (d) the Trustee shall be under no obligation to exercise any
         of the rights or powers vested in it by this Indenture at the request,
         order or direction of any of the Noteholders pursuant to the
         provisions of this Indenture, unless such Noteholders shall have
         offered to the Trustee reasonable security or indemnity against the
         costs, expenses and liabilities which may be incurred therein or
         thereby;

                 (e) the Trustee shall not be bound to make any investigation
         into the facts or matters stated in any resolution, certificate,
         statement, instrument, opinion, report, notice, request, direction,
         consent, order, bond, debenture or other paper or document, but the
         Trustee, in its discretion, may make such further inquiry or
         investigation into such facts or matters as it may see fit, and, if
         the Trustee shall determine to make such further inquiry or
         investigation, it shall be entitled to examine the books, records and
         premises of the Company, personally or by agent or attorney; provided,
         however, that if the payment within a reasonable time to the Trustee
         of the costs, expenses or liabilities likely to be incurred by it in
         the making of such investigation is, in the opinion of the Trustee,
         not reasonably assured to the Trustee by the security afforded to it
         by the terms of this Indenture, the Trustee may require reasonable
         indemnity from the Noteholders against such expenses or liability as a
         condition to so proceeding; the reasonable expenses of every such
         examination shall be paid by the Company or, if paid by the Trustee or
         any predecessor Trustee, shall be repaid by the Company upon demand;
         and

                 (f) the Trustee may execute any of the trusts or powers
         hereunder or perform any duties hereunder either directly or by or
         through agents or attorneys and the





                                      -47-
<PAGE>   54
         Trustee shall not be responsible for any misconduct or negligence on
         the part of any agent or attorney appointed by it with due care
         hereunder.

In no event shall the Trustee be liable for any consequential loss or damage of
any kind whatsoever (including but not limited to lost profits), even if the
Trustee has been advised of the likelihood of such loss or damage and
regardless of the form of action other than through the Trustee's willful
misconduct or gross negligence.

         SECTION 8.3      NO RESPONSIBILITY FOR RECITALS, ETC.  The recitals
contained herein and in the Notes (except in the Trustee's certificate of
authentication) shall be taken as the statements of the Company, and the
Trustee assumes no responsibility for the correctness of the same.  The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Notes.  The Trustee shall not be accountable for the use or application
by the Company of any Notes or the proceeds of any Notes authenticated and
delivered by the Trustee in conformity with the provisions of this Indenture.

         SECTION 8.4      TRUSTEE, PAYING AGENTS, CONVERSION AGENTS OR
REGISTRAR MAY OWN NOTES.  The Trustee, any paying agent, any conversion agent
or Note registrar, in its individual or any other capacity, may become the
owner or pledgee of Notes with the same rights it would have if it were not
Trustee, paying agent, conversion agent or Note registrar.

         SECTION 8.5      MONIES TO BE HELD IN TRUST.  Subject to the
provisions of Section 13.4, all monies received by the Trustee shall, until
used or applied as herein provided, be held in trust for the purposes for which
they were received.  Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law.  The Trustee
shall be under no liability for interest on any money received by it hereunder
except as may be agreed from time to time by the Company and the Trustee.

         SECTION 8.6      COMPENSATION AND EXPENSES OF TRUSTEE.  The Company
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to, reasonable compensation for all services rendered by it
hereunder in any capacity (which shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust), and the
Company will pay or reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances reasonably incurred or made by the Trustee
in accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and
of all persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence, willful misconduct,
recklessness or bad faith.  The Company also covenants to indemnify the Trustee
in any capacity under this Indenture and its agents and any authenticating
agent for, and to hold them harmless against, any loss, liability or expense
incurred without negligence, willful misconduct, recklessness or bad faith on
the part of the Trustee or such agent or authenticating agent, as the case may
be, and arising out of or in connection with the acceptance or administration
of this trust or in any other capacity hereunder, including the costs and
expenses of defending themselves against any claim of liability in the
premises.  The obligations of the Company under this Section 8.6 to compensate
or indemnify the Trustee and to pay or reimburse the Trustee for expenses,





                                      -48-
<PAGE>   55
disbursements and advances shall be secured by a lien prior to that of the
Notes upon all property and funds held or collected by the Trustee as such,
except, subject to the effect of Sections 4.3 and 7.6, funds held in trust
herewith for the benefit of the holders of particular Notes prior to the date
of the accrual of such unpaid compensation or indemnifiable claim.  The
obligation of the Company under this Section shall survive the satisfaction and
discharge of this Indenture.

         When the Trustee and its agents and any authenticating agent incur
expenses or render services after an Event of Default specified in Section
7.1(g) or (h) occurs, the expenses and the compensation for the services are
intended to constitute expenses of administration under any bankruptcy,
insolvency or similar laws.

         SECTION 8.7      OFFICERS' CERTIFICATE AS EVIDENCE.  Except as
otherwise provided in Section 8.1, whenever in the administration of the
provisions of this Indenture the Trustee shall deem it necessary or desirable
that a matter be proved or established prior to taking or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence, willful misconduct,
recklessness and bad faith on the part of the Trustee, be deemed to be
conclusively proved and established by an Officers' Certificate delivered to
the Trustee, and such Officers' Certificate, in the absence of negligence,
willful misconduct, recklessness and bad faith on the part of the Trustee,
shall be full warrant to the Trustee for any action taken or omitted by it
under the provisions of this Indenture upon the faith thereof.

         SECTION 8.8      CONFLICTING INTERESTS OF TRUSTEE.  If the Trustee has
or shall acquire a conflicting interest within the meaning of the Trust
Indenture Act, the Trustee shall either eliminate such interest or resign, to
the extent and in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and this Indenture.

         SECTION 8.9      ELIGIBILITY OF TRUSTEE.  There shall at all times be
a Trustee hereunder which shall be a person that is eligible pursuant to the
Trust Indenture Act to act as such and has a combined capital and surplus of at
least $50,000,000.  If such person publishes reports of condition at least
annually, pursuant to law or to the requirements of any supervising or
examining authority, then for the purposes of this Section, the combined
capital and surplus of such person shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition so published.
If at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.

         SECTION 8.10     RESIGNATION OR REMOVAL OF TRUSTEE.

                 (a) The Trustee may at any time resign by giving written
         notice of such resignation to the Company and by mailing notice
         thereof, at the expense of the Company, to the holders of Notes at
         their addresses as they shall appear on the Note register.  Upon
         receiving such notice of resignation, the Company shall promptly
         appoint a successor trustee by written instrument, in duplicate,
         executed by order of the Board of Directors, one copy of which
         instrument shall be delivered to the





                                      -49-
<PAGE>   56
         resigning Trustee and one copy to the successor trustee.  If no
         successor trustee shall have been so appointed and have accepted
         appointment sixty (60) days after the mailing of such notice of
         resignation to the Noteholders, the resigning Trustee may petition any
         court of competent jurisdiction for the appointment of a successor
         trustee, or any Noteholder who has been a bona fide holder of a Note
         or Notes for at least six months may, subject to the provisions of
         Section 7.9, on behalf of itself and all others similarly situated
         petition any such court for the appointment of a successor trustee.
         Such court may thereupon, after such notice, if any, as it may deem
         proper and prescribe, appoint a successor trustee.

                 (b) In case at any time any of the following shall occur:

                          (1) the Trustee shall fail to comply with Section 8.8
                 after written request therefor by the Company or by any
                 Noteholder who has been a bona fide holder of a Note or Notes
                 for at least six months, or

                          (2) the Trustee shall cease to be eligible in
                 accordance with the provisions of Section 8.9 and shall fail
                 to resign after written request therefor by the Company or by
                 any such Noteholder, or

                          (3) the Trustee shall become incapable of acting, or
                 shall be adjudged a bankrupt or insolvent, or a receiver of
                 the Trustee or of its property shall be appointed, or any
                 public officer shall take charge or control of the Trustee or
                 of its property or affairs for the purpose of rehabilitation,
                 conservation or liquidation,

         then, in any such case, the Company may remove the Trustee and appoint
         a successor trustee by written instrument, in duplicate, executed by
         order of the Board of Directors, one copy of which instrument shall be
         delivered to the Trustee so removed and one copy to the successor
         trustee, or, subject to the provisions of Section 7.9, any Noteholder
         who has been a bona fide holder of a Note or Notes for at least six
         months may, on behalf of itself and all others similarly situated,
         petition any court of competent jurisdiction for the removal of the
         Trustee and the appointment of a successor trustee.  Such court may
         thereupon, after such notice, if any, as it may deem proper and
         prescribe, remove the Trustee and appoint a successor trustee.

                 (c) The holders of a majority in aggregate principal amount of
         the Notes at the time outstanding may at any time remove the Trustee
         and nominate a successor trustee which shall be deemed appointed as
         successor trustee unless within ten (10) days after notice to the
         Company of such nomination the Company objects thereto, in which case
         the Trustee so removed or any Noteholder, upon the terms and
         conditions and otherwise as in Section 8.10(a) provided, may petition
         any court of competent jurisdiction for an appointment of a successor
         trustee.





                                      -50-
<PAGE>   57
                 (d) Any resignation or removal of the Trustee and appointment
         of a successor trustee pursuant to any of the provisions of this
         Section 8.10 shall become effective upon acceptance of appointment by
         the successor trustee as provided in Section 8.11.

         SECTION 8.11     ACCEPTANCE BY SUCCESSOR TRUSTEE.  Any successor
trustee appointed as provided in Section 8.10 shall execute, acknowledge and
deliver to the Company and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect
as if originally named as trustee herein; but, nevertheless, on the written
request of the Company or of the successor trustee, the trustee ceasing to act
shall, upon payment of any amounts then due it pursuant to the provisions of
Section 8.6, execute and deliver an instrument transferring to such successor
trustee all the rights and powers of the trustee so ceasing to act.  Upon
request of any such successor trustee, the Company shall execute any and all
instruments in writing for more fully and certainly vesting in and confirming
to such successor trustee all such rights and powers.  Any trustee ceasing to
act shall, nevertheless, retain a lien upon all property and funds held or
collected by such trustee as such, except for funds held in trust for the
benefit of holders of particular Notes, to secure any amounts then due it
pursuant to the provisions of Section 8.6.

         No successor trustee shall accept appointment as provided in this
Section 8.11 unless at the time of such acceptance such successor trustee shall
be qualified under the provisions of Section 8.8 and be eligible under the
provisions of Section 8.9.

         Upon acceptance of appointment by a successor trustee as provided in
this Section 8.11, the Company (or the former trustee at the written direction
of the Company) shall mail or cause to be mailed notice of the succession of
such trustee hereunder to the holders of Notes at their addresses as they shall
appear on the Note register.  If the Company fails to mail such notice within
ten (10) days after acceptance of appointment by the successor trustee, the
successor trustee shall cause such notice to be mailed at the expense of the
Company.

         SECTION 8.12     SUCCESSION BY MERGER, ETC.  Any corporation or other
entity into which the Trustee may be merged or converted or with which it may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation or
other entity succeeding to all or substantially all of the corporate trust
business of the Trustee (including any trust created by this Indenture), shall
be the successor to the Trustee hereunder without the execution or filing of
any paper or any further act on the part of any of the parties hereto, provided
that in the case of any corporation succeeding to all or substantially all of
the corporate trust business of the Trustee such corporation shall be qualified
under the provisions of Section 8.8 and eligible under the provisions of
Section 8.9.

         In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture, any of the Notes shall have been
authenticated but not delivered, any such





                                      -51-
<PAGE>   58
successor to the Trustee may adopt the certificate of authentication of any
predecessor trustee or authenticating agent appointed by such predecessor
trustee, and deliver such Notes so authenticated; and in case at that time any
of the Notes shall not have been authenticated, any successor to the Trustee or
an authenticating agent appointed by such successor trustee may authenticate
such Notes either in the name of any predecessor trustee hereunder or in the
name of the successor trustee; and in all such cases such certificates shall
have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Trustee shall have; provided, however,
that the right to adopt the certificate of authentication of any predecessor
Trustee or to authenticate Notes in the name of any predecessor Trustee shall
apply only to its successor or successors by merger, conversion or
consolidation.

         SECTION 8.13     LIMITATION ON RIGHTS OF TRUSTEE AS CREDITOR.  If and
when the Trustee shall be or become a creditor of the Company (or any other
obligor upon the Notes), the Trustee shall be subject to the provisions of the
Trust Indenture Act regarding the collection of the claims against the Company
(or any such other obligor).


                                   ARTICLE IX

                           CONCERNING THE NOTEHOLDERS

         SECTION 9.1      ACTION BY NOTEHOLDERS.  Whenever in this Indenture it
is provided that the holders of a specified percentage in aggregate principal
amount of the Notes may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any other
action), the fact that at the time of taking any such action, the holders of
such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by
Noteholders in person or by agent or proxy appointed in writing, or (b) by the
record of the holders of Notes voting in favor thereof at any meeting of
Noteholders duly called and held in accordance with the provisions of Article
X, or (c) by a combination of such instrument or instruments and any such
record of such a meeting of Noteholders.  Whenever the Company or the Trustee
solicits the taking of any action by the holders of the Notes, the Company or
the Trustee may fix in advance of such solicitation, a date as the record date
for determining holders entitled to take such action.  The record date shall be
not more than fifteen (15) days prior to the date of commencement of
solicitation of such action.

         SECTION 9.2      PROOF OF EXECUTION BY NOTEHOLDERS.  Subject to the
provisions of Sections 8.1, 8.2 and 10.5, proof of the execution of any
instrument by a Noteholder or its agent or proxy shall be sufficient if made in
accordance with such reasonable rules and regulations as may be prescribed by
the Trustee or in such manner as shall be satisfactory to the Trustee.  The
holding of Notes shall be proved by the Note register or by a certificate of
the Note registrar.  The record of any Noteholders' meeting shall be proved in
the manner provided in Section 10.6.





                                      -52-
<PAGE>   59
         SECTION 9.3      WHO ARE DEEMED ABSOLUTE OWNERS.  The Company, the
Trustee, any paying agent, any conversion agent and any Note registrar may deem
the person in whose name such Note shall be registered upon the Note register
to be, and may treat such person as, the absolute owner of such Note (whether
or not such Note shall be overdue and notwithstanding any notation of ownership
or other writing thereon) for the purpose of receiving payment of or on account
of the principal of, premium, if any, and interest on such Note, for conversion
of such Note and for all other purposes; and neither the Company nor the
Trustee nor any paying agent nor any conversion agent nor any Note registrar
shall be affected by any notice to the contrary.  All such payments so made to
any holder for the time being, or upon its order, shall be valid, and, to the
extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for monies payable upon any such Note.

         SECTION 9.4      COMPANY-OWNED NOTES DISREGARDED.  In determining
whether the holders of the requisite aggregate principal amount of Notes have
concurred in any direction, consent, waiver or other action under this
Indenture, Notes which are owned by the Company or any other obligor on the
Notes or by any person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company or any other obligor
on the Notes shall be disregarded and deemed not to be outstanding for the
purpose of any such determination; provided that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, consent, waiver or other action only Notes which a Responsible
Officer knows are so owned shall be so disregarded.  Notes so owned which have
been pledged in good faith may be regarded as outstanding for the purposes of
this Section 9.4 if the pledgee shall establish to the satisfaction of the
Trustee the pledgee's right to vote such Notes and that the pledgee is not the
Company, any other obligor on the Notes or a person directly or indirectly
controlling or controlled by or under direct or indirect common control with
the Company or any such other obligor.  In the case of a dispute as to such
right, any decision by the Trustee taken upon the advice of counsel shall be
full protection to the Trustee.  Upon request of the Trustee, the Company shall
furnish to the Trustee promptly an Officers' Certificate listing and
identifying all Notes, if any, known by the Company to be owned or held by or
for the account of any of the above described persons; and, subject to Section
8.1, the Trustee shall be entitled to accept such Officers' Certificate as
conclusive evidence of the facts therein set forth and of the fact that all
Notes not listed therein are outstanding for the purpose of any such
determination.

         SECTION 9.5      REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND.  At any
time prior to (but not after) the evidencing to the Trustee, as provided in
Section 9.1, of the taking of any action by the holders of the percentage in
aggregate principal amount of the Notes specified in this Indenture in
connection with such action, any holder of a Note which is shown by the
evidence to be included in the Notes the holders of which have consented to
such action may, by filing written notice with the Trustee at its Corporate
Trust Office and upon proof of holding as provided in Section 9.2, revoke such
action so far as concerns such Note.  Except as aforesaid, any such action
taken by the holder of any Note shall be conclusive and binding upon such
holder and upon all future holders and owners of such Note and of any Notes
issued in exchange or substitution therefor, irrespective of whether





                                      -53-
<PAGE>   60
any notation in regard thereto is made upon such Note or any Note issued in
exchange or substitution therefor.


                                   ARTICLE X

                             NOTEHOLDERS' MEETINGS

         SECTION 10.1     PURPOSE OF MEETINGS.  A meeting of Noteholders may be
called at any time and from time to time pursuant to the provisions of this
Article X for any of the following purposes:

                 (1) to give any notice to the Company or to the Trustee or to
         give any directions to the Trustee permitted under this Indenture, or
         to consent to the waiving of any default or Event of Default hereunder
         and its consequences, or to take any other action authorized to be
         taken by Noteholders pursuant to any of the provisions of Article VII;

                 (2) to remove the Trustee and nominate a successor trustee
         pursuant to the provisions of Article VIII;

                 (3) to consent to the execution of an indenture or indentures
         supplemental hereto pursuant to the provisions of Section 11.2;

                 (4) to take any other action authorized to be taken by or on
         behalf of the holders of any specified aggregate principal amount of
         the Notes under any other provision of this Indenture or under
         applicable law; or

                 (5) to take any other action authorized by this Indenture or
         under applicable law.

         SECTION 10.2     CALL OF MEETINGS BY TRUSTEE.  The Trustee may at any
time call a meeting of Noteholders to take any action specified in Section
10.1, to be held at such time and at such place in the Borough of Manhattan,
The City of New York, as the Trustee shall determine.  Notice of every meeting
of the Noteholders, setting forth the time and the place of such meeting and in
general terms the action proposed to be taken at such meeting and the
establishment of any record date pursuant to Section 9.1, shall be mailed to
holders of Notes at their addresses as they shall appear on the Note register.
Such notice shall also be mailed to the Company.  Such notices shall be mailed
not less than twenty (20) nor more than ninety (90) days prior to the date
fixed for the meeting.

         Any meeting of Noteholders shall be valid without notice if the
holders of all Notes then outstanding are present in person or by proxy or if
notice is waived before or after the meeting by the holders of all Notes
outstanding, and if the Company and the Trustee are either present by duly
authorized representatives or have, before or after the meeting, waived notice.





                                      -54-
<PAGE>   61
         SECTION 10.3     CALL OF MEETINGS BY COMPANY OR NOTEHOLDERS.  In case
at any time the Company, pursuant to a resolution of its Board of Directors, or
the holders of at least 10% in aggregate principal amount of the Notes then
outstanding, shall have requested the Trustee to call a meeting of Noteholders,
by written request setting forth in reasonable detail the action proposed to be
taken at the meeting, and the Trustee shall not have mailed the notice of such
meeting within twenty (20) days after receipt of such request, then the Company
or such Noteholders may determine the time and the place in the Borough of
Manhattan, City of New York, for such meeting and may call such meeting to take
any action authorized in Section 10.1, by mailing notice thereof as provided in
Section 10.2.

         SECTION 10.4     QUALIFICATIONS FOR VOTING.  To be entitled to vote at
any meeting of Noteholders a person shall (a) be a holder of one or more Notes
on the record date pertaining to such meeting or (b) be a person appointed by
an instrument in writing as proxy by a holder of one or more Notes.  The only
persons who shall be entitled to be present or to speak at any meeting of
Noteholders shall be the persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.

         SECTION 10.5     REGULATIONS.  Notwithstanding any other provisions of
this Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Noteholders, in regard to proof of the holding of
Notes and of the appointment of proxies, and in regard to the appointment and
duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think fit.

         The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Noteholders as provided in Section 10.3, in which case the
Company or the Noteholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman.  A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the holders of a majority
in principal amount of the Notes represented at the meeting and entitled to
vote at the meeting.

         Subject to the provisions of Section 9.4, at any meeting each
Noteholder or proxyholder shall be entitled to one vote for each $1,000
principal amount of Notes held or represented by it; provided, however, that no
vote shall be cast or counted at any meeting in respect of any Note challenged
as not outstanding and ruled by the chairman of the meeting to be not
outstanding.  The chairman of the meeting shall have no right to vote other
than by virtue of Notes held by him or instruments in writing as aforesaid duly
designating him as the proxy to vote on behalf of other Noteholders.  Any
meeting of Noteholders duly called pursuant to the provisions of Section 10.2
or 10.3 may be adjourned from time to time by the holders of a majority of the
aggregate principal amount of Notes represented at the meeting, whether or not
constituting a quorum, and the meeting may be held as so adjourned without
further notice.





                                      -55-
<PAGE>   62
         SECTION 10.6     VOTING.  The vote upon any resolution submitted to
any meeting of Noteholders shall be by written ballot on which shall be
subscribed the signatures of the holders of Notes or of their representatives
by proxy and the principal amount of the Notes held or represented by them.
The permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written
reports in duplicate of all votes cast at the meeting.  A record in duplicate
of the proceedings of each meeting of Noteholders shall be prepared by the
secretary of the meeting and there shall be attached to said record the
original reports of the inspectors of votes on any vote by ballot taken thereat
and affidavits by one or more persons having knowledge of the facts setting
forth a copy of the notice of the meeting and showing that said notice was
mailed as provided in Section 10.2.   The record shall show the principal
amount of the Notes voting in favor of or against any resolution.
 The record shall be signed and verified by the affidavits of the permanent
chairman and secretary of the meeting and one of the duplicates shall be
delivered to the Company and the other to the Trustee to be preserved by the
Trustee, the latter to have attached thereto the ballots voted at the meeting.

         Any record so signed and verified shall be conclusive evidence of the
matters therein stated.

         SECTION 10.7     NO DELAY OF RIGHTS BY MEETING.   Nothing in this
Article X contained shall be deemed or construed to authorize or permit, by
reason of any call of a meeting of Noteholders or any rights expressly or
impliedly conferred hereunder to make such call, any hindrance or delay in the
exercise of any right or rights conferred upon or reserved to the Trustee or to
the Noteholders under any of the provisions of this Indenture or of the Notes.


                                   ARTICLE XI

                            SUPPLEMENTAL INDENTURES

         SECTION 11.1     SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
NOTEHOLDERS.   The Company, when authorized by the resolutions of the Board of
Directors, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto for one or more of the following
purposes:

                 (a)      to make provision with respect to the conversion
         rights of the holders of Notes pursuant to the requirements of Section
         15.6;

                 (b)      subject to Article IV, to convey, transfer, assign,
         mortgage or pledge to the Trustee as security for the Notes, any
         property or assets;

                 (c)      to evidence the succession of another corporation to
         the Company, or successive successions, and the assumption by the
         successor corporation of the covenants, agreements and obligations of
         the Company pursuant to Article XII;





                                      -56-
<PAGE>   63
                 (d)      to add to the covenants of the Company such further
         covenants, restrictions or conditions as the Board of Directors and
         the Trustee shall consider to be for the benefit of the holders of
         Notes, and to make the occurrence, or the occurrence and continuance,
         of a default in any such additional covenants, restrictions or
         conditions a default or an Event of Default permitting the enforcement
         of all or any of the several remedies provided in this Indenture as
         herein set forth; provided, however, that in respect of any such
         additional covenant, restriction or condition such supplemental
         indenture may provide for a particular period of grace after default
         (which period may be shorter or longer than that allowed in the case
         of other defaults) or may provide for an immediate enforcement upon
         such default or may limit the remedies available to the Trustee upon
         such default;

                 (e)      to accommodate the issuance, if any, of Notes in
         book-entry or definitive form and matters related thereto that do not
         adversely affect the interest of the holders of the Notes;

                 (f)      to modify the restrictions on, and procedures for,
         resale and other transfers of the Notes to the extent required by any
         change in applicable law or regulation (or the interpretation thereof)
         or in practice relating to the resale or transfer of restricted
         securities generally or in connection with the registration under the
         Securities Act of the Notes;

                 (g)      to cure any ambiguity or to correct or supplement any
         provision contained herein or in any supplemental indenture which may
         be defective or inconsistent with any other provision contained herein
         or in any supplemental indenture, or to make such other provisions in
         regard to matters or questions arising under this Indenture which
         shall not materially adversely affect the interests of the holders of
         the Notes;

                 (h)      to evidence and provide for the acceptance of
         appointment hereunder by a successor Trustee with respect to the
         Notes; or

                 (i)      to modify, eliminate or add to the provisions of this
         Indenture to such extent as shall be necessary to effect the
         qualifications of this Indenture under the Trust Indenture Act, or
         under any similar federal statute hereafter enacted.

         The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, to make any further appropriate
agreements and stipulations which may be therein contained and to accept the
conveyance, transfer and assignment of any property thereunder, but the Trustee
shall not be obligated to, but may in its discretion, enter into any
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.

         Any supplemental indenture authorized by the provisions of this
Section 11.1 may be executed by the Company and the Trustee without the consent
of the holders of any of the Notes at the time outstanding, notwithstanding any
of the provisions of Section 11.2.





                                      -57-
<PAGE>   64
         SECTION 11.2     SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS.
With the consent (evidenced as provided in Article IX) of the holders of not
less than a majority in aggregate principal amount of the Notes at the time
outstanding (determined in accordance with Section 9.4), the Company, when
authorized by the resolutions of the Board of Directors, and the Trustee may
from time to time and at any time enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or any
supplemental indenture or of modifying in any manner the rights of the holders
of the Notes; provided, however, that no such supplemental indenture shall (i)
extend the fixed maturity of any Note, or reduce the rate or extend the time of
payment of interest thereon, or reduce the principal amount thereof or premium,
if any, thereon, or reduce any amount payable on redemption or repurchase
thereof, impair, or change in any respect adverse to the holder of Notes, the
obligation of the Company to repurchase any Note at the option of the holder
upon the happening of a Designated Event, or impair or adversely affect the
right of any Noteholder to institute suit for the payment thereof, or make the
principal thereof or interest or premium, if any, thereon payable in any coin
or currency other than that provided in the Notes, or change or impair the
right to convert the Notes into Common Stock subject to the terms set forth
herein, including Section 15.6, or modify the provisions of this Indenture with
respect to the subordination of the Notes in a manner adverse to the
Noteholders, without the consent of the holder of each Note so affected, or
(ii) reduce the aforesaid percentage of Notes, the holders of which are
required to consent to any such supplemental indenture, without the consent of
the holders of all Notes then outstanding.

         Upon the request of the Company, accompanied by a copy of the
resolutions of the Board of Directors certified by its Secretary or Assistant
Secretary authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of Noteholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in is discretion, but shall not be obligated to, enter
into such supplemental indenture.

         It shall not be necessary for the consent of the Noteholders under
this Section 11.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.

         SECTION 11.3     EFFECT OF SUPPLEMENTAL INDENTURES.  Any supplemental
indenture executed pursuant to the provisions of this Article XI shall comply
with the Trust Indenture Act, as then in effect; provided that this Section
11.3 shall not require such supplemental indenture or the Trustee to be
qualified under the Trust Indenture Act prior to the time such qualification is
in fact required under the terms of the Trust Indenture Act or the Indenture
has been qualified under the Trust Indenture Act, nor shall it constitute any
admission or acknowledgment by any party to such supplemental indenture that
any such qualification is required prior to the time such qualification is in
fact required under the terms of the Trust Indenture Act or the Indenture has
been qualified under the Trust Indenture Act.  Upon the execution of any
supplemental indenture pursuant to the provisions of this Article XI, this





                                      -58-
<PAGE>   65
Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitation of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Company and the holders
of Notes shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.

         SECTION 11.4     NOTATION ON NOTES.  Notes authenticated and delivered
after the execution of any supplemental indenture pursuant to the provisions of
this Article XI may bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture.  If the Company or the
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Trustee and the Board of Directors, to any modification of this
Indenture contained in any such supplemental indenture may, at the Company's
expense, be prepared and executed by the Company, authenticated by the Trustee
(or an authenticating agent duly appointed by the Trustee pursuant to Section
17.11) and delivered in exchange for the Notes then outstanding, upon surrender
of such Notes then outstanding.

         SECTION 11.5     EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO
BE FURNISHED TRUSTEE.  The Trustee, subject to the provisions of Sections 8.1
and 8.2, may receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto
complies with the requirements of this Article XI.


                                  ARTICLE XII

               CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE

         SECTION 12.1     COMPANY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
Subject to the provisions of Section 12.2, nothing contained in this Indenture
or in any of the Notes shall prevent any consolidation or merger of the Company
with or into any other corporation or corporations (whether or not affiliated
with the Company), or successive consolidations or mergers in which the Company
or its successor or successors shall be a party or parties, or shall prevent
any sale, conveyance or lease (or successive sales, conveyances or leases) of
all or substantially all of the property of the Company, to any other
corporation (whether or not affiliated with the Company), authorized to acquire
and operate the same and which shall be organized under the laws of the United
States of America, any state thereof or the District of Columbia; provided,
however, and the Company hereby covenants and agrees, that (i) upon any such
consolidation with, merger into, or sale, conveyance or lease to another
corporation, the due and punctual payment of the principal of and premium, if
any, and interest on all of the Notes, according to their tenor, and the due
and punctual performance and observance of all of the covenants and conditions
of this Indenture to be performed by the Company, shall be expressly assumed,
by supplemental indenture satisfactory in form to the Trustee, executed and
delivered to the Trustee by the corporation





                                      -59-
<PAGE>   66
(if other than the Company) formed by such consolidation, or into which the
Company shall have been merged, or by the corporation which shall have acquired
or leased such property, (ii) such supplemental indenture shall provide for the
applicable conversion rights set forth in Section 15.6 and the repurchase
rights set forth in Article XVI; and (iii) the said consolidation, merger,
sale, conveyance or lease shall not result in the occurrence of an Event of
Default or, after notice or lapse of time result in an Event of Default.

         SECTION 12.2     SUCCESSOR CORPORATION TO BE SUBSTITUTED.  In case of
any such consolidation with, merger into, or sale, conveyance or lease to
another corporation in accordance with Section 12.1 and upon the assumption by
the successor corporation, by supplemental indenture, executed and delivered to
the Trustee and satisfactory in form to the Trustee, of the due and punctual
payment of the principal of and premium, if any, and interest on all of the
Notes and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Company, such successor
corporation shall succeed to and be substituted for the Company, with the same
effect as if it had been named herein as the party of the first part.  Such
successor corporation thereupon may cause to be signed, and may issue either in
its own name or in the name of S3 Incorporated any or all of the Notes issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Trustee; and, upon the order of such successor corporation
instead of the Company and subject to all the terms, conditions and limitations
in this Indenture prescribed, the Trustee shall authenticate and shall deliver,
or cause to be authenticated and delivered, any Notes which previously shall
have been signed and delivered by the officers of the Company to the Trustee
for authentication, and any Notes which such successor corporation thereafter
shall cause to be signed and delivered to the Trustee for that purpose.  All
the Notes so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Notes theretofore or thereafter issued in
accordance with the terms of this Indenture as though all of such Notes had
been issued at the date of the execution hereof.  In the event of any such
consolidation, merger, sale, conveyance or lease, the person named as the
"Company" in the first paragraph of this Indenture or any successor which shall
thereafter have become such in the manner prescribed in this Article XII may be
dissolved, wound up and liquidated at any time thereafter and such person shall
be released from its liabilities as obligor and maker of the Notes and from its
obligations under this Indenture.

         In case of any such consolidation, merger, sale, conveyance or lease,
such changes in phraseology and form (but not in substance) may be made in the
Notes thereafter to be issued as may be appropriate.

         SECTION 12.3     OPINION OF COUNSEL TO BE GIVEN TRUSTEE.  The Trustee
subject to Sections 8.1 and 8.2, shall receive an Officers' Certificate and an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale, conveyance or lease and any such assumption complies with the provisions
of this Article XII.





                                      -60-
<PAGE>   67
                                  ARTICLE XIII

                    SATISFACTION AND DISCHARGE OF INDENTURE

         SECTION 13.1     DISCHARGE OF INDENTURE.  When (a) the Company shall
deliver to the Trustee for cancellation all Notes theretofore authenticated
(other than any Notes which have been destroyed, lost or stolen and in lieu of
or in substitution for which other Notes shall have been authenticated and
delivered) and not theretofore canceled, or (b) all the Notes not theretofore
canceled or delivered to the Trustee for cancellation shall have become due and
payable, or are by their terms to become due and payable within one year or are
to be called for redemption within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption, and the Company shall
deposit with the Trustee, in trust, funds sufficient to pay at maturity or upon
redemption of all of the Notes (other than any Notes which shall have been
mutilated, destroyed, lost or stolen and in lieu of or in substitution for
which other Notes shall have been authenticated and delivered) not theretofore
canceled or delivered to the Trustee for cancellation, including principal and
premium, if any, and interest due or to become due to such date of maturity or
redemption date, as the case may be, and if in either case the Company shall
also pay or cause to be paid all other sums payable hereunder by the Company,
then this Indenture shall cease to be of further effect (except as to (i)
remaining rights of registration of transfer, substitution and exchange and
conversion of Notes, (ii) rights hereunder of Noteholders to receive payments
of principal of and premium, if any, and interest on, the Notes and the other
rights, duties and obligations of Noteholders, as beneficiaries hereof with
respect to the amounts, if any, so deposited with the Trustee and (iii) the
rights, obligations and immunities of the Trustee hereunder), and the Trustee,
on demand of the Company accompanied by an Officers' Certificate and an Opinion
of Counsel as required by Section 17.5 and at the cost and expense of the
Company, shall execute proper instruments acknowledging satisfaction of and
discharging this Indenture; the Company, however, hereby agreeing to reimburse
the Trustee for any costs or expenses thereafter reasonably and properly
incurred by the Trustee and to compensate the Trustee for any services
thereafter reasonably and properly rendered by the Trustee in connection with
this Indenture or the Notes.

         SECTION 13.2     DEPOSITED MONIES TO BE HELD IN TRUST BY TRUSTEE.
Subject to Section 13.4, all monies deposited with the Trustee pursuant to
Section 13.1 shall be held in trust and applied by it to the payment,
notwithstanding the provisions of Article IV, either directly or through any
paying agent (including the Company if acting as its own paying agent), to the
holders of the particular Notes for the payment or redemption of which such
monies have been deposited with the Trustee, of all sums due and to become due
thereon for principal and interest and premium, if any.

         SECTION 13.3     PAYING AGENT TO REPAY MONIES HELD.  Upon the
satisfaction and discharge of this Indenture, all monies then held by any
paying agent of the Notes (other than the Trustee) shall, upon demand of the
Company or the Trustee, be repaid to the Company or paid to the Trustee, and
thereupon such paying agent shall be released from all further liability with
respect to such monies.





                                      -61-
<PAGE>   68
         SECTION 13.4     RETURN OF UNCLAIMED MONIES.  Subject to the
requirements of applicable law, any monies deposited with or paid to the
Trustee for payment of the principal of, premium, if any, or interest on Notes
and not applied but remaining unclaimed by the holders of Notes for two years
after the date upon which the principal of, premium, if any, or interest on
such Notes, as the case may be, shall have become due and payable, shall be
repaid to the Company by the Trustee on demand and all liability of the Trustee
shall thereupon cease with respect to such monies; and the holder of any of the
Notes shall thereafter look only to the Company for any payment which such
holder may be entitled to collect unless an applicable abandoned property law
designates another person.

         SECTION 13.5     REINSTATEMENT.  If (i) the Trustee or the paying
agent is unable to apply any money in accordance with Section 13.2 by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application and (ii) the holders of
at least a majority in principal amount of the then outstanding Notes so
request by written notice to the Trustee, the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit
had occurred pursuant to Section 13.1 until such time as the Trustee or the
paying agent is permitted to apply all such money in accordance with Section
13.2; provided, however, that if the Company makes any payment of interest on
or principal of any Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the holders of such Notes to
receive such payment from the money held by the Trustee or paying agent.


                                  ARTICLE XIV

                    IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
                             OFFICERS AND DIRECTORS

         SECTION 14.1     INDENTURE AND NOTES SOLELY CORPORATE OBLIGATIONS.  No
recourse for the payment of the principal of or premium, if any, or interest on
any Note, or for any claim based thereon or otherwise in respect thereof, and
no recourse under or upon any obligation, covenant or agreement of the Company
in this Indenture or in any supplemental indenture or in any Note, or because
of the creation of any indebtedness represented thereby, shall be had against
any incorporator, stockholder, employee, agent, officer or director or
subsidiary, as such, past, present or future, of the Company or of any
successor corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise; it being
expressly understood that all such liability is hereby expressly waived and
released as a condition of, and as a consideration for, the execution of this
Indenture and the issue of the Notes.





                                      -62-
<PAGE>   69
                                   ARTICLE XV

                              CONVERSION OF NOTES

         SECTION 15.1     RIGHT TO CONVERT.  Subject to and upon compliance
with the provisions of this Indenture, the holder of any Note shall have the
right, at its option, at any time on or after sixty (60) days following the
latest date of original issuance of the Notes and prior to the close of
business on October 1, 2003 (except that, with respect to any Note or portion
of a Note which shall be called for redemption, such right shall terminate,
except as provided in Section 3.4 and the fourth paragraph of Section 15.2, at
the close of business on the fifth Business Day prior to the date fixed for
redemption of such Note or portion of a Note unless the Company shall default
in payment due upon redemption thereof) to convert the principal amount of any
such Note, or any portion of such principal amount which is $1,000 or an
integral multiple thereof, into that number of fully paid and non-assessable
shares of Common Stock (as such shares shall then be constituted) obtained by
dividing the principal amount of the Note or portion thereof surrendered for
conversion by the Conversion Price in effect at such time, by surrender of the
Note so to be converted in whole or in part in the manner provided in Section
15.2.  A holder of Notes is not entitled to any rights of a holder of Common
Stock until such holder has converted its Notes to Common Stock, and only to
the extent such Notes are deemed to have been converted to Common Stock under
this Article XV.

         SECTION 15.2     EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON
STOCK ON CONVERSION; NO ADJUSTMENT FOR INTEREST OR DIVIDENDS.  In order to
exercise the conversion privilege with respect to any Note in certificated
form, the holder of any such Note to be converted in whole or in part shall
surrender such Note, duly endorsed, at an office or agency maintained by the
Company pursuant to Section 5.2, accompanied by the funds, if any, required by
the penultimate paragraph of this Section 15.2, and shall give written notice
of conversion in the form provided on the Notes (or such other notice which is
acceptable to the Company) to the office or agency that the holder elects to
convert such Note or such portion thereof specified in said notice.  Such
notice shall also state the name or names (with address) in which the
certificate or certificates for shares of Common Stock which shall be issuable
on such conversion shall be issued, and shall be accompanied by transfer taxes,
if required pursuant to Section 15.7.  Each such Note surrendered for
conversion shall, unless the shares issuable on conversion are to be issued in
the same name as the registration of such Note, be duly endorsed by, or be
accompanied by instruments of transfer in form satisfactory to the Company duly
executed by, the holder or its duly authorized attorney.

         In order to exercise the conversion privilege with respect to any
interest in a Note in global form, the beneficial holder must complete the
appropriate instruction form for conversion pursuant to the Depositary's
book-entry conversion program, deliver by book-entry delivery an interest in
such Note in global form, furnish appropriate endorsements and transfer
documents if required by the Company or the Trustee or conversion agent, and
pay the funds, if any, required by the penultimate paragraph of this Section
15.2 and any transfer taxes, if required pursuant to Section 15.7.





                                      -63-
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         As promptly as practicable after satisfaction of the requirements for
conversion set forth above, subject to compliance with any restrictions on
transfer if shares issuable on conversion are to be issued in a name other than
that of the Noteholder (as if such transfer were a transfer of the Note or
Notes (or portion thereof) so converted), the Company shall issue and shall
deliver to such holder at the office or agency maintained by the Company for
such purpose pursuant to Section 5.2, a certificate or certificates for the
number of full shares of Common Stock issuable upon the conversion of such Note
or portion thereof in accordance with the provisions of this Article and a
check or cash in respect of any fractional interest in respect of a share of
Common Stock arising upon such conversion, as provided in Section 15.3.  In
case any Note of a denomination greater than $1,000 shall be surrendered for
partial conversion, and subject to Section 2.3, the Company shall execute and
the Trustee shall authenticate and deliver to the holder of the Note so
surrendered, without charge to such holder, a new Note or Notes in authorized
denominations in an aggregate principal amount equal to the unconverted portion
of the surrendered Note.

         Each conversion shall be deemed to have been effected as to any such
Note (or portion thereof) on the date on which the requirements set forth above
in this Section 15.2 have been satisfied as to such Note (or portion thereof),
and the person in whose name any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become on said date the holder of record of the shares represented thereby;
provided, however, that any such surrender on any date when the stock transfer
books of the Company shall be closed shall constitute the person in whose name
the certificates are to be issued as the record holder thereof for all purposes
on the next succeeding day on which such stock transfer books are open, but
such conversion shall be at the Conversion Price in effect on the date upon
which such Note shall be surrendered.

         Any Note or portion thereof surrendered for conversion during the
period from the close of business on the record date for any interest payment
date through the close of business on the Business Day next preceding such
interest payment date shall (unless such Note or portion thereof being
converted shall have been called for redemption during the period from the
close of business on such record date to the close of business on the Business
Day next preceding such interest payment date) be accompanied by payment, in
New York Clearing House funds or other funds acceptable to the Company, of an
amount equal to the interest otherwise payable on such interest payment date on
the principal amount being converted; provided, however, that no such payment
need be made if there shall exist at the time of conversion a default in the
payment of interest on the Notes.  An amount equal to such payment shall be
paid by the Company on such interest payment date to the holder of such Note at
the close of business on such record date; provided, however, that if the
Company shall default in the payment of interest on such interest payment date,
such amount shall be paid to the person who made such required payment.  Except
as provided above in this Section 15.2, no adjustment shall be made for
interest accrued on any Note converted or for dividends on any shares issued
upon the conversion of such Note as provided in this Article.





                                      -64-
<PAGE>   71
         Upon the conversion of an interest in a Note in global form, the
Trustee, or the Custodian at the direction of the Trustee, shall make a
notation on such Note in global form as to the reduction in the principal
amount represented thereby.

         SECTION 15.3     CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES.  No
fractional shares of Common Stock or scrip representing fractional shares shall
be issued upon conversion of Notes.  If more than one Note shall be surrendered
for conversion at one time by the same holder, the number of full shares which
shall be issuable upon conversion shall be computed on the basis of the
aggregate principal amount of the Notes (or specified portions thereof to the
extent permitted hereby) so surrendered for conversion.  If any fractional
share of stock otherwise would be issuable upon the conversion of any Note or
Notes, the Company shall make an adjustment therefor in cash at the current
market value thereof to the holder of Notes.  For these purposes, the current
market value of a share of Common Stock shall be the Closing Price on the first
Trading Day immediately preceding the day on which the Notes (or specified
portions thereof) are deemed to have been converted and such Closing Price
shall be determined as provided in Section 15.5(g).

         SECTION 15.4     CONVERSION PRICE.  The conversion price shall be as
specified in the form of Note (herein called the "Conversion Price") attached
as Exhibit A hereto, subject to adjustment as provided in this Article XV.

         SECTION 15.5     ADJUSTMENT OF CONVERSION PRICE.  The Conversion Price
shall be adjusted from time to time by the Company as follows:

                 (a)      In case the Company shall hereafter pay a dividend or
         make a distribution to all holders of the outstanding Common Stock in
         shares of Common Stock, the Conversion Price in effect at the opening
         of business on the date following the date fixed for the determination
         of stockholders entitled to receive such dividend or other
         distribution shall be reduced by multiplying such Conversion Price by
         a fraction of which the numerator shall be the number of shares of
         Common Stock outstanding at the close of business on the Record Date
         (as defined in Section 15.5(g)) fixed for such determination and the
         denominator shall be the sum of such number of shares and the total
         number of shares constituting such dividend or other distribution,
         such reduction to become effective immediately after the opening of
         business on the day following the Record Date.  If any dividend or
         distribution of the type described in this Section 15.5(a) is declared
         but not so paid or made, the Conversion Price shall again be adjusted
         to the Conversion Price which would then be in effect if such dividend
         or distribution had not been declared.

                 (b)      In case the Company shall issue rights or warrants to
         all holders of its outstanding shares of Common Stock entitling them
         (for a period expiring within forty-five (45) days after the date
         fixed for the determination of stockholders entitled to receive such
         rights or warrants) to subscribe for or purchase shares of Common
         Stock at a price per share less than the Current Market Price (as
         defined in Section 15.5(g)) on the Record Date fixed for the
         determination of stockholders entitled to receive such rights or
         warrants, the Conversion Price shall be adjusted so that the





                                      -65-
<PAGE>   72
         same shall equal the price determined by multiplying the Conversion
         Price in effect at the opening of business on the date after such
         Record Date by a fraction of which the numerator shall be the number
         of shares of Common Stock outstanding at the close of business on the
         Record Date plus the number of shares which the aggregate offering
         price of the total number of shares so offered would purchase at such
         Current Market Price, and of which the denominator shall be the number
         of shares of Common Stock outstanding on the close of business on the
         Record Date plus the total number of additional shares of Common Stock
         so offered for subscription or purchase.  Such adjustment shall become
         effective immediately after the opening of business on the day
         following the Record Date fixed for determination of stockholders
         entitled to receive such rights or warrants.  To the extent that
         shares of Common Stock are not delivered pursuant to such rights or
         warrants, upon the expiration or termination of such rights or
         warrants the Conversion Price shall be readjusted to the Conversion
         Price which would then be in effect had the adjustments made upon the
         issuance of such rights or warrants been made on the basis of delivery
         of only the number of shares of Common Stock actually delivered.  In
         the event that such rights or warrants are not so issued, the
         Conversion Price shall again be adjusted to be the Conversion Price
         which would then be in effect if such date fixed for the determination
         of stockholders entitled to receive such rights or warrants had not
         been fixed.  In determining whether any rights or warrants entitle the
         holders to subscribe for or purchase shares of Common Stock at less
         than such Current Market Price, and in determining the aggregate
         offering price of such shares of Common Stock, there shall be taken
         into account any consideration received for such rights or warrants,
         the value of such consideration if other than cash, to be determined
         by the Board of Directors.

                 (c)      In case the outstanding shares of Common Stock shall
         be subdivided into a greater number of shares of Common Stock, the
         Conversion Price in effect at the opening of business on the day
         following the day upon which such subdivision becomes effective shall
         be proportionately reduced, and conversely, in case outstanding shares
         of Common Stock shall be combined into a smaller number of shares of
         Common Stock, the Conversion Price in effect at the opening of
         business on the day following the day upon which such combination
         becomes effective shall be proportionately increased, such reduction
         or increase, as the case may be, to become effective immediately after
         the opening of business on the day following the day upon which such
         subdivision or combination becomes effective.

                 (d)      In case the Company shall, by dividend or otherwise,
         distribute to all holders of its Common Stock shares of any class of
         capital stock of the Company (other than any dividends or
         distributions to which Section 15.5(a) applies) or evidences of its
         indebtedness, cash or other assets (including securities, but
         excluding (1) any rights or warrants referred to in Section 15.5(b),
         (2) dividends and distributions paid exclusively in cash and (3) any
         capital stock, evidences of indebtedness, cash or assets distributed
         upon a merger or consolidation to which Section 15.6 applies) (the
         foregoing hereinafter in this Section 15.5(d) called the
         "Securities")) (unless the Company elects to reserve such Securities
         for distribution





                                      -66-
<PAGE>   73
         to the Noteholders upon conversion of the Notes so that any such
         holder converting Notes will receive upon such conversion, in addition
         to the shares of Common Stock to which such holder is entitled, the
         amount and kind of such Securities which such holder would have
         received if such holder had converted its Notes into Common Stock
         immediately prior to the Record Date (as defined in Section 15.5(g)
         for such distribution of the Securities)), then, in each such case,
         the Conversion Price shall be reduced so that the same shall be equal
         to the price determined by multiplying the Conversion Price in effect
         immediately prior to the close of business on the Record Date (as
         defined in Section 15.5(g)) with respect to such distribution by a
         fraction of which the numerator shall be the Current Market Price
         (determined as provided in Section 15.5(g)) on such date less the fair
         market value (as determined by the Board of Directors, whose
         determination shall be conclusive and described in a Board Resolution)
         on such date of the portion of the Securities so distributed
         applicable to one share of Common Stock and the denominator shall be
         such Current Market Price, such reduction to become effective
         immediately prior to the opening of business on the day following the
         Record Date; provided, however, that in the event the then fair market
         value (as so determined) of the portion of the Securities so
         distributed applicable to one share of Common Stock is equal to or
         greater than the Current Market Price on the Record Date, in lieu of
         the foregoing adjustment, adequate provision shall be made so that
         each Noteholder shall have the right to receive upon conversion of a
         Note (or any portion thereof) the amount of Securities such holder
         would have received had such holder converted such Note (or portion
         thereof) immediately prior to such Record Date.  In the event that
         such dividend or distribution is not so paid or made, the Conversion
         Price shall again be adjusted to be the Conversion Price which would
         then be in effect if such dividend or distribution had not been
         declared.  If the Board of Directors determines the fair market value
         of any distribution for purposes of this Section 15.5(d) by reference
         to the actual or when issued trading market for any securities
         comprising all or part of such distribution, it must in doing so
         consider the prices in such market over the same period (the
         "Reference Period") used in computing the Current Market Price
         pursuant to Section 15.5(g) to the extent possible, unless the Board
         of Directors in a board resolution determines in good faith that
         determining the fair market value during the Reference Period would
         not be in the best interest of the Noteholder.

                 Rights or warrants distributed by the Company to all holders
         of Common Stock entitling the holders thereof to subscribe for or
         purchase shares of the Company's capital stock (either initially or
         under certain circumstances), which rights or warrants, until the
         occurrence of a specified event or events ("Trigger Event"):  (i) are
         deemed to be transferred with such shares of Common Stock; (ii) are
         not exercisable; and (iii) are also issued in respect of future
         issuances of Common Stock, shall be deemed not to have been
         distributed for purposes of this Section 15.5(d) (and no adjustment to
         the Conversion Price under this Section 15.5(d) will be required)
         until the occurrence of the earliest Trigger Event.  If such right or
         warrant is subject to subsequent events, upon the occurrence of which
         such right or warrant shall become exercisable to purchase different
         securities, evidences of indebtedness or other assets or entitle the
         holder to purchase a different number or amount of the





                                      -67-
<PAGE>   74
         foregoing or to purchase any of the foregoing at a different purchase
         price, then the occurrence of each such event shall be deemed to be
         the date of issuance and record date with respect to a new right or
         warrant (and a termination or expiration of the existing right or
         warrant without exercise by the holder thereof).  In addition, in the
         event of any distribution (or deemed distribution) of rights or
         warrants, or any Trigger Event or other event (of the type described
         in the preceding sentence) with respect thereto, that resulted in an
         adjustment to the Conversion Price under this Section 15.5(d), (1) in
         the case of any such rights or warrants which shall all have been
         redeemed or repurchased without exercise by any holders thereof, the
         Conversion Price shall be readjusted upon such final redemption or
         repurchase to give effect to such distribution or Trigger Event, as
         the case may be, as though it were a cash distribution, equal to the
         per share redemption or repurchase price received by a holder of
         Common Stock with respect to such rights or warrant, (assuming such
         holder had retained such rights or warrants), made to all holders of
         Common Stock as of the date of such redemption or repurchase, and (2)
         in the case of such rights or warrants all of which shall have expired
         or been terminated without exercise, the Conversion Price shall be
         readjusted as if such rights and warrants had never been issued.

                 For purposes of this Section 15.5(d) and Sections 15.5(a) and
         (b), any dividend or distribution to which this Section 15.5(d) is
         applicable that also includes shares of Common Stock, or rights or
         warrants to subscribe for or purchase shares of Common Stock to which
         Section 15.5(b) applies (or both), shall be deemed instead to be (1) a
         dividend or distribution of the evidences of indebtedness, assets,
         shares of capital stock, rights or warrants other than such shares of
         Common Stock or rights or warrants to which Section 15.5(b) applies
         (and any Conversion Price reduction required by this Section 15.5(d)
         with respect to such dividend or distribution shall then be made)
         immediately followed by (2) a dividend or distribution of such shares
         of Common Stock or such rights or warrants (and any further Conversion
         Price reduction required by Sections 15.5(a) and (b) with respect to
         such dividend or distribution shall then be made, except (A) the
         Record Date of such dividend or distribution shall be substituted as
         "the date fixed for the determination of stockholders entitled to
         receive such dividend or other distribution", "Record Date fixed for
         such determinations" and "Record Date" within the meaning of Section
         15.5(a) and as "the date fixed for the determination of stockholders
         entitled to receive such rights or warrants", "the Record Date fixed
         for the determination of the stockholders entitled to receive such
         rights or warrants" and "such Record Date" within the meaning of
         Section 15.5(b) and (B) any shares of Common Stock included in such
         dividend or distribution shall not be deemed "outstanding at the close
         of business on the date fixed for such determination" within the
         meaning of Section 15.5(a).

                 (e)      In case the Company shall, by dividend or otherwise,
         distribute to all holders of its Common Stock cash (excluding any cash
         that is distributed upon a merger or consolidation to which Section
         15.6 applies or as part of a distribution referred to in Section
         15.5(d)), in an aggregate amount that, combined together with





                                      -68-
<PAGE>   75
         (1) the aggregate amount of any other such distributions to all
         holders of Common Stock made exclusively in cash within the twelve
         (12) months preceding the date of payment of such distribution, and in
         respect of which no adjustment pursuant to this Section 15.5(e) has
         been made, and (2) the aggregate of any cash plus the fair market
         value (as determined by the Board of Directors, whose determination
         shall be conclusive and described in a Board Resolution) of
         consideration payable in respect of any tender offer by the Company or
         any of its subsidiaries for all or any portion of the Common Stock
         concluded within the twelve (12) months preceding the date of payment
         of such distribution, and in respect of which no adjustment pursuant
         to Section 15.5(f) has been made, exceeds 10.0% of the product of the
         Current Market Price (determined as provided in Section 15.5(g)) on
         the Record Date with respect to such distribution times the number of
         shares of Common Stock outstanding on such date, then and in each such
         case, immediately after the close of business on such date.  the
         Conversion Price shall be reduced so that the same shall equal the
         price determined by multiplying the Conversion Price in effect
         immediately prior to the close of business on such Record Date by a
         fraction (i) the numerator of which shall be equal to the Current
         Market Price on the Record Date less an amount equal to the quotient
         of (x) the excess of such combined amount over such 10.0% and (y) the
         number of shares of Common Stock outstanding on the Record Date and
         (ii) the denominator of which shall be equal to the Current Market
         Price on such date, provided, however, that in the event the portion
         of the cash so distributed applicable to one share of Common Stock is
         equal to or greater than the Current Market Price of the Common Stock
         on the Record Date, in lieu of the foregoing adjustment, adequate
         provision shall be made so that each Noteholder shall have the right
         to receive upon conversion of a Note (or any portion thereof) the
         amount of cash such holder would have received had such holder
         converted such Note (or portion thereof) immediately prior to such
         Record Date.  In the event that such dividend or distribution is not
         so paid or made, the Conversion Price shall again be adjusted to be
         the Conversion Price which would then be in effect if such dividend or
         distribution had not been declared.  Any cash distribution to all
         holders of Common Stock as to which the Company makes the election
         permitted by Section 15.5(m) and as to which the Company has complied
         with the requirements of such Section shall be treated as not having
         been made for all purposes of this Section 15.5(e).

                 (f)      In case a tender offer made by the Company or any of
         its subsidiaries for all or any portion of the Common Stock shall
         expire and such tender offer (as amended upon the expiration thereof)
         shall require the payment to stockholders (based on the acceptance (up
         to any maximum specified in the terms of the tender offer) of
         Purchased Shares (as defined below)) of an aggregate consideration
         having a fair market value (as determined by the Board of Directors,
         whose determination shall be conclusive and described in a Board
         Resolution) that combined together with (1) the aggregate of the cash
         plus the fair market value (as determined by the Board of Directors,
         whose determination shall be conclusive and described in a Board
         Resolution), as of the expiration of such tender offer, of
         consideration payable in respect of any other tender offers, by the
         Company or any of its subsidiaries for all or any portion of the
         Common Stock expiring within the twelve (12) months





                                      -69-
<PAGE>   76
         preceding the expiration of such tender offer and in respect of which
         no adjustment pursuant to this Section 15.5(f) has been made and (2)
         the aggregate amount of any distributions to all holders of the
         Company's Common Stock made exclusively in cash within twelve (12)
         months preceding the expiration of such tender offer and in respect of
         which no adjustment pursuant to Section 15.5(e) has been made, exceeds
         10.0% of the product of the Current Market Price (determined as
         provided in Section 15.5(g)) as of the last time (the "Expiration
         Time") tenders could have been made pursuant to such tender offer (as
         it may be amended) times the number of shares of Common Stock
         outstanding (including any tendered shares) on the Expiration Time,
         then, and in each such case, immediately prior to the opening of
         business on the day after the date of the Expiration Time, the
         Conversion Price shall be adjusted so that the same shall equal the
         price determined by multiplying the Conversion Price in effect
         immediately prior to close of business on the date of the Expiration
         Time by a fraction of which the numerator shall be the number of
         shares of Common Stock outstanding (including any tendered shares) on
         the Expiration Time multiplied by the Current Market Price of the
         Common Stock on the Trading Day next succeeding the Expiration Time
         and the denominator shall be the sum of (x) the fair market value
         (determined as aforesaid) of the aggregate consideration payable to
         stockholders based on the acceptance (up to any maximum specified in
         the terms of the tender offer) of all shares validly tendered and not
         withdrawn as of the Expiration Time (the shares deemed so accepted, up
         to any such maximum, being referred to as the "Purchased Shares") and
         (y) the product of the number of shares of Common Stock outstanding
         (less any Purchased Shares) on the Expiration Time and the Current
         Market Price of the Common Stock on the Trading Day next succeeding
         the Expiration Time, such reduction (if any) to become effective
         immediately prior to the opening of business on the day following the
         Expiration Time.  In the event that the Company is obligated to
         purchase shares pursuant to any such tender offer, but the Company is
         permanently prevented by applicable law from effecting any such
         purchases or all such purchases are rescinded, the Conversion Price
         shall again be adjusted to be the Conversion Price which would then be
         in effect if such tender offer had not been made.  If the application
         of this Section 15.5(f) to any tender offer would result in an
         increase in the Conversion Price, no adjustment shall be made for such
         tender offer under this Section 15.5(f).  Any cash distribution to all
         holders of Common Stock as to which the Company has made the election
         permitted by Section 15.5(m) and as to which the Company has complied
         with the requirements of such Section shall be treated as not having
         been made for all purposes of this Section 15.5(f).

                 (g)      For purposes of this Section 15.5, the following
         terms shall have the meaning indicated:

                          (1)     "Closing Price" with respect to any
                 securities on any day shall mean the closing sale price
                 regular way on such day or, in case no such sale takes place
                 on such day, the average of the reported closing bid and asked
                 prices, regular way, in each case on the Nasdaq National
                 Market or New York Stock Exchange, as applicable, or, if such
                 security is not listed or





                                      -70-
<PAGE>   77
                 admitted to trading on such National Market or Exchange, on the
                 principal national security exchange or quotation system on
                 which such security is quoted or listed or admitted to trading,
                 or, if not quoted or listed or admitted to trading on any
                 national securities exchange or quotation system, the average
                 of the closing bid and asked prices of such security on the
                 over-the-counter market on the day in question as reported by
                 the National Quotation Bureau Incorporated, or a similar
                 generally accepted reporting service, or if not so available,
                 in such manner as furnished by any New York Stock Exchange
                 member firm selected from time to time by the Board of
                 Directors for that purpose, or a price determined in good faith
                 by the Board of Directors, whose determination shall be
                 conclusive and described in a Board Resolution.

                          (2)     "Current Market Price" shall mean the average
                 of the daily Closing Prices per share of Common Stock for the
                 ten (10) consecutive Trading Days immediately prior to the
                 date in question; provided, however, that (1) if the "ex" date
                 (as hereinafter defined) for any event (other than the
                 issuance or distribution requiring such computation) that
                 requires an adjustment to the Conversion Price pursuant to
                 Section 15.5(a), (b), (c), (d), (e) or (f) occurs during such
                 ten (10) consecutive Trading Days, the Closing Price for each
                 Trading Day prior to the "ex" date for such other event shall
                 be adjusted by multiplying such Closing Price by the same
                 fraction by which the Conversion Price is so required to be
                 adjusted as a result of such other event, (2) if the "ex" date
                 for any event (other than the issuance or distribution
                 requiring such computation) that requires an adjustment to the
                 Conversion Price pursuant to Section 15.5(a), (b), (c), (d),
                 (e) or (f) occurs on or after the "ex" date for the issuance
                 or distribution requiring such computation and prior to the
                 day in question, the Closing Price for each Trading Day on and
                 after the "ex" date for such other event shall be adjusted by
                 multiplying such Closing Price by the reciprocal of the
                 fraction by which the Conversion Price is so required to be
                 adjusted as a result of such other event, and (3) if the "ex"
                 date for the issuance, distribution requiring such computation
                 is prior to the day in question, after taking into account any
                 adjustment required pursuant to clause (1) or (2) of this
                 proviso, the Closing Price for each Trading Day on or after
                 such "ex" date shall be adjusted by adding thereto the amount
                 of any cash and the fair market value (as determined by the
                 Board of Directors in a manner consistent with any
                 determination of such value for purposes of Section 15.5(d) or
                 (f), whose determination shall be conclusive and described in
                 a Board Resolution) of the evidences of indebtedness, shares
                 of capital stock or assets being distributed applicable to one
                 share of Common Stock as of the close of business on the day
                 before such "ex" date.  For purposes of any computation under
                 Section 15.5(f), the Current Market Price of the Common Stock
                 on any date shall be deemed to be the average of the daily
                 Closing Prices per share of Common Stock for such day and the
                 next two succeeding Trading Days; provided, however, that if
                 the "ex" date for any event (other than the tender offer
                 requiring such computation) that requires an





                                      -71-
<PAGE>   78
                 adjustment to the Conversion Price pursuant to Section 15.5(a),
                 (b), (c), (d), (e) or (f) occurs on or after the Expiration
                 Time for the tender or exchange offer requiring such
                 computation and prior to the day in question, the Closing Price
                 for each Trading Day on and after the "ex" date for such other
                 event shall be adjusted by multiplying such Closing Price by
                 the reciprocal of the fraction by which the Conversion Price is
                 so required to be adjusted as a result of such other event.
                 For purposes of this paragraph, the term "ex" date, (1) when
                 used with respect to any issuance or distribution, means the
                 first date on which the Common Stock trades regular way on the
                 relevant exchange or in the relevant market from which the
                 Closing Price was obtained without the right to receive such
                 issuance or distribution, (2) when used with respect to any
                 subdivision or combination of shares of Common Stock, means the
                 first date on which the Common Stock trades regular way on such
                 exchange or in such market after the time at which such
                 subdivision or combination becomes effective, and (3) when used
                 with respect to any tender or exchange offer means the first
                 date on which the Common Stock trades regular way on such
                 exchange or in such market after the Expiration Time of such
                 offer.  Notwithstanding the foregoing, whenever successive
                 adjustments to the Conversion Price are called for pursuant to
                 this Section 15.5, such adjustments shall be made to the
                 Current Market Price as may be necessary or appropriate to
                 effectuate the intent of this Section 15.5 and to avoid unjust
                 or inequitable results as determined in good faith by the Board
                 of Directors.

                          (3)     "fair market value" shall mean the amount
                 which a willing buyer would pay a willing seller in an arm's
                 length transaction.

                          (4)     "Record Date" shall mean, with respect to any
                 dividend, distribution or other transaction or event in which
                 the holders of Common Stock have the right to receive any
                 cash, securities or other property or in which the Common
                 Stock (or other applicable security) is exchanged for or
                 converted into any combination of cash, securities or other
                 property, the date fixed for determination of stockholders
                 entitled to receive such cash, securities or other property
                 (whether such date is fixed by the Board of Directors or by
                 statute, contract or otherwise).

                          (5)     "Trading Day" shall mean (x) if the
                 applicable security is listed or admitted for trading on the
                 New York Stock Exchange or another national security exchange,
                 a day on which the New York Stock Exchange or another national
                 security exchange is open for business or (y) if the
                 applicable security is quoted on the Nasdaq National Market, a
                 day on which trades may be made thereon or (z) if the
                 applicable security is not so listed, admitted for trading or
                 quoted, any day other than a Saturday or Sunday or a day on
                 which banking institutions in the State of New York are
                 authorized or obligated by law or executive order to close.





                                      -72-
<PAGE>   79
                 (h)      The Company may make such reductions in the
         Conversion Price, in addition to those required by Sections 15.5(a),
         (b), (c), (d), (e) or (f), as the Board of Directors considers to be
         advisable to avoid or diminish any income tax to holders of Common
         Stock or rights to purchase Common stock resulting from any dividend
         or distribution of stock (or rights to acquire stock) or from any
         event treated as such for income tax purposes.

                 To the extent permitted by applicable law, the Company from
         time to time may reduce the Conversion Price by any amount for any
         period of time if the period is at least twenty (20) days, the
         reduction is irrevocable during the period and the Board of Directors
         shall have made a determination that such reduction would be in the
         best interests of the Company, which determination shall be conclusive
         and described in a Board Resolution.  Whenever the Conversion Price is
         reduced pursuant to the preceding sentence, the Company shall mail to
         the holder of each Note at its last address appearing on the Note
         register provided for in Section 2.5 a notice of the reduction at
         least fifteen (15) days prior to the date the reduced Conversion Price
         takes effect, and such notice shall state the reduced Conversion Price
         and the period during which it will be in effect.

                 (i)      No adjustment in the Conversion Price shall be
         required unless such adjustment would require an increase or decrease
         of at least 1% in such price; provided, however, that any adjustments
         which by reason of this Section 15.5(i) are not required to be made
         shall be carried forward and taken into account in any subsequent
         adjustment.  All calculations under this Article XV shall be made by
         the Company and shall be made to the nearest cent or to the nearest
         one hundredth of a share, as the case may be.  No adjustment need be
         made for a change in the par value or no par value of the Common
         Stock.

                 (j)      Whenever the Conversion Price is adjusted as herein
         provided, the Company shall promptly file with the Trustee and any
         conversion agent other than the Trustee an Officers' Certificate
         setting forth the Conversion Price after such adjustment and setting
         forth a brief statement of the facts requiring such adjustment.
         Promptly after delivery of such certificate, the Company shall prepare
         a notice of such adjustment of the Conversion Price setting forth the
         adjusted Conversion Price and the date on which each adjustment
         becomes effective and shall mail such notice of such adjustment of the
         Conversion Price to the holder of each Note at its last address
         appearing on the Note register provided for in Section 2.5, within
         twenty (20) days of the effective date of such adjustment.  Failure to
         deliver such notice shall not affect the legality or validity of any
         such adjustment.

                 (k)      In any case in which this Section 15.5 provides that
         an adjustment shall become effective immediately after a Record Date
         for an event, the Company may defer until the occurrence of such event
         (i) issuing to the holder of any Note converted after such Record Date
         and before the occurrence of such event the additional shares of
         Common Stock issuable upon such conversion by reason of the adjustment
         required by such event over and above the Common Stock issuable upon





                                      -73-
<PAGE>   80
         such conversion before giving effect to such adjustment and (ii)
         paying to such holder any amount in cash in lieu of any fraction
         pursuant to Section 15.3.

                 (l)      For purposes of this Section 15.5, the number of
         shares of Common Stock at any time outstanding shall not include
         shares held in the treasury of the Company but shall include shares
         issuable in respect of scrip certificates issued in lieu of fractions
         of shares of Common Stock.  The Company will not pay any dividend or
         make any distribution on shares of Common Stock held in the treasury
         of the Company.

                 (m)      In lieu of making any adjustment to the Conversion
         Price pursuant to Section 15.5(e), the Company may elect to reserve an
         amount of cash for distribution to the holders of the Notes upon the
         conversion of the Notes so that any such holder converting Notes will
         receive upon such conversion, in addition to the shares of Common
         Stock and other items to which such holder is entitled, the full
         amount of cash which such holder would have received if such holder
         had, immediately prior to the Record Date for such distribution of
         cash, converted its Notes into Common Stock, together with any
         interest accrued with respect to such amount, in accordance with this
         Section 15.5(m).  The Company may make such election by providing an
         Officers' Certificate to the Trustee to such effect on or prior to the
         payment date for any such distribution and depositing with the Trustee
         on or prior to such date an amount of cash equal to the aggregate
         amount the holders of the Notes would have received if such holders
         had, immediately prior to the Record Date for such distribution,
         converted all of the Notes into Common Stock.  Any such funds so
         deposited by the Company with the Trustee shall be invested by the
         Trustee in marketable obligations issued or fully guaranteed by the
         United States government with a maturity not more than three (3)
         months from the date of issuance.  Upon conversion of Notes by a
         holder, the holder will be entitled to receive, in addition to the
         Common Stock issuable upon conversion, an amount of cash equal to the
         amount such holder would have received if such holder had, immediately
         prior to the Record Date for such distribution, converted its Note
         into Common Stock, along with such holder's pro rata share of any
         accrued interest earned as a consequence of the investment of such
         funds.  Promptly after making an election pursuant to this Section
         15.5(m), the Company shall give or shall cause to be given notice to
         all Noteholders of such election, which notice shall state the amount
         of cash per $1,000 principal amount of Notes such holders shall be
         entitled to receive (excluding interest) upon conversion of the Notes
         as a consequence of the Company having made such election.

         SECTION 15.6     EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE.  If any of the following events occur, namely (i) any reclassification or
change of the outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), (ii) any consolidation, merger or
combination of the Company with another corporation as a result of which
holders of Common Stock shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
Common





                                      -74-
<PAGE>   81
Stock or (iii) any sale or conveyance of the properties and assets of the
Company as, or substantially as, an entirety to any other corporation as a
result of which holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with respect to or in
exchange for such Common Stock, then the Company or the successor or purchasing
corporation, as the case may be, shall execute with the Trustee a supplemental
indenture (which shall comply with the Trust Indenture Act as in force at the
date of execution of such supplemental indenture if such supplemental indenture
is then required to so comply) providing that such Note shall be convertible
into the kind and amount of shares of stock and other securities or property or
assets (including cash) receivable upon such reclassification, change,
consolidation, merger, combination, sale or conveyance by a holder of a number
of shares of Common Stock issuable upon conversion of such Notes (assuming, for
such purposes, a sufficient number of authorized shares of Common Stock
available to convert all such Notes) immediately prior to such
reclassification, change, consolidation, merger, combination, sale or
conveyance assuming such holder of Common Stock did not exercise its rights of
election, if any, as to the kind or amount of securities, cash or other
property receivable upon such consolidation, merger, statutory exchange, sale
or conveyance (provided that, if the kind or amount of securities, cash or
other property receivable upon such consolidation, merger, statutory exchange,
sale or conveyance is not the same for each share of Common Stock in respect of
which such rights of election shall not have been exercised ("non-electing
shares"), then for the purposes of this Section 15.6 the kind and amount of
securities, cash or other property receivable upon such consolidation, merger,
statutory exchange, sale or conveyance for each non-electing share shall be
deemed to be the kind and amount so receivable per share by a plurality of the
non-electing shares).  Such supplemental indenture shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article.  If, in the case of any such
reclassification, change, consolidation, merger, combination, sale or
conveyance, the stock or other securities and assets receivable thereupon by a
holder of shares of Common Stock includes shares of stock or other securities
and assets of a corporation other than the successor or purchasing corporation,
as the case may be, in such reclassification, change, consolidation, merger,
combination, sale or conveyance, then such supplemental indenture shall also be
executed by such other corporation and shall contain such additional provisions
to protect the interests of the holders of the Notes as the Board of Directors
shall reasonably consider necessary by reason of the foregoing, including to
the extent practicable the provisions providing for the repurchase rights set
forth in Article XVI herein.

         The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each holder of Notes, at its address appearing on the
Note register provided for in SECTION 2.5 of this Indenture, within twenty (20)
days after execution thereof.  Failure to deliver such notice shall not affect
the legality or validity of such supplemental indenture.

         The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.

         If this Section 15.6 applies to any event or occurrence, Section 15.5
shall not apply.





                                      -75-
<PAGE>   82
         SECTION 15.7     TAXES ON SHARES ISSUED.  The issue of stock
certificates on conversions of Notes shall be made without charge to the
converting Noteholder for any tax in respect of the issue thereof.  The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of stock in any name other
than that of the holder of any Note converted, and the Company shall not be
required to issue or deliver any such stock certificate unless and until the
person or persons requesting the issue thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.

         SECTION 15.8     RESERVATION OF SHARES; SHARES TO BE FULLY PAID;
LISTING OF COMMON STOCK.  The Company shall provide, free from preemptive
rights, out of its authorized but unissued shares or shares held in treasury,
sufficient shares to provide for the conversion of the Notes from time to time
as such Notes are presented for conversion.

         Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common
Stock issuable upon conversion of the Notes, the Company will take all
corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue shares of such Common
Stock at such adjusted Conversion Price.

         The Company covenants that all shares of Common Stock issued upon
conversion of Notes will be fully paid and non-assessable by the Company and
free from all taxes, liens and charges with respect to the issue thereof.

         The Company further covenants that if at any time the Common Stock
shall be listed on the Nasdaq National Market or any other national securities
exchange or automated quotation system the Company will, if permitted by the
rules of such exchange or automated quotation system, list and keep listed
within fifteen days after the date of this Indenture, so long as the Common
Stock shall be so listed on such exchange or automated quotation system, all
Common Stock issuable upon conversion of the Notes.

         SECTION 15.9     RESPONSIBILITY OF TRUSTEE.  The Trustee and any other
conversion agent shall not at any time be under any duty or responsibility to
any holder of Notes to determine whether any facts exist which may require any
adjustment of the Conversion Price, or with respect to the nature or extent or
calculation of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed,
in making the same.  The Trustee and any other conversion agent shall not be
accountable with respect to the validity or value (or the kind or amount) of
any shares of Common Stock, or of any securities or property, which may at any
time be issued or delivered upon the conversion of any Note; and the Trustee
and any other conversion agent make no representations with respect thereto.
Subject to the provisions of Section 8.1, neither the Trustee nor any
conversion agent shall be responsible for any failure of the Company to issue,
transfer or deliver any shares of Common Stock or stock certificates or other
securities or property or cash upon the surrender of any note for the purpose
of conversion or to comply with any of the duties, responsibilities or
covenants of the Company contained in this Article.  Without limiting the
generality of the foregoing, neither





                                      -76-
<PAGE>   83
the Trustee nor any conversion agent shall be under any responsibility to
determine the correctness of any provisions contained in any supplemental
indenture entered into pursuant to Section 15.6 relating either to the kind or
amount of shares of stock or securities or property (including cash) receivable
by Noteholders upon the conversion of their Notes after any event referred to
in such Section 15.6 or to any adjustment to be made with respect thereto, but,
subject to the provisions of Section 8.1, may accept as conclusive evidence of
the correctness of any such provisions, and shall be protected in relying upon,
the Officers' Certificate (which the Company shall be obligated to file with
the Trustee prior to the execution of any such supplemental indenture) with
respect thereto.

         SECTION 15.10    NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS.  In case:

                 (a)      the Company shall declare a dividend (or any other
         distribution) on its Common Stock (that would require an adjustment in
         the Conversion Price pursuant to Section 15.5); or

                 (b)      the Company shall authorize the granting to all or
         substantially all of the holders of record of its Common Stock of
         rights or warrants to subscribe for or purchase any share of any class
         or any other rights or warrants; or

                 (c)      of any reclassification of the Common Stock of the
         Company (other than a subdivision or combination of its outstanding
         Common Stock, or a change in par value, or from par value to no par
         value, or from no par value to par value), or of any consolidation or
         merger to which the Company is a party and for which approval of any
         stockholders of the Company is required, or of the sale or transfer of
         all or substantially all of the assets of the Company; or

                 (d)      of the voluntary or involuntary dissolution,
         liquidation or winding-up of the Company;

the Company shall cause to be filed with the Trustee and to be mailed to each
holder of Notes at its address appearing on the Note register, provided for in
Section 2.5 of this Indenture, as promptly as possible but in any event at
least fifteen days prior to the applicable date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution or rights are to be determined, or (y)
the date on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective or
occur, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up.  Failure to give such notice,
or any defect therein, shall not affect the legality or validity of such
dividend, distribution, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up.





                                      -77-
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                                  ARTICLE XVI

                       REPURCHASE UPON A DESIGNATED EVENT

         SECTION 16.1     REPURCHASE RIGHT.

                 (a)      If, at any time prior to October 1, 2003 there shall
         occur a Designated Event, then each Noteholder shall have the right,
         at such holder's option, but subject to the provisions of Section
         16.2, to require the Company to repurchase all of such holder's Notes,
         or any portion thereof (in principal amounts of $1,000 or integral
         multiples thereof), on the repurchase date fixed by the Company that
         is not less than 30 days nor more than 45 days after the date of the
         Company Notice (as defined in Section 16.2 below) of such Designated
         Event (or, if such 45th day is not a Business Day, the next succeeding
         Business Day).  The repurchase price shall be equal to 100% of the
         principal amount of Notes, together with accrued interest, if any, to,
         but excluding, the repurchase date (the "Repurchase Price"); provided
         that if such repurchase date is April 1 or October 1, then the
         interest payable on such date shall be paid to the holder of record of
         the Note on the next preceding March 15 or September 15, respectively.
         No Notes may be repurchased at the option of holders upon a Designated
         Event if there has occurred and is continuing an Event of Default,
         other than a default in the payment of the Repurchase Price with
         respect to such Notes on the repurchase date.  At the option of the
         Company, the Repurchase Price may be paid in cash or, subject to the
         fulfillment by the Company of the conditions set forth in Section
         16.2, by delivery of shares of Common Stock having a fair market value
         equal to the Repurchase Price as described in Section 16.2(a).
         Whenever in this Indenture there is a reference, in any context, to
         the principal of any Note as of any time, such reference shall be
         deemed to include reference to the Repurchase Price payable in respect
         of such Note to the extent that such Repurchase Price is, was or would
         be so payable at such time, and express mention of the Repurchase
         Price in any provision of this Indenture shall not be construed as
         excluding the Repurchase Price in those provisions of this Indenture
         when such express mention is not made; provided, however, that for the
         purposes of Article Four, such reference shall be deemed to include
         reference to the Repurchase Price only if the Repurchase Price is
         payable in cash.

         SECTION 16.2     CONDITIONS TO THE COMPANY'S ELECTION TO PAY THE
         REPURCHASE PRICE IN COMMON STOCK.  The Company may elect to pay the
         Repurchase Price by delivery of shares of Common Stock pursuant to
         Section 16.1 if and only if the following conditions have been
         satisfied:

                 (a)      The shares of Common Stock deliverable in payment of
         the Repurchase Price shall have a fair market value as of the
         repurchase date of not less than the Repurchase Price.  For purposes
         of this Section 16.2, the fair market value of shares of Common Stock
         shall be determined by the Company and shall be equal to 95% of the
         average of the Closing Prices of the Common Stock for the five





                                      -78-
<PAGE>   85
         consecutive Trading Days ending on and including the third Trading Day
         immediately preceding the repurchase date;

                 (b)      In the event any shares of Common Stock to be issued
         upon repurchase of Notes hereunder require registration under any
         Federal securities law before such shares may be freely transferrable
         without being subject to any transfer restrictions under the
         Securities Act upon repurchase, such registration shall have been
         completed and shall have become effective prior to the repurchase
         date;

                 (c)      In the event any shares of Common Stock to be issued
         upon repurchase of Notes hereunder require registration with or
         approval of any governmental authority under any State law or any
         other Federal law before such shares may be validly issued or
         delivered upon repurchase, such registration shall have been
         completed, have become effective and such approval shall have been
         obtained, in each case, prior to the repurchase date;

                 (d)      The shares of Common Stock deliverable in payment of
         the Repurchase Price shall have been quoted on the Nasdaq National
         Market or listed on a national securities exchange, in either case,
         prior to the repurchase date; and

                 (e)      All shares of Common Stock deliverable in payment of
         the Repurchase Price shall be issued out of the Company's authorized
         but unissued Common Stock and will, upon issue, be duly and validly
         issued and fully paid and non-assessable and free of any preemptive
         rights.

         If all of the conditions set forth in this Section 16.2 are not
satisfied in accordance with the terms thereof, the Repurchase Price shall be
paid by the Company only in cash.

         SECTION 16.3     NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC.

                 (a)      Unless the Company shall have theretofore called for
         redemption all of the outstanding Notes, on or before the fifteenth
         (15th) calendar day after the occurrence of a Designated Event, the
         Company or, at the request and expense of the Company, the Trustee,
         shall mail to all holders a notice (the "Company Notice") of the
         occurrence of the Designated Event and of the repurchase right set
         forth herein arising as a result thereof.  The Company shall also
         deliver a copy of such notice of a repurchase right to the Trustee and
         cause a copy of such notice of a repurchase right, or a summary of the
         information contained therein, to be published in a newspaper of
         general circulation in The City of New York.  The Company Notice shall
         contain the following information:

                          (1)     the repurchase date,

                          (2)     the date by which the repurchase right must
                 be exercised,





                                      -79-
<PAGE>   86
                          (3)     the last date by which the election to
                  require repurchase, if submitted, may be revoked,

                          (4)     the Repurchase Price, and whether the
                 Repurchase Price shall be paid by the Company in cash or by
                 delivery of shares of Common Stock,

                          (5)     a description of the procedure which a holder 
                 must follow to exercise a repurchase right, and

                          (6)     the Conversion Price then in effect, the date
                 on which the right to convert the principal amount of the
                 Notes to be repurchased will terminate and the place or places
                 where Notes may be surrendered for conversion.

                 No failure of the Company to give the foregoing notices or
         defect therein shall limit any holder's right to exercise a repurchase
         right or affect the validity of the proceedings for the repurchase of
         Notes.

                 If any of the foregoing provisions are inconsistent with 
         applicable law, such law shall govern.

                 (b)      To exercise a repurchase right, a holder shall
         deliver to the Trustee on or before the close of business on the
         second Business Day preceding the repurchase date (i) written notice
         to the Company (or agent designated by the Company for such purpose)
         of the holder's exercise of such right, which notice shall set forth
         the name of the holder, the principal amount of the Notes to be
         repurchased, a statement that an election to exercise the repurchase
         right is being made thereby, and, in the event that the Repurchase
         Price shall be paid in shares of Common Stock, the name or names (with
         addresses) in which the certificate or certificates for shares of
         Common Stock shall be issued, and (ii) the Notes with respect to which
         the repurchase right is being exercised, duly endorsed for transfer to
         the Company.  Election of repurchase by a holder shall be revocable at
         any time prior to, but excluding, the repurchase date, by delivering
         written notice to that effect to the Trustee prior to the close of
         business on the second Business Day prior to the repurchase date.

                 (c)      In the event the repurchase right shall be exercised
         in accordance with the terms hereof, the Company shall pay or cause to
         be paid to the Trustee the Repurchase Price in cash or shares of
         Common Stock, as provided above, for payment to the Holder on the
         repurchase date or, if shares of Common Stock are to be issued, as
         promptly after the repurchase date as practicable.

                 (d)      If the Company fails to repurchase on the repurchase
         date any Notes (or portions thereof) as to which the repurchase right
         has been properly exercised, then the principal of such Notes shall,
         until paid, bear interest to the extent permitted by applicable law
         from the repurchase date at the rate borne by the Note and each such
         Note shall be convertible into Common Stock in accordance with this
         Indenture





                                      -80-
<PAGE>   87
         (without giving effect to Section 16.2(b)) until the principal of such
         Note shall have been paid or duly provided for.

                 (e)      Any Note which is to be repurchased only in part
         shall be surrendered to the Trustee (with, if the Company or the
         Trustee so requires, due endorsement by, or a written instrument of
         transfer in form satisfactory to the Company and the Trustee duly
         executed by, the holder thereof or its attorney duly authorized in
         writing), and the Company shall execute, and the Trustee shall
         authenticate and deliver to the holder of such Note without service
         charge a new Note or Notes, containing identical terms and conditions,
         of any authorized denomination as requested by such holder in
         aggregate principal amount equal to and in exchange for the
         unrepurchased portion of the principal of the Note so surrendered.

                 (f)      On or prior to the repurchase date, the Company shall
         deposit with the Trustee or with a paying agent (or, if the Company is
         acting as its own paying agent, segregate and hold in trust as
         provided in Section 5.4) an amount of money sufficient to pay the
         Repurchase Price of the Notes that are to be repaid on the repurchase
         date, provided that if such payment is made on the repurchase date it
         must be received by the Trustee or paying agent, as the case may be,
         by 10:00 a.m., New York City time, on such date.

                 (g)      Any issuance of shares of Common Stock in respect of
         the Repurchase Price shall be deemed to have been effected immediately
         prior to the close of business on the repurchase date and the person
         or persons in whose name or names any certificate or certificates for
         shares of Common Stock shall be issuable upon such repurchase shall be
         deemed to have become on the repurchase date the holder or holders of
         record of the shares represented thereby; provided, however, that any
         surrender for repurchase on a date when the stock transfer books of
         the Company shall be closed shall constitute the person or persons in
         whose name or names the certificate or certificates for such shares
         are to be issued as the record holder or holders thereof for all
         purposes at the opening of business on the next succeeding day on
         which such stock transfer books are open.  No payment or adjustment
         shall be made for dividends or distributions on any Common Stock
         issued upon repurchase of any Note declared prior to the repurchase
         date.

                 (h)      No fractional shares of Common Stock or scrip
         representing fractional shares shall be issued upon repurchase of
         Notes.  If more than one Note shall be repurchased from the same
         holder and the Repurchase Price shall be payable in shares of Common
         Stock, the number of full shares which shall be issued upon repurchase
         shall be computed on the basis of the aggregate principal amount of
         the Notes (or specified portions thereof to the extent permitted
         hereby) so repurchased.  If any fractional share of stock otherwise
         would be issuable upon repurchase of any Note or Notes, the Company
         shall make an adjustment therefor in cash at the current market value
         thereof to the holder of Notes.  For these purposes, the current
         market value of a share of Common Stock shall be the Closing Price on
         the first Trading





                                      -81-
<PAGE>   88
         Day immediately preceding the repurchase date and such Closing Price
         shall be determined as provided in Section 15.5(g).

                 (i)      The issue of stock certificates on repurchase of
         Notes shall be made without charge to the holder of Notes being
         repurchased for any tax in respect of the issue thereof.  The Company
         shall not, however, be required to pay any tax which may be payable in
         respect of any transfer involved in the issue and delivery of stock in
         any name other than that of the holder of any Note repurchased, and
         the Company shall not be required to issue or deliver any such stock
         certificate unless and until the person or persons requesting the
         issue thereof shall have paid to the Company the amount of such tax or
         shall have established to the satisfaction of the Company that such
         tax has been paid.

         SECTION 16.4     CERTAIN DEFINITIONS.  For purposes of this Article
XVI:

                 (a)      the term "beneficial owner" shall be determined in
         accordance with Rule 13d-3 and 13d-5, as in effect on the date of the
         original execution of this Indenture, promulgated by the Commission
         pursuant to the Exchange Act;

                 (b)      the term "person" or "group" shall include any
         syndicate or group which would be deemed to be a "person" under
         Section 13(d)(3) and 14(d) of the Exchange Act as in effect on the
         date of the original execution of this Indenture;

                 (c)      the term "Continuing Director" means at any date a
         member of the Company's Board of Directors (i) who was a member of
         such board on September 12, 1996 or (ii) who was nominated or elected
         by at least a majority of the directors who were Continuing Directors
         at the time of such nomination or election or whose election to the
         Company's Board of Directors was recommended or endorsed by at least a
         majority of the directors who were Continuing Directors at the time of
         such nomination or election.  (Under this definition, if the current
         Board of Directors of the Company were to approve a new director or
         directors and then resign, no Change in Control would occur even
         though the current Board of Directors would thereafter cease to be in
         office);

                 (d)      the term "Designated Event" means a Change of Control
         or a Termination of Trading;

                 (e)      the term "Change of Control" means an event or series
         of events as a result of which (i) any person or group is or becomes
         the beneficial owner of shares representing more than 50% of the
         combined voting power of the then outstanding securities entitled to
         vote generally in elections of directors of the Company (the "Voting
         Stock"), (ii) the Company consolidates with or merges into any other
         corporation, or conveys, transfers or leases all or substantially all
         of its assets to any person, or any other corporation merges into the
         Company, and, in the case of any such transaction, the outstanding
         common stock of the Company is changed or exchanged into or for other
         assets or securities as a result, unless the stockholders of





                                      -82-
<PAGE>   89
         the Company immediately before such transaction own, directly or
         indirectly immediately following such transaction, at least a majority
         of the combined voting power of the outstanding voting securities of
         the corporation resulting from such transaction in substantially the
         same proportion as their ownership of the Voting Stock immediately
         before such transaction, or (iii) any time Continuing Directors do not
         constitute a majority of the Board of Directors of the Company (or, if
         applicable, a successor corporation to the Company); provided,
         however, that a Change of Control shall not be deemed to have occurred
         if either (x) the Closing Price (as defined in Section 15.5) of the
         Common Stock for any five (5) Trading Days within a period of ten (10)
         Trading Days ending immediately before the Change of Control is at
         least equal to 105% of the Conversion Price of the Notes in effect on
         each such Trading Day or (y) at least 90% of the consideration
         (excluding cash payments for dissenting and fractional shares) in the
         transaction or transactions constituting the Change of Control
         consists of common stock traded on a United States national securities
         exchange or quoted on The Nasdaq Stock Market (or which will be so
         traded or quoted when issued or exchanged in connection with such
         Change of Control) and as a result of such transaction or transactions
         such Notes become convertible solely into such common stock; or

                 (f)      a "Termination of Trading" shall have occurred if the
         Common Stock of the Company (or other common stock into which the
         Notes are then convertible) is neither listed for trading on a United
         States national securities exchange nor approved for trading on an
         established automated over-the-counter trading market in the United
         States.


                                  ARTICLE XVII

                            MISCELLANEOUS PROVISIONS

         SECTION 17.1     PROVISIONS BINDING ON COMPANY'S SUCCESSORS.  All the
covenants, stipulations, promises and agreements of the Company in this
Indenture contained shall bind its successors and assigns whether so expressed
or not.

         SECTION 17.2     OFFICIAL ACTS BY SUCCESSOR CORPORATION.  Any act or
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board, committee or officer of the Company shall and may be
done and performed with like force and effect by the like board, committee or
officer of any corporation that shall at the time be the lawful sole successor
of the Company.

         SECTION 17.3     ADDRESSES FOR NOTICES, ETC.  Any notice or demand
which by any provision of this Indenture is required or permitted to be given
or served by the Trustee or by the holders of Notes on the Company shall be
deemed to have been sufficiently given or made, for all purposes if given or
served by being deposited postage prepaid by registered or certified mail in a
post office letter box addressed (until another address is filed by the Company
with the Trustee) to S3 Incorporated, 2770 San Tomas Expressway, Santa Clara,





                                      -83-
<PAGE>   90
California 95054, Attention: Chief Financial Officer.  Any notice, direction,
request or demand hereunder to or upon the Trustee shall be deemed to have been
sufficiently given or made, for all purposes, if given or served by being
deposited postage prepaid by registered or certified mail in a post office
letter box addressed to the Corporate Trust Office, which office is, at the
date as of which this Indenture is dated, located at 725 South Figueroa Street,
Suite 3100, Los Angeles, California 90017, Attention: Corporate Trust
Department (S3 Incorporated, 5-3/4% Convertible Subordinated Notes due 2003).

         The Trustee, by notice to the Company, may designate additional or
different addresses for subsequent notices or communications.

         Any notice or communication mailed to a Noteholder shall be mailed to
it by first class mail, postage prepaid, at its address as it appears on the
Note register and shall be sufficiently given to it if so mailed within the
time prescribed.

         Failure to mail a notice or communication to a Noteholder or any
defect in it shall not affect its sufficiency with respect to other
Noteholders.  If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.

         SECTION 17.4     GOVERNING LAW.  This Indenture and each Note shall be
deemed to be a contract made under the laws of New York, and for all purposes
shall be construed in accordance with the laws of New York.

         SECTION 17.5     EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT;
CERTIFICATES TO TRUSTEE.  Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and an Opinion of Counsel stating that
in the opinion of such counsel, all such conditions precedent have been
complied with.

         Each certificate or opinion provided for by or on behalf of the
Company in this Indenture and delivered to the Trustee with respect to
compliance with a condition or covenant provided for in this Indenture shall
include (1) a statement that the person making such certificate or opinion has
read such covenant or condition; (2) a brief statement as to the nature and
scope of the examination or investigation upon which the statement or opinion
contained in such certificate or opinion is based; (3) a statement that, in the
opinion of such person, he or she has made such examination or investigation as
is necessary to enable him or her to express an informed opinion as to whether
or not such covenant or condition has been complied with; and (4) a statement
as to whether or not, in the opinion of such person, such condition or covenant
has been complied with.

         SECTION 17.6     LEGAL HOLIDAYS.  In any case where the date of
maturity of interest on or principal of the Notes or the date fixed for
redemption of any Note will not be a Business Day, then payment of such
interest on or principal of the Notes need not be made on such





                                      -84-
<PAGE>   91
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the date of maturity or the date fixed for redemption,
and no interest shall accrue for the period from and after such date.

         SECTION 17.7     NO SECURITY INTEREST CREATED.  Nothing in this
Indenture or in the Notes, expressed or implied, shall be construed to
constitute a security interest under the Uniform Commercial Code or similar
legislation, as now or hereafter enacted and in effect, in any jurisdiction.

         SECTION 17.8     TRUST INDENTURE ACT.  This Indenture is hereby made
subject to, and shall be governed by, the provisions of the Trust Indenture Act
required to be part of and to govern indentures qualified under the Trust
Indenture Act; provided that this Section 17.8 shall not require that this
Indenture or the Trustee be qualified under the Trust Indenture Act prior to
the time such qualification is in fact required under the terms of the Trust
Indenture Act, nor shall it constitute any admission or acknowledgment by any
party hereto that any such qualification is required prior to the time such
qualification is in fact required under the terms of the Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with another provision
hereof which is required to be included in an indenture qualified under the
Trust Indenture Act, such required provision shall control.

         SECTION 17.9     BENEFITS OF INDENTURE.  Nothing in this Indenture or
in the Notes, expressed or implied, shall give to any person, other than the
parties hereto, any paying agent, any authenticating agent, any Note registrar
and their successors hereunder, the holders of Notes and the holders of Senior
Indebtedness, any benefit or any legal or equitable right, remedy or claim
under this Indenture.

         SECTION 17.10  TABLE OF CONTENTS, HEADINGS, ETC.  The table of
contents and the titles and headings of the articles and sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the
terms or provisions hereof.

         SECTION 17.11  AUTHENTICATING AGENT.  The Trustee may appoint an
authenticating agent which shall be authorized to act on its behalf and subject
to its direction in the authentication and delivery of Notes in connection with
the original issuance thereof and transfers and exchanges of Notes hereunder,
including under Sections 2.4, 2.5, 2.6, 2.7 and 3.3, as fully to all intents
and purposes as though the authenticating agent had been expressly authorized
by this Indenture and those Sections to authenticate and deliver Notes.  For
all purposes of this Indenture, the authentication and delivery of Notes by the
authenticating agent shall be deemed to be authentication and delivery of such
Notes "by the Trustee" and a certificate of authentication executed on behalf
of the Trustee by an authenticating agent shall be deemed to satisfy any
requirement hereunder or in the Notes for the Trustee's certificate of
authentication.  Such authenticating agent shall at all times be a person
eligible to serve as trustee hereunder pursuant to Section 8.9.

         Any corporation into which any authenticating agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger,





                                      -85-
<PAGE>   92
consolidation or conversion to which any authenticating agent shall be a party,
or any corporation succeeding to the corporate trust business of any
authenticating agent, shall be the successor of the authenticating agent
hereunder, if such successor corporation is otherwise eligible under this
Section, without the execution or filing of any paper or any further act on the
part of the parties hereto or the authenticating agent or such successor
corporation.

         Any authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company.  The Trustee may at
any time terminate the agency of any authenticating agent by giving written
notice of termination to such authenticating agent and to the Company.  Upon
receiving such a notice of resignation or upon such a termination, or in case
at any time any authenticating agent shall cease to be eligible under this
Section, the Trustee shall either promptly appoint a successor authenticating
agent or itself assume the duties and obligations of the former authenticating
agent under this Indenture, and upon an appointment of a successor
authenticating agent, if made, shall give written notice of such appointment of
a successor authenticating agent to the Company and shall mail notice of such
appointment of a successor authenticating agent to all holders of Notes as the
names and addresses of such holders appear on the Note register.

         The Trustee agrees to pay to the authenticating agent from time to
time reasonable compensation for its services (to the extent pre-approved by
the Company in writing), and the Trustee shall be entitled to be reimbursed for
such pre-approved payments, subject to Section 8.6.

         The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section 17.11
shall be applicable to any authenticating agent.

         SECTION 17.12  EXECUTION IN COUNTERPARTS.  This Indenture may be
executed in any number of counterparts, each of which shall be an original, but
such counterparts shall together constitute but one and the same instrument.

         State Street Bank and Trust Company of California, N.A. hereby accepts
the trusts in this Indenture declared and provided, upon the terms and
conditions hereinabove set forth.





                                      -86-
<PAGE>   93
         IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly signed, and their respective corporate seals to be hereunto affixed and
attested, all as of the date first written above.

                                           S3 INCORPORATED


                                           By: ______________________________
                                                   Title:

Attest:



         STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as Trustee



         By: ________________________________________________________________
                 Title:

Attest:





                                      -87-
<PAGE>   94
                            EXHIBIT A - FORM OF NOTE

                             [FORM OF FACE OF NOTE]

[INCLUDE IF NOTE IS A REGULATION S GLOBAL SECURITY -- THIS NOTE IS A REGULATION
S GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE REFERRED TO HEREINAFTER.
EXCEPT IN THE CIRCUMSTANCES DESCRIBED IN SECTION 2.5(b) OF THE INDENTURE, NO
TRANSFER OR EXCHANGE OF AN INTEREST IN THIS REGULATION S GLOBAL SECURITY MAY BE
MADE FOR AN INTEREST IN THE RESTRICTED GLOBAL SECURITY DURING THE RESTRICTED
PERIOD.]

[INCLUDE IF NOTE IS A GLOBAL SECURITY -- UNLESS THIS CERTIFICATE IS PRESENTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO.  OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.  OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]

THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.  SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S.  PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE.  BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S.  PERSON AND IS ACQUIRING THE NOTE EVIDENCED
HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT WITHIN THREE
YEARS AFTER THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY RESELL OR
OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON
CONVERSION OF SUCH NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF,
(B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE, A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON





                                      A-1
<PAGE>   95
TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO
A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS
TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO 2(F) ABOVE) A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.  IN CONNECTION WITH ANY TRANSFER OF
THE NOTE EVIDENCED HEREBY WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE
NOTE (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), THE HOLDER MUST
CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE
MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND
TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR SUCCESSOR TRUSTEE AS
APPLICABLE).  IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(C) OR 2(E)
ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO STATE STREET BANK
AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT.  THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE NOTE
EVIDENCED HEREBY PURSUANT TO CLAUSE 2(F) ABOVE OR THE EXPIRATION OF THREE YEARS
FROM THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY.  AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.  PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.

No.______        $___________________________________________________________





                                      A-2
<PAGE>   96
                                S3 INCORPORATED

                 5-3/4% CONVERTIBLE SUBORDINATED NOTE DUE 2003

         S3 INCORPORATED, a corporation duly organized and validly existing
under the laws of the State of Delaware (herein called the "Company", which
term includes any successor corporation under the Indenture referred to on the
reverse hereof), for value received hereby promises to pay to
____________________, or registered assigns, the principal sum of
____________________ ______________________________ Dollars on October 1, 2003
and to pay interest on said principal sum semi-annually on April 1 and October
1 of each year, commencing April 1, 1997, at the rate per annum specified in
the title of this Note, accrued from the April 1 or October 1, as the case may
be, next preceding the date of this Note to which interest has been paid or
duly provided for, unless the date of this Note is a date to which interest has
been paid or duly provided for, in which case interest shall accrue from the
date of this Note, or unless no interest has been paid or duly provided for on
this Note, in which case interest shall accrue from September 18, 1996, until
payment of said principal sum has been made or duly provided for.
Notwithstanding the foregoing, if the date hereof is after any March 15 or
September 15, as the case may be, and before the following April 1 or October
1, this Note shall bear interest from such April 1 or October 1, respectively;
provided, however, that if the Company shall default in the payment of interest
due on such April 1 or October 1, then this Note shall bear interest from the
next preceding April 1 or October 1 to which interest has been paid or duly
provided for or, if no interest has been paid or duly provided for on this
Note, from September 18, 1996.  The interest so payable on any April 1 or
October 1 will be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the record date,
which shall be the March 15 or September 15 (whether or not a Business Day)
next preceding such April 1 or October 1, respectively, as provided in the
Indenture; provided that any such interest not punctually paid or duly provided
for shall be payable as provided in the Indenture.  Payment of the principal of
and interest accrued on this Note shall be made at the office or agency of the
Company maintained for that purpose in the Borough of Manhattan, The City of
New York, or, at the option of the holder of this Note, at the Corporate Trust
Office, in such coin or currency of the United States of America as at the time
of payment shall be legal tender for the payment of public and private debts;
provided, however, that at the option of the Company, payment of interest may
be made by check mailed to the registered address of the person entitled
thereto.

         Reference is made to the further provisions of this Note set forth on
the reverse hereof, including, without limitation, provisions subordinating the
payment of principal of and premium, if any, and interest on this Note to the
prior payment in full of all Senior Indebtedness as defined in the Indenture
and provisions giving the holder of this Note the right to convert this Note
into Common Stock of the Company on the terms and subject to the limitations
referred to on the reverse hereof and as more fully specified in the Indenture.
Such further provisions shall for all purposes have the same effect as though
fully set forth at this place.





                                      A-3
<PAGE>   97
         This Note shall be deemed to be a contract made under the laws of the
State of New York, and for all purposes shall be construed in accordance with
and governed by the laws of said State.

         This Note shall not be valid or become obligatory for any purpose
until the certificate of authentication hereon shall have been manually signed
by the Trustee or a duly authorized authenticating agent under the Indenture.

         IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed under its corporate seal.

                                      S3 INCORPORATED



Dated:____________________            By: _________________________________
                                          Title:

                                          Attest:



                                          _________________________________


                    TRUSTEE'S CERTIFICATE OF AUTHENTICATION


         This is one of the Notes described in the within-named Indenture.


                                        STATE STREET BANK AND TRUST

                                        COMPANY OF CALIFORNIA, N.A., as Trustee



                                        By:___________________________
                                                Authorized Signatory





                                      A-4
<PAGE>   98
                           [FORM OF REVERSE OF NOTE]

                                S3 INCORPORATED

                 5-3/4% CONVERTIBLE SUBORDINATED NOTE DUE 2003


         This Note is one of a duly authorized issue of Notes of the Company,
designated as its 5-3/4% Convertible Subordinated Notes due 2003 (herein called
the "Notes"), limited to the aggregate principal amount of $90,000,000 (subject
to increase as provided in the Indenture (as hereinafter defined) of up to an
additional $13,500,000 aggregate principal amount), all issued or to be issued
under and pursuant to an Indenture dated as of September 12, 1996 (herein
called the "Indenture"), between the Company and State Street Bank and Trust
Company of California, N.A. (herein called the "Trustee"), to which Indenture
and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the Notes.

         In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of and accrued interest on all Notes
may be declared, and upon said declaration shall become, due and payable, in
the manner, with the effect and subject to the conditions provided in the
Indenture.

         The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority of the
aggregate principal amount of the Notes at the time outstanding, evidenced as
in the Indenture provided, to execute supplemental indentures adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or modifying in any manner the
rights of the holders of the Notes; provided, however, that no such
supplemental indenture shall (i) extend the fixed maturity of any Note, or
reduce the rate or extend the time of payment of interest thereon, or reduce
the principal amount thereof or premium, if any, thereon, or reduce any amount
payable on redemption or repurchase thereof, impair, or change in any respect
adverse to the holder of Notes, the obligation of the Company to repurchase any
Note at the option of the holder upon the happening of a Designated Event, or
impair or adversely affect the right of any Noteholder to institute suit for
the payment thereof, or make the principal thereof or interest or premium, if
any, thereon payable in any coin or currency other than that provided in the
Notes, or modify the provisions of the Indenture with respect to the
subordination of the Notes in a manner adverse to the Noteholders, or impair,
or change in any respect adverse to the holders of the Notes, the right to
convert the Notes into Common Stock subject to the terms set forth in the
Indenture, including Section 15.6 thereof, without the consent of the holder of
each Note so affected or (ii) reduce the aforesaid percentage of Notes, the
holders of which are required to consent to any such supplemental indenture,
without the consent of the holders of all Notes then outstanding.  It is also
provided in the Indenture that, prior to any declaration accelerating the
maturity of the Notes, the holders of a majority in aggregate principal amount
of the Notes at the time outstanding may on behalf of the holders of all of the
Notes waive any





                                      A-5
<PAGE>   99
past default or Event of Default under the Indenture and its consequences
except a default in the payment of interest or any premium on or the principal
of or any redemption price or repurchase price of any of the Notes or a failure
by the Company to convert any Notes into Common Stock of the Company.  Any such
consent or waiver by the holder of this Note (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such holder and upon all future
holders and owners of this Note and any Notes which may be issued in exchange
or substitution hereof, irrespective of whether or not any notation thereof is
made upon this Note or such other Notes.

         The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, expressly subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness of the Company,
as defined in the Indenture, whether outstanding at the date of the Indenture
or thereafter incurred, and this Note is issued subject to the provisions of
the Indenture with respect to such subordination.  Each holder of this Note, by
accepting the same, agrees to and shall be bound by such provisions and
authorizes the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination so provided and appoints the
Trustee his attorney in fact for such purpose.

         No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and
interest on this Note at the place, at the respective times, at the rate and in
the coin or currency herein prescribed.

         Interest on the Notes shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.

         The Notes are issuable in registered form without coupons in
denominations of $1,000 principal amount and integral multiples thereof.  At
the office or agency of the Company referred to on the face hereof, and in the
manner and subject to the limitations provided in the Indenture, without
payment of any service charge but with payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
registration or exchange of Notes, Notes may be exchanged for a like aggregate
principal amount of Notes of other authorized denominations.

         The Notes will not be redeemable at the option of the Company prior to
October 8, 1999.  On or after such date and prior to maturity the Notes may be
redeemed at the option of the Company as a whole, or from time to time in part,
upon mailing a notice of such redemption not less than 20 nor more than 60 days
before the date fixed for redemption to the holders of Notes at their last
registered addresses, all as provided in the Indenture, at the redemption price
(expressed in percentage of the principal amount) as set forth in the
Indenture, together in each case with accrued interest to, but excluding, the
date fixed for redemption; provided that if the date fixed for redemption is a
April 1 or October 1, then the interest payable on such date shall be paid to
the holder of record on the next preceding March 15 or September 15,
respectively.





                                      A-6
<PAGE>   100
         The Notes are not subject to redemption through the operation of any
sinking fund.

         Upon the occurrence of a "Designated Event" prior to October 1, 2003,
the Noteholder has the right, at such holder's option, to require the Company
to repurchase all or any portion of such holder's Notes on the repurchase date
established by the Company at a price equal to 100% of the principal amount of
the Notes, together in each case with accrued interest to, but excluding, the
date fixed for redemption; provided that if such repurchase date is April 1 or
October 1, then the interest payable on such date shall be paid to the holder
of record of the Note on the next preceding March 15 or September 15,
respectively.  The Company shall mail to all holders of record of the Notes a
notice of the occurrence of a Designated Event, of the repurchase date (which
shall be not less than 30 nor more than 45 days after the notice) and of the
repurchase right arising as a result thereof on or before 15 calendar days
after the occurrence of such Designated Event.  At the option of the Company,
the Repurchase Price may be paid in cash or, subject to the conditions provided
in the Indenture, by delivery of shares of Common Stock having a fair market
value equal to the Repurchase Price.  For purposes of this paragraph, the fair
market value of shares of Common Stock shall be determined by the Company and
shall be equal to 95% of the average of the Closing Prices of the Common Stock
for the five consecutive Trading Days ending on and including the third Trading
Day immediately preceding the repurchase date.  Whenever in this Note there is
a reference, in any context, to the principal of any Note as of any time, such
reference shall be deemed to include reference to the Repurchase Price payable
in respect of such Note to the extent that such Repurchase Price is, was or
would be so payable at such time, and express mention of the Repurchase Price
in any provision of this Note shall not be construed as excluding the
Repurchase Price so payable in those provisions of this Note when such express
mention is not made; provided, however, that for the purposes of the sixth
preceding paragraph, such reference shall be deemed to include reference to the
Repurchase Price only if the Repurchase Price is payable in cash.

         Subject to the provisions of the Indenture, the holder hereof has the
right, at its option, at any time on or after 60 days following the latest date
of original issuance of the Notes and prior to the close of business on October
1, 2003, or, as to all or any portion hereof called for redemption, prior to
the close of business on the fifth Business Day next preceding the date fixed
for redemption (unless the Company shall default in payment due upon
redemption), to convert the principal hereof or any portion of such principal
which is $1,000 or an integral multiple thereof, into that number of fully paid
and non-assessable shares of the Company's Common Stock, as said shares shall
be constituted at the date of conversion, obtained by dividing the principal
amount of this Note or portion thereof to be converted by the conversion price
of $19.22 or such conversion price as adjusted from time to time as provided in
the Indenture, upon surrender of this Note, together with a conversion notice
as provided in the Indenture and this Note, to the Company at the office or
agency of the Company maintained for that purpose in the Borough of Manhattan,
The City of New York, or at the option of such holder, the Corporate Trust
Office, and, unless the shares issuable on conversion are to be issued in the
same name as this Note, duly endorsed by, or accompanied by instruments of
transfer in form satisfactory to the Company duly executed by, the holder or by
his duly authorized attorney.  No adjustment in respect of interest or
dividends will be made upon any conversion; provided, however, that if this
Note shall be





                                      A-7
<PAGE>   101
surrendered for conversion during the period from the close of business on any
record date for the payment of interest through the close of business on the
Business Day next preceding the following interest payment date, this Note
(unless it or the portion being converted shall have been called for redemption
during the period from the close of business on any record date through the
close of business on the Business Day next preceding the following interest
payment date) must be accompanied by an amount, in funds acceptable to the
Company, equal to the interest otherwise payable on such interest payment date
on the principal amount being converted.  No fractional shares of Common Stock
will be issued upon any conversion, but an adjustment in cash will be paid to
the holder, as provided in the Indenture, in respect of any fraction of a share
which would otherwise be issuable upon the surrender of any Note or Notes for
conversion.

         Any Notes called for redemption, unless surrendered for conversion on
or before the close of business on the date fixed for redemption, may be deemed
to be purchased from the holder of such Notes at an amount equal to the
applicable redemption price, together with accrued interest to the date fixed
for redemption, by one or more investment bankers or other purchasers who may
agree with the Company to purchase such Notes from the holders thereof and
convert them into Common Stock of the Company and to make payment for such
Notes as aforesaid to the Trustee in trust for such holders.

         Upon due presentment for registration of transfer of this Note at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, or at the option of the holder of this Note, at the Corporate Trust
Office, a new Note or Notes of authorized denominations for an equal aggregate
principal amount will be issued to the transferee in exchange thereof, subject
to the limitations provided in the Indenture, without charge except for any tax
or other governmental charge imposed in connection therewith.

         The Company, the Trustee, any authenticating agent, any paying agent,
any conversion agent and any Note registrar may deem and treat the registered
holder hereof as the absolute owner of this Note (whether or not this Note
shall be overdue and notwithstanding any notation of ownership or other writing
hereon made by anyone other than the Company or any Note registrar), for the
purpose of receiving payment hereof, or on account hereof, for the conversion
hereof and for all other purposes, and neither the Company nor the Trustee nor
any other authenticating agent nor any paying agent nor any other conversion
agent nor any Note registrar shall be affected by any notice to the contrary.
All payments made to or upon the order of such registered holder shall, to the
extent of the sum or sums paid, satisfy and discharge liability for monies
payable on this Note.

         No recourse for the payment of the principal of or any premium or
interest on this Note, or for any claim based hereon or otherwise in respect
hereof, and no recourse under or upon any obligation, covenant or agreement of
the Company in the Indenture or any indenture supplemental thereto or in any
Note, or because of the creation of any indebtedness represented thereby, shall
be had against any incorporator, stockholder, employee, agent, officer,
director or subsidiary, as such, past, present or future, of the Company or of
any successor corporation, either directly or through the Company or any
successor corporation, whether by virtue of any constitution, statute or rule
of law or by the





                                      A-8
<PAGE>   102
enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.

         Terms used in this Note and defined in the Indenture are used herein
as therein defined.


                                   ASSIGNMENT

         For value received ____________________ hereby sell(s), assign(s) and
transfer(s) unto ____________________ (Please insert social security or
Taxpayer Identification Number of assignee) the within Note, and hereby
irrevocably constitutes and appoints _____________ ____________________
attorney to transfer the said Note on the books of the Company, with full power
of substitution in the premises.

         In connection with any transfer of the within Note occurring within
three years of the original issuance of such Note (unless such Note is being
transferred pursuant to a registration statement that has been declared
effective under the Securities Act), the undersigned confirms that such Note is
being transferred:

         / /     To the Company or a subsidiary thereof; or

         / /     Pursuant to and in compliance with Rule 144A under the 
                 Securities Act of 1933, as amended; or

         / /     To an Institutional Accredited Investor pursuant to and in
                 compliance with the Securities Act of 1933, as amended; or

         / /     Pursuant to and in compliance with Regulation S under the 
                 Securities Act of 1933, as amended; or

         / /     Pursuant to and in compliance with Rule 144 under the
                 Securities Act of 1933, as amended;

and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):

         / /     The transferee is an Affiliate of the Company.





                                      A-9
<PAGE>   103
Dated: ____________________________________________

___________________________________________________

___________________________________________________
Signature(s)

Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or
Notes to be delivered, other than to and in the name of the registered holder.


___________________________________________________
Signature Guarantee


NOTICE:  The signature must correspond with the name as written upon the face
of the Note in every particular without alteration or enlargement or any change
whatever.





                                      A-10
<PAGE>   104
                          [FORM OF CONVERSION NOTICE]

                               CONVERSION NOTICE

TO:      S3 INCORPORATED

         The undersigned registered owner of this Note hereby irrevocably
exercises the option to convert this Note, or the portion hereof (which is
$1,000 principal amount or an integral multiple thereof) below designated, into
shares of Common Stock in accordance with the terms of the Indenture referred
to in this Note, and directs that the shares issuable and deliverable upon such
conversion, together with any check in payment for fractional shares and any
Notes representing any unconverted principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below.  If shares or any portion of this Note not converted are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto.  Any amount required to be
paid to the undersigned on account of interest accompanies this Note.

Dated:  ____________________               __________________________________

                                           __________________________________
                                                   Signature(s)


Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or
Notes to be delivered, other than to and in the name of the registered holder.

______________________________
Signature Guarantee

NOTICE:  The signature must correspond with the name as written upon the face
of the Note in every particular without alteration or enlargement or any change
whatever.





                                      A-11
<PAGE>   105
Fill in for registration of shares if to be issued, and Notes if to be
delivered, other than to and in the name of the registered holder:

______________________________
(Name)

______________________________
(Street Address)

______________________________
(City, State and Zip Code)

Please print name and address

                          Principal amount to be converted (if less than all):

                          $____,000

                          ___________________________________________________
                          Social Security or Other Taxpayer
                          Identification Number





                                      A-12
<PAGE>   106
                       [FORM OF OPTION TO ELECT REPAYMENT
                            UPON A DESIGNATED EVENT]

TO:      S3 INCORPORATED

         The undersigned registered owner of this Note hereby acknowledges
receipt of a notice from S3 Incorporated (the "Company") as to the occurrence
of a Designated Event with respect to the Company and requests and instructs
the Company to repay the entire principal amount of this Note, or the portion
thereof (which is $1,000 principal amount or an integral multiple thereof)
below designated, in accordance with the terms of the Indenture referred to in
this Note, together with accrued interest to, but excluding, such date, to the
registered holder hereof, in cash or, at the Company's election and in
accordance with the Indenture, in Common Stock.


Dated:                                                                       
      ----------------------------         ----------------------------------



                                                                             
                                           ----------------------------------
                                                   Signature(s)

                                           Social Security or Other Taxpayer
                                           Identification Number

                                           Principal amount to be repaid
                                           (if less than all): $______,000

                                           NOTICE: The above signatures of the
                                           holder(s) hereof must correspond with
                                           the name as written upon the face of
                                           the Note in every particular without
                                           alteration or enlargement or any
                                           change whatever.




                                      A-13
<PAGE>   107
                                   EXHIBIT B

        FORM OF PURCHASER LETTER FOR INSTITUTIONAL ACCREDITED INVESTORS


S3 Incorporated
2770 San Tomas Expressway
Santa Clara, California 95051

State Street Bank and Trust Company of California, N.A.
725 South Figueroa Street, Suite 3100
Los Angeles, California  90017
Attn:    Corporate Trust Department
         (S3 Incorporated 5-3/4% Convertible Subordinated Notes due 2003)

                Re:      S3 Incorporated Convertible Subordinated Notes Due 2003

Dear Ladies and Gentlemen:

                 The undersigned is delivering this letter in connection with
the acquisition of one or more of the 5-3/4% Convertible Subordinated Notes due
2003 (the "Notes"), which are convertible into shares of Common Stock of S3
Incorporated (the "Company"), $0.0001 par value (the "Common Stock").

                 The undersigned hereby confirms that:

                          (i)     the undersigned is an "accredited investor"
         within the meaning of Rule 501(a)(1), (2) or (3) under the Securities
         Act of 1933 (the "Securities Act") or an entity in which all of the
         equity owners are "accredited investors" within the meaning of Rule
         501(a)(1), (2) or (3) under the Securities Act (an "Institutional
         Accredited Investor");

                          (ii)    (A) any purchase of Notes by the undersigned
         will be for the undersigned's own account or for the account of one or
         more other Institutional Accredited Investors or as fiduciary for the
         account of one or more trusts, each of which is an "accredited
         investor" within the meaning of Rule 501(a)(7) under the Securities
         Act and for each of which the undersigned exercises sole investment
         discretion or (B) the undersigned is a "bank," within the meaning of
         Section 3(a)(2) of the Securities Act, or a savings and loan
         "association" or other institution described in Section 3(a)(5)(A) of
         the Securities Act that is acquiring Notes as fiduciary for the
         account of one or more institutions for which the undersigned
         exercises sole investment discretion;

                          (iii)   in the event that the undersigned purchases
         any Notes, the undersigned will acquire Notes having a minimum
         principal amount of not less than





                                      B-1
<PAGE>   108
         $250,000 for its own account or for any separate account for which the
         undersigned is acting;

                          (iv)    the undersigned has such knowledge and
         experience in financial and business matters that the undersigned is
         capable of evaluating the merits and risks of purchasing Notes; and

                          (v)     the undersigned is not acquiring Notes with a
         view to distribution thereof or with any present intention of offering
         or selling Notes or the Common Stock issuable upon conversion thereof,
         except as permitted below; provided, that the disposition of the
         undersigned's property and property of any accounts for which the
         undersigned is acting as fiduciary shall remain at all times within
         its control.

                 The undersigned understands that the Notes and the shares of
Common Stock issuable upon conversion thereof (collectively, the "Securities")
have not been registered under the Securities Act or any applicable state
securities laws, and the undersigned agrees, on its own behalf and on behalf of
each account for which the undersigned acquires any Securities, that if in the
future the undersigned decides to resell or otherwise transfer such Securities,
such Securities may be resold or otherwise transferred only (a) to the Company
or any subsidiary thereof, (b) inside the United States to a person who is a
"qualified institutional buyer" (as defined in Rule 144A under the Securities
Act) in a transaction meeting the requirements of Rule 144A, (c) inside the
United States to an Institutional Accredited Investor that, prior to such
transfer, furnishes to the trustee (or transfer agent, as the case may be) for
such Securities a signed letter containing certain representations and
agreements relating to the restrictions on transfer of such Securities (the
form of which letter can be obtained from such trustee, or transfer agent, as
the case may be), (d) outside the United States in a transaction meeting the
requirements of Rule 904 under the Securities Act, (e) pursuant to the
exemption from registration provided by Rule 144 under the Securities Act (if
applicable) or (f) pursuant to a registration statement which has been declared
effective under the Securities Act.  The undersigned agrees that any such
transfer of Securities referred to in this paragraph shall be in accordance
with applicable securities laws of any State of the United States or any other
applicable jurisdiction and in accordance with the legends set forth on the
Securities.  The undersigned further agrees to provide any person purchasing
any of the Securities from the undersigned a notice advising such purchaser
that resales of such securities are restricted as stated herein.  The
undersigned understands that the registrar and transfer agent for the
Securities will not be required to accept for registration of transfer any
Securities, except upon presentation of evidence satisfactory to the Company
that the foregoing restrictions on transfer have been complied with.  The
undersigned further understands that any Securities will be in the form of
definitive physical certificates and that such certificates will bear a legend
or legends (unless the sale of the Securities has been registered under the
Securities Act) reflecting the substances of this paragraph.

                 The undersigned acknowledges that the Company, the Trustee and
others will rely upon the undersigned's confirmations, acknowledgements and
agreements set forth





                                      B-2
<PAGE>   109
herein, and the undersigned agrees to notify you promptly in writing if any of
its representations or warranties herein ceases to be accurate and complete.


                                                                           
                                           --------------------------------
                                           (Name of Purchaser)

Dated:  __________, ____                   By:                             
                                              -----------------------------
                                              Name:                        
                                                   ------------------------
                                              Title:                       
                                                    -----------------------
                                              Address:                     
                                                      ---------------------
                                                                           
                                              -----------------------------



                                      B-3
<PAGE>   110
                                   EXHIBIT C


          FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
        FROM RESTRICTED GLOBAL SECURITY TO REGULATION S GLOBAL SECURITY
            (Pursuant to Section 2.5(b)(2) or (6) of the Indenture)


State Street Bank and Trust Company of California, N.A.
725 South Figueroa Street, Suite 3100
Los Angeles, California  90017
Attention:  Corporate Trust Department
            (S3 Incorporated 5-3/4% Convertible Subordinated Notes due 2003)

Dear Ladies and Gentlemen:

                 Reference is hereby made to the Indenture, dated as of
September 12, 1996 (the "Indenture"), between S3 Incorporated, as issuer (the
"Company") and State Street Bank and Trust Company of California, N.A., as
trustee.  Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.

                 This letter relates to U.S. $__________ principal amount of
Notes which are evidenced by one or more Restricted Global Securities and held
with the Depositary in the name of ____________________ (the "Transferor").
The Transferor has requested a transfer of such beneficial interest in the
Notes to a Person who will take delivery thereof in the form of an equal
principal amount of Notes evidenced by one or more Regulation S Global
Securities, which amount, immediately after such transfer, is to be held with
the Depositary through Euroclear or CEDEL or both.

                 In connection with such request and in respect of such Notes,
the Transferor hereby certifies that such transfer has been effected in
compliance with the transfer restrictions applicable to the Notes and pursuant
to and in accordance with Rule 903 or Rule 904 under the United States
Securities Act of 1933, as amended (the "Securities Act"), and accordingly the
Transferor hereby further certifies that:

         (1)     The offer of the Notes was not made to a person in the United
                 States;

         (2)     either:

                 (a)      at the time the buy order was originated, the
                          transferee was outside the United States or the
                          Transferor and any person acting on its behalf
                          reasonably believed and believes that the transferee
                          was outside the United States; or

                 (b)      the transaction was executed in, on or through the
                          facilities of a designated offshore securities market
                          and neither the Transferor nor any





                                      C-1
<PAGE>   111
                          person acting on its behalf knows that the transaction
                          was prearranged with a buyer in the United States;

         (3)     no directed selling efforts have been made in contravention of
                 the requirements of Rule 904(b) of Regulation S;

         (4)     the transaction is not part of a plan or scheme to evade the
                 registration requirements of the Securities Act; and

         (5)     upon completion of the transaction, the beneficial interest
                 being transferred as described above is to be held with the
                 Depositary through Euroclear or CEDEL or both.

         (6)     With respect to transfers made in reliance on Rule 144, the
                 Notes are being transferred in a transaction permitted by Rule
                 144 under the Securities Act; and with respect to transfer
                 made in reliance on Rule 144A, that such Notes are being
                 transferred in accordance with Rule 144A under the Securities
                 Act to a transferee that the Transferor reasonably believes is
                 purchasing the Notes for its own account or an account with
                 respect to which the transferee exercises sole investment
                 discretion and the transferee and any such account is a
                 "qualified institutional buyer" within the meaning of Rule
                 144A, in a transaction meeting the requirements of Rule 144A
                 and in accordance with applicable securities laws of any state
                 of the United States or any other jurisdiction.

                 In addition, if the sale is made during a restricted period
and the provisions of Rule 903(c)(2) or (3) or Rule 904(c)(1) of Regulation S
are applicable thereto, we confirm that such sale has been made in accordance
with the applicable provisions of Rule 903(c)(2) or (3) or Rule 904(c)(1), as
the case may be.

                 Upon giving effect to this request to exchange a beneficial
interest in a Restricted Global Security for a beneficial interest in a
Regulation S Global Security, the resulting beneficial interest shall be
subject to the restrictions on transfer applicable to Regulation S Global
Securities pursuant to the Indenture and the Securities Act.

                 This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the Initial Purchasers, and
you and each of them is entitled to rely on the contents of this certificate.
Terms used in this certificate and not





                                      C-2
<PAGE>   112
otherwise defined in the Indenture have the meanings set forth in Regulation S
under the Securities Act.




                                                                             
                                         ------------------------------------
                                         [Insert Name of Transferor]



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

Dated:  __________, ____





                                      C-3
<PAGE>   113
                                   EXHIBIT D


 FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER FROM REGULATION S
                                GLOBAL SECURITY
                         TO RESTRICTED GLOBAL SECURITY
            (Pursuant to Section 2.5(b)(3) or (6) of the Indenture)


State Street Bank and Trust Company of California, N.A.
725 South Figueroa Street, Suite 3100
Los Angeles, California  90017
Attention:  Corporate Trust Department
            (S3 Incorporated 5-3/4% Convertible Subordinated Notes due 2003)

Dear Ladies and Gentlemen:

                 Reference is hereby made to the Indenture, dated as of
September 12, 1996 (the "Indenture"), between S3 Incorporated, as issuer (the
"Company") and State Street Bank and Trust Company of California, N.A., as
trustee.  Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.

                 This letter relates to U.S. $__________ principal amount of
Notes which are evidenced by one or more Regulation S Global Securities and
held with the Depositary through [Euroclear] [CEDEL] in the name of
____________________ (the "Transferor").  The Transferor has requested a
transfer of such beneficial interest in the Notes to a Person who will take
delivery thereof in the form of an equal principal amount of Notes evidenced by
one or more Restricted Global Securities, to be held with the Depositary.

                 In connection with such request and in respect of such Notes,
the Transferor hereby certifies that:

                                  [CHECK ONE]

         [ ]     such transfer is being effected pursuant to and in accordance
                 with Rule 144A under the United States Securities Act of 1933,
                 as amended (the "Securities Act"), and, accordingly, the
                 Transferor hereby further certifies that the Notes are being
                 transferred to a Person that the Transferor reasonably
                 believes is purchasing the Notes for its own account, or for
                 one or more accounts with respect to which such Person
                 exercises sole investment discretion, and such Person and each
                 such account is a "qualified institutional buyer" within the
                 meaning of Rule 144A in a transaction meeting the requirements
                 of Rule 144A;

                                       or





                                      D-1
<PAGE>   114
         [ ]     such transfer is being effected pursuant to and in accordance
                 with Rule 144 under the Securities Act;

                                       or

         [ ]     such transfer is being effected pursuant to an effective
                 registration statement under the Securities Act;

                                       or

         [ ]     such transfer is being effected pursuant to an exemption from
                 the registration requirements of the Securities Act other than
                 Rule 144A or Rule 144, and the Transferor hereby further
                 certifies that the Notes are being transferred in compliance
                 with the transfer restrictions applicable to the Notes and in
                 accordance with the requirements of the exemption claimed,
                 which certification is supported by such legal opinions or
                 other information provided by the Transferor or the transferee
                 (a copy of which the Transferor has attached to this
                 certification) in form reasonably acceptable to the Company,
                 to the effect that such transfer is in compliance with the
                 Securities Act;

and such Notes are being transferred in compliance with any applicable blue sky
securities laws of any state of the United States.

                 Upon giving effect to this request to exchange a beneficial
interest in Regulation S Global Securities for a beneficial interest in
Restricted Global Securities, the resulting beneficial interest shall be
subject to the restrictions on transfer applicable to Restricted Global
Securities pursuant to the Indenture and the Securities Act.

                 This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the Initial Purchasers, and
you and each of them is entitled to rely on the contents of this certificate.
Terms used in this certificate and not otherwise defined in the Indenture have
the meanings set forth in Regulation S under the Securities Act.



                                        ______________________________________
                                        [Insert Name of Transferor]



                                        By:___________________________________
                                        Name:
                                        Title:

Dated:  __________, ____





                                      D-2