Document:

<PAGE>   1
                                                                     EXHIBIT 4.1

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

                           AXYS PHARMACEUTICALS, INC.

                                       TO

                      U.S. BANK TRUST NATIONAL ASSOCIATION,

                                   AS TRUSTEE

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

                                    INDENTURE

                         DATED AS OF SEPTEMBER __, 2000

                                 DEBT SECURITIES

<PAGE>   2
                              CROSS-REFERENCE SHEET

        Certain Sections of this Indenture relating to Sections 310 through 318,
        inclusive, of the Trust Indenture Act of 1939:

<TABLE>
<CAPTION>
             Trust Indenture                          Indenture
               Act Section                             Section
<S>                                                   <C>
              ss.310 (a)(1)                           609
                     (a)(2)                           609
                     (a)(3)                           Not Applicable
                     (a)(4)                           Not Applicable
                     (b)                              608, 610
              ss.311 (a)                              613
                     (b)                              613
              ss.312 (a)                              701, 702
                     (b)                              702
                     (c)                              702
              ss.313 (a)                              703
                     (b)                              703
                     (c)                              703
                     (d)                              703
              ss.314 (a)                              704
                     (a)(4)                           101, 1004
                     (b)                              1006
                     (c)(1)                           102
                     (c)(2)                           102
                     (c)(3)                           Not Applicable
                     (d)                              1501
                     (e)                              102
              ss.315 (a)                              601
                     (b)                              602
                     (c)                              601
                     (d)                              601
                     (e)                              514
              ss.316 (a)                              101
                     (a)(1)(A)                        502, 512
                     (a)(1)(B)                        513
                     (a)(2)                           Not Applicable
                     (b)                              508
                     (c)                              104
              ss.317 (a)(1)                           503
</TABLE>

<PAGE>   3
<TABLE>
<S>                                                   <C>
                     (a)(2)                           504
                     (b)                              1003
              ss.318 (a)                              107
</TABLE>

NOTE: This cross-reference sheet shall not, for any purpose, be deemed to be a
part of the Indenture.

<PAGE>   4
                           AXYS PHARMACEUTICALS, INC.
                                       TO
                      U.S. BANK TRUST NATIONAL ASSOCIATION,
                                   AS TRUSTEE

                                    Indenture
                                 Debt Securities

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                          Page
                                                                                          ----
<S>                   <C>                                                                 <C>
ARTICLE ONE           DEFINITIONS AND OTHER PROVISIONS OF
                      GENERAL APPLICATION.................................................1
        Section 101.  Definitions.........................................................1
        Section 102.  Compliance Certificates and Opinions................................8
        Section 103.  Form of Documents Delivered to Trustee..............................9
        Section 104.  Acts of Holders.....................................................10
        Section 105.  Notices, Etc. to Trustee and Company................................12
        Section 106.  Notice to Holders; Waiver...........................................12
        Section 107.  Conflict with Trust Indenture Act...................................12
        Section 108.  Effect of Headings and Table of Contents............................13
        Section 109.  Successors and Assigns..............................................13
        Section 110.  Separability Clause.................................................13
        Section 111.  Benefits of Indenture...............................................13
        Section 112.  Governing Law.......................................................13
        Section 113.  Legal Holidays......................................................13
        Section 114.  Indenture and Securities Solely Corporate Obligations...............13

ARTICLE TWO           SECURITY FORMS .....................................................14
        Section 201.  Forms Generally.....................................................14
        Section 202.  Form of Face of Security............................................14
        Section 203.  Form of Reverse of Security.........................................16
        Section 204.  Form of Legend for Global Securities................................21
        Section 205.  Form of Trustee's Certificate of Authentication.....................21
        Section 206.  Form of Conversion Notice...........................................21

ARTICLE THREE         THE SECURITIES .....................................................23
        Section 301.  Amount Unlimited; Issuable in Series................................23
        Section 302.  Denominations.......................................................25
        Section 303.  Execution, Authentication, Delivery and Dating......................26
        Section 304.  Temporary Securities................................................27
        Section 305.  Registration;Registration of Transfer and Exchange..................27
</TABLE>

<PAGE>   5

<TABLE>
<S>                   <C>                                                                 <C>
        Section 306.  Mutilated, Destroyed, Lost and Stolen Securities....................29
        Section 307.  Payment of Interest; Interest Rights Preserved......................30
        Section 308.  Persons Deemed Owners...............................................31
        Section 309.  Cancellation........................................................31
        Section 310.  Computation of Interest.............................................32

ARTICLE FOUR          SATISFACTION AND DISCHARGE..........................................32
        Section 401.  Satisfaction and Discharge of Indenture.............................32
        Section 402.  Application of Trust Money..........................................33

ARTICLE FIVE          REMEDIES ...........................................................33
        Section 501.  Events of Default...................................................33
        Section 502.  Acceleration of Maturity; Rescission and Annulment..................34
        Section 503.  Collection of Indebtedness and Suits for
                             Enforcement by Trustee.......................................35
        Section 504.  Trustee May File Proofs of Claim....................................36
        Section 505.  Trustee May Enforce Claims without
                             Possession of Securities.....................................36
        Section 506.  Application of Money Collected......................................37
        Section 507.  Limitation on Suits.................................................37
        Section 508.  Unconditional Right of Holders to Receive Principal,
                             Premium and Interest and to Convert..........................38
        Section 509.  Restoration of Rights and Remedies..................................38
        Section 510.  Rights and Remedies Cumulative......................................38
        Section 511.  Delay or Omission not Waiver........................................38
        Section 512.  Control by Holders..................................................38
        Section 513.  Waiver of Past Defaults.............................................39
        Section 514.  Undertaking for Costs...............................................39
        Section 515.  Waiver of Usury, Stay or Extension Laws.............................39

ARTICLE SIX           THE TRUSTEE ........................................................40
        Section 601.  Certain Duties and Responsibilities.................................40
        Section 602.  Notice of Defaults..................................................40
        Section 603.  Certain Rights of Trustee...........................................40
        Section 604.  Not Responsible for Recitals or Issuance of Securities..............41
        Section 605.  May Hold Securities and Act as Trustee
                             Under Other Indentures.......................................41
        Section 606.  Money Held in Trust.................................................41
        Section 607.  Compensation and Reimbursement......................................42
        Section 608.  Conflicting Interests...............................................42
        Section 609.  Corporate Trustee Required; Eligibility.............................42
        Section 610.  Resignation and Removal;
                             Appointment of Successor.....................................42
        Section 611.  Acceptance of Appointment by Successor..............................44
</TABLE>

<PAGE>   6
<TABLE>
<S>                   <C>                                                                 <C>
        Section 612.  Merger, Conversion, Consolidation or
                             Succession to Business.......................................45
        Section 613.  Preferential Collection of Claims Against Company...................45
        Section 614.  Appointment of Authenticating Agent.................................45

ARTICLE SEVEN         HOLDERS' LISTS AND REPORTS  BY
                      TRUSTEE AND COMPANY.................................................47
        Section 701.  Company to Furnish Trustee
                             Names and Addresses of Holders...............................47
        Section 702.  Preservation of Information;
                             Communications to Holders....................................47
        Section 703.  Reports by Trustee..................................................48
        Section 704.  Reports by Company..................................................48

ARTICLE EIGHT         CONSOLIDATION, MERGER, CONVEYANCE,
                      TRANSFER OR LEASE...................................................48
        Section 801.  Company May Consolidate, etc. Only on
                             Certain Terms................................................48
        Section 802.  Successor Substituted...............................................49

ARTICLE NINE          SUPPLEMENTAL INDENTURES.............................................49
        Section 901.  Supplemental Indentures without Consent of Holders..................49
        Section 902.  Supplemental Indentures with Consent of Holders.....................51
        Section 903.  Execution of Supplemental Indentures................................52
        Section 904.  Effect of Supplemental Indentures...................................52
        Section 905.  Conformity with Trust Indenture Act.................................52
        Section 906.  Reference in Securities to Supplemental Indentures..................52

ARTICLE TEN           COVENANTS ..........................................................53
        Section 1001. Payment of Principal, Premium and Interest..........................53
        Section 1002. Maintenance of Office or Agency.....................................53
        Section 1003. Money For Securities Payments to Be Held in Trust...................53
        Section 1004. Statement by Officers as to Default.................................54
        Section 1005. Existence...........................................................54
        Section 1006. Opinions as to Pledged Property.....................................55
        Section 1007. Waiver of Certain Covenants.........................................55

ARTICLE ELEVEN REDEMPTION OF SECURITIES...................................................56
        Section 1101. Applicability of Article............................................56
        Section 1102. Election to Redeem; Notice to Trustee...............................56
        Section 1103. Selection by Trustee of Securities to Be Redeemed...................56
        Section 1104. Notice of Redemption................................................57
        Section 1105. Deposit of Redemption Price.........................................58
        Section 1106. Securities Payable on Redemption Date...............................58
</TABLE>

<PAGE>   7
<TABLE>
<S>                   <C>                                                                 <C>
        Section 1107. Securities Redeemed in Part.........................................58

ARTICLE TWELVE        SINKING FUNDS ......................................................59
        Section 1201. Applicability of Article............................................59
        Section 1202. Satisfaction of Sinking Fund Payments with Securities...............59
        Section 1203. Redemption of Securities for Sinking Fund...........................59

ARTICLE THIRTEEN      DEFEASANCE AND COVENANT DEFEASANCE..................................60
        Section 1301. Company's Option to Effect Defeasance or
                             Covenant Defeasance..........................................60
        Section 1302. Defeasance and Discharge............................................60
        Section 1303. Covenant Defeasance.................................................60
        Section 1304. Conditions to Defeasance or Covenant Defeasance.....................61
        Section 1305. Deposited Money and U.S. Government Obligations to
                             Be Held in Trust; Miscellaneous Provisions...................62
        Section 1306. Reinstatement.......................................................63

ARTICLE FOURTEEN      CONVERSION OF SECURITIES............................................63
        Section 1401. Applicability of Article............................................63
        Section 1402. Exercise of Conversion Privilege....................................63
        Section 1403. No Fractional Shares................................................65
        Section 1404. Adjustment of Conversion Price......................................65
        Section 1405. Notice of Certain Corporate Actions.................................66
        Section 1406. Reservation of Shares of Common Stock...............................67
        Section 1407. Payment of Certain Taxes upon Conversion............................67
        Section 1408. Nonassessability....................................................67
        Section 1409. Provision in Case of Consolidation, Merger or
                             Sale of Assets...............................................67
        Section 1410. Duties of Trustee Regarding Conversion..............................68
        Section 1411. Repayment of Certain Funds upon Conversion..........................69

ARTICLE FIFTEEN       COLLATERAL..........................................................69
        Section 1501. Releases of Collateral..............................................69
</TABLE>

<PAGE>   8
               INDENTURE, dated as of September __, 2000, between Axys
Pharmaceuticals, Inc., a corporation duly organized and existing under the laws
of the State of Delaware (herein called the "Company"), having its principal
executive office at 180 Kimball Way, South San Francisco, California, 94080, and
U.S. Bank Trust National Association, a national banking association duly
organized and existing under the laws of the United States of America, as
Trustee (herein called the "Trustee").

                             RECITALS OF THE COMPANY

               The Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance from time to time of its secured and
unsecured debentures, notes or other evidences of indebtedness (herein called
the "Securities"), to be issued in one or more series as provided in this
Indenture.

               All things necessary to make this Indenture a valid agreement of
the Company, in accordance with its terms, have been done.

               NOW, THEREFORE, THIS INDENTURE WITNESSETH:

               For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities or of series
thereof appertaining, as follows:

                                   ARTICLE ONE

             DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

               SECTION 101. DEFINITIONS. For all purposes of this Indenture,
except as otherwise expressly provided or unless the context otherwise requires:

               (1) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the singular;

               (2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;

               (3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or

                                       1

<PAGE>   9
permitted hereunder shall mean such accounting principles as are generally
accepted at the date of such computation;

               (4) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may be,
of this Indenture; and

               (5) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.

               "Act," when used with respect to any Holder, has the meaning
specified in Section 104.

               "Affiliate" of any specified Person means 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 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.

               "Appraiser" means a Person engaged in the business of appraising
property who (except as otherwise expressly provided in this Indenture) may be
employed by or affiliated with the Company.

               "Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 614 to act on behalf of the Trustee to authenticate
Securities of one or more series.

               "Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board empowered to act for it
with respect to this Indenture.

               "Board Resolution" means 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," when used with respect to any Place of Payment,
means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in that Place of Payment are authorized or obligated
by law or executive order to close.

                                       2

<PAGE>   10
               "Commission" means the Securities and Exchange Commission, from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.

               "Common Stock" includes 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; provided,
however, subject to the provisions of Section 1409, shares issuable upon
conversion of Securities 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,
further, 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.

               "Company" means the corporation named as the "Company" in the
first paragraph of this instrument until a successor Person shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.

               "Company Request" or "Company Order" means a written request or
order signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President or a Vice President, and by its principal
financial officer, its Secretary or an Assistant Secretary, and delivered to the
Trustee.

               "Corporate Trust Office" means the corporate trust office of the
Trustee at which at any particular time the trust created by this Indenture
shall be administered, which office on the date hereof is located at 550 South
Hope Street, Suite 500, Los Angeles, California, 90071.

               "corporation" means a corporation, association, company,
joint-stock company or business trust.

               "Covenant Defeasance" has the meaning specified in Section 1303.

               "Defaulted Interest" has the meaning specified in Section 307.

                                       3

<PAGE>   11
               "Defeasance" has the meaning specified in Section 1302.

               "Depositary" means, with respect to Securities of any series
issuable in whole or in part in the form of one or more Global Securities, a
clearing agency registered under the Exchange Act that is designated to act as
Depositary for such Securities as contemplated by Section 301.

               "Event of Default" has the meaning specified in Section 501.

               "Exchange Act" means the Securities Exchange Act of 1934 and any
statute successor thereto, in each case as amended from time to time.

               "Expiration Date" has the meaning specified in Section 104.

               "Global Security" means a Security that evidences all or part of
the Securities of any series and bears the legend set forth in Section 204 (or
such legend as may be specified as contemplated by Section 301 for such
Securities).

               "Holder" means a Person in whose name a Security is registered in
the Security Register.

               "Fair Market Value" means, at any time with respect to any
property, the sale value of such property which could be realized in an arm's
length sale at such time between an informed and willing vendee, and an informed
and willing vendor, under no compulsion to buy or sell, respectively, all as
determined in good faith (a) in the case of any Officers' Certificate or other
certificate delivered pursuant to Section 1501, by the signer or signers thereof
and (b) in all other cases, (i) by the vendor's board of directors or (ii) in
the case of any such property of the Company or any Restricted Subsidiary, by
the Chief Executive Officer or the President of the Company, except as otherwise
specifically provided in this Indenture or any Indenture supplemental hereto.

               "Financial Advisor" shall mean an investment banking firm of
national reputation which (except as otherwise expressly provided in this
Indenture) may be employed by or affiliated with the Company.

               "Indenture" means this instrument as originally executed and as
it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively. The term "Indenture" shall also include the terms of particular
series of Securities established

                                       4

<PAGE>   12
as contemplated by Section 301; provided, however, that if at any time more than
one Person is acting as Trustee under this Indenture due to the appointment of
one or more separate Trustees for any one or more separate series of Securities,
"Indenture" shall mean, with respect to such series of Securities for which any
such Person is Trustee, this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof and shall
include the terms of particular series of Securities for which such Person is
Trustee established as contemplated by Section 301, exclusive, however, of any
provisions or terms which relate solely to other series of Securities for which
such Person is not Trustee, regardless of when such terms or provisions were
adopted, and exclusive of any provisions or terms adopted by means of one or
more indentures supplemental hereto executed and delivered after such Person had
become such Trustee, but to which such Person, as such Trustee, was not a party;
provided, further that in the event that this Indenture is supplemented or
amended by one or more indentures supplemental hereto which are only applicable
to certain series of Securities, the term "Indenture" for a particular series of
Securities shall only include the supplemental indentures applicable thereto.

               "Independent" when used with respect to any specified Person
means such a Person who (a) is independent within the meaning of the Trust
Indenture Act, (b) does not have any direct financial interest or any material
indirect financial interest in the Company or in any other obligor under the
Securities or in any Affiliate of the Company or of such other obligor and (c)
is not connected with the Company or such other obligor as an officer, employee,
promoter, underwriter, trustee, partner, director or Person performing similar
functions. Whenever it is herein provided that any Independent Person's opinion
or certificate shall be furnished to the Trustee, such Person shall be appointed
by a Company Order and such opinion or certificate shall state that the signer
has read this definition and that the signer is Independent within the meaning
thereof.

               "interest," when used with respect to an Original Issue Discount
Security which by its terms bears interest only after Maturity, means interest
payable after Maturity.

               "Interest Payment Date," when used with respect to any Security,
means the Stated Maturity of an installment of interest on such Security.

               "Investment Company Act" means the Investment Company Act of 1940
and any statute successor thereto, in each case as amended from time to time.

               "Lien" shall mean any lien, mortgage, security interest, chattel
mortgage, pledge, equity or other encumbrance (statutory or otherwise) of any
kind, including, without limitation, any agreement to give any of the foregoing,
any

                                       5

<PAGE>   13
conditional sales or other title retention agreement, any lease in the nature
thereof, and the filing of or the agreement to give any financing statement
under the Code of any jurisdiction or similar evidence of any encumbrance,
whether within or outside the United States.

               "Maturity" when used with respect to any Security, means the date
on which the principal of such Security or an installment of principal becomes
due and payable as therein or herein provided, whether at the Stated Maturity or
by declaration of acceleration, call for redemption or otherwise.

               "Notice of Default" means a written notice of the kind specified
in Section 501(4).

               "Officers' Certificate" means a certificate signed by the
Chairman of the Board, a Vice Chairman of the Board, the President or a Vice
President, and by the principal financial officer, the Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee. One of the officers
signing an Officers' Certificate given pursuant to Section 1004 shall be the
principal executive, financial or accounting officer of the Company.

               "Opinion of Counsel" means a written opinion of counsel, who may
be counsel for, or an employee of, the Company, and who shall be reasonably
acceptable to the Trustee.

               "Original Issue Discount Security" means any Security which
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the Maturity thereof pursuant to
Section 502.

               "Outstanding," when used with respect to Securities, means, as of
the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:

               (1) Securities theretofore canceled by the Trustee or delivered
to the Trustee for cancellation;

               (2) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any Paying
Agent (other than the Company) in trust or set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent) for the Holders
of such Securities; provided that, if such Securities are to be redeemed, notice
of such redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made;

                                       6

<PAGE>   14
               (3) Securities as to which Defeasance has been effected pursuant
to Section 1302; and

               (4) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated and
delivered pursuant to this Indenture, other than any such Securities in respect
of which there shall have been presented to the Trustee proof satisfactory to it
that such Securities are held by a bona fide purchaser in whose hands such
Securities are valid obligations of the Company; provided, however, that in
determining whether the Holders of the requisite principal amount of the
Outstanding Securities have given, made or taken any request, demand,
authorization, direction, notice, consent, waiver or other action hereunder as
of any date, (A) the principal amount of an Original Issue Discount Security
which shall be deemed to be Outstanding shall be the amount of the principal
thereof which would be due and payable as of such date upon acceleration of the
Maturity thereof to such date pursuant to Section 502, (B) if, as of such date,
the principal amount payable at the Stated Maturity of a Security is not
determinable, the principal amount of such Security which shall be deemed to be
Outstanding shall be the amount as specified or determined as contemplated by
Section 301, (C) the principal amount of a Security denominated in one or more
foreign currencies or currency units which shall be deemed to be Outstanding
shall be the U.S. dollar equivalent, determined as of such date in the manner
provided as contemplated by Section 301, of the principal amount of such
Security (or, in the case of a Security described in Clause (A) or (B) above, of
the amount determined as provided in such Clause), and (D) Securities owned by
the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent, waiver or other action, only Securities which the Trustee knows to be
so owned shall be so disregarded. Securities so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Securities and that the pledgee is not the Company or any other obligor upon the
Securities or any Affiliate of the Company or of such other obligor.

               "Paying Agent" means any Person authorized by the Company to pay
the principal of or any premium or interest on any Securities on behalf of the
Company.

               "Person" means any individual, corporation, partnership, limited
liability company, joint venture, trust, unincorporated organization or
government or any agency or political subdivision thereof.

                                       7

<PAGE>   15
               "Place of Payment," when used with respect to the Securities of
any series, means the place or places where the principal of and any premium and
interest on the Securities of that series are payable as specified as
contemplated by Section 301.

               "Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.

               "Prior Lien" means any Lien on any of the collateral securing the
Company's obligations with respect to Securities issued under this Indenture
ranking prior to or upon parity with the Lien of this Indenture.

               "Property" means any interest in any kind of property or asset,
whether real, personal or mixed, and whether tangible or intangible.

               "Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.

               "Redemption Price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.

               "Regular Record Date" for the interest payable on any Interest
Payment Date on the Securities of any series means the date specified for that
purpose as contemplated by Section 301.

               "Responsible Officer" means an officer in the Corporate Trust
Office of the Trustee.

               "Securities" has the meaning stated in the first recital of this
Indenture and more particularly means any Securities authenticated and delivered
under this Indenture.

               "Securities Act" means the Securities Act of 1933 and any statute
successor thereto, in each case as amended from time to time.

               "Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.

                                       8

<PAGE>   16
               "Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 307.

               "Stated Maturity," when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security as the fixed date on which the principal of such Security or
such installment of principal or interest is due and payable.

               "Subsidiary" means a corporation of which at least a majority of
the outstanding voting stock having the power to elect a majority of the board
of directors of such corporation is at the time owned, directly or indirectly,
by the Company or by one or more other Subsidiaries, or by the Company and one
or more other Subsidiaries and the accounts of which are consolidated with those
of the Company in its most recent consolidated financial statements in
accordance with generally accepted accounting principles. 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.

               "Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed; provided, however,
that in the event the Trust Indenture Act of 1939 is amended after such date,
"Trust Indenture Act" means, to the extent required by any such amendment, the
Trust Indenture Act of 1939 as so amended.

               "Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean or include each Person who is then a Trustee hereunder, and
if at any time there is more than one such Person, "Trustee" as used with
respect to the Securities of any series shall mean the Trustee with respect to
Securities of that series.

               "U.S. Government Obligation" has the meaning specified in Section
1304.

               "Vice President," when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president."

               SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS. Upon any
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee such
certificates and opinions as may be required under the Trust Indenture Act. Each

                                       9

<PAGE>   17
such certificate or opinion shall be given in the form of an Officers'
Certificate, if to be given by an officer of the Company, or an Opinion of
Counsel, if to be given by counsel, and shall comply with the requirements of
the Trust Indenture Act and any other requirements set forth in this Indenture.

               Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include,

               (1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein relating
thereto;

               (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;

               (3) a statement that, in the opinion of each such individual, 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, in the opinion of each such
individual, such condition or covenant has been complied with.

               SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any case
where several matters are required to be certified by, or covered by an opinion
of, any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.

               Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his or her certificate or opinion is
based are erroneous. Any such certificate or opinion of counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.

                                       10

<PAGE>   18
               Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.

               SECTION 104. ACTS OF HOLDERS. Any request, demand, authorization,
direction, notice, consent, waiver or other action provided or permitted by this
Indenture to be given, made or taken by Holders may be embodied in and evidenced
by one or more instruments of substantially similar tenor signed by such Holders
in person or by agent duly appointed in writing; and, except as herein otherwise
expressly provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is hereby expressly
required, to the Company. The Trustee shall promptly deliver to the Company
copies of all such instrument or instruments delivered to the Trustee. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.

               The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him or her the execution thereof.
Where such execution is by a signer acting in a capacity other than his or her
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his or her authority. The fact and date of the execution of
any such instrument or writing, or the authority of the Person executing the
same, may also be proved in any other manner which the Trustee deems sufficient.

               The ownership of Securities shall be proved by the Security
Register.

               Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.

               The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to
give,

                                       11

<PAGE>   19
make or take any request, demand, authorization, direction, vote, notice,
consent, waiver or other action provided or permitted by this Indenture to be
given, made or taken by Holders of Securities of such series, provided that the
Company may not set a record date for, and the provisions of this paragraph
shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in the next paragraph. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of the relevant series on such record date, and no other Holders,
shall be entitled to take the relevant action, whether or not such Holders
remain Holders after such record date; provided that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
by Holders of the requisite principal amount of Outstanding Securities of such
series on such record date. Nothing in this paragraph shall be construed to
prevent the Company from setting a new record date for any action for which a
record date has previously been set pursuant to this paragraph (whereupon the
record date previously set shall automatically and with no action by any Person
be canceled and of no effect), and nothing in this paragraph shall be construed
to render ineffective any action taken by Holders of the requisite principal
amount of Outstanding Securities of the relevant series on the date such action
is taken. Promptly after any record date is set pursuant to this paragraph, the
Company, at its own expense, shall cause notice of such record date, the
proposed action by Holders and the applicable Expiration Date to be given to the
Trustee in writing and to each Holder of Securities of the relevant series in
the manner set forth in Section 106.

               The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to join
in the giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 502, (iii) any request to institute
proceedings referred to in Section 507(2) or (iv) any direction referred to in
Section 512, in each case with respect to Securities of such series. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of such series on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date; provided that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities of such series on such record date. Nothing in this paragraph shall
be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be canceled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities of the relevant
series on the date such action is taken. Promptly after any record date is set
pursuant to this paragraph, the Trustee, at the Company's expense, shall cause
notice of such record date, the

                                       12

<PAGE>   20
proposed action by Holders and the applicable Expiration Date to be given to the
Company in writing and to each Holder of Securities of the relevant series in
the manner set forth in Section 106.

               With respect to any record date set pursuant to this Section, the
party hereto which sets such record dates may designate any day as the
"Expiration Date" and from time to time may change the Expiration Date to any
earlier or later day; provided that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other party hereto in
writing, and to each Holder of Securities of the relevant series in the manner
set forth in Section 106, on or prior to the existing Expiration Date. If an
Expiration Date is not designated with respect to any record date set pursuant
to this Section, the party hereto which set such record date shall be deemed to
have initially designated the 180th day after such record date as the Expiration
Date with respect thereto, subject to its right to change the Expiration Date as
provided in this paragraph. Notwithstanding the foregoing, no Expiration Date
shall be later than the 180th day after the applicable record date.

               Without limiting the foregoing, a Holder entitled hereunder to
take any action hereunder with regard to any particular Security may do so with
regard to all or any part of the principal amount of such Security or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any part of such principal amount.

               SECTION 105. NOTICES, ETC. TO TRUSTEE AND COMPANY. Any request,
demand, authorization, direction, notice, consent, waiver or Act of Holders or
other document provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with,

               (1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing (or by facsimile transmissions ((213) 533-8729), provided that oral
confirmation of receipt shall have been received) to or with the Trustee at its
Corporate Trust Office, Attention: Corporate Trust Department (Axys
Pharmaceuticals, Inc. Debt Securities), or

               (2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the first
paragraph of this instrument or at any other address previously furnished in
writing to the Trustee by the Company, Attention: Chief Financial Officer.

                                       13

<PAGE>   21
               SECTION 106. NOTICE TO HOLDERS; WAIVER. Where this Indenture
provides for notice to Holders of any event, such notice shall be sufficiently
given (unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at its
address as it appears in the Security Register, not later than the latest date
(if any), and not earlier than the earliest date (if any), prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.

               In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.

               SECTION 107. CONFLICT WITH TRUST INDENTURE ACT. If any provision
hereof limits, qualifies or conflicts with a provision of the Trust Indenture
Act which is required under such Act to be a part of and govern this Indenture,
the latter provision shall control. If any provision of this Indenture modifies
or excludes any provision of the Trust Indenture Act which may be so modified or
excluded, the latter provision shall be deemed to apply to this Indenture as so
modified or to be excluded, as the case may be.

               SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.

               SECTION 109. SUCCESSORS AND ASSIGNS. All covenants and agreements
in this Indenture by the Company shall bind its successors and assigns, whether
so expressed or not.

               SECTION 110. SEPARABILITY CLAUSE. In case any provision in this
Indenture or in the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.

               SECTION 111. BENEFITS OF INDENTURE. Nothing in this Indenture or
in the Securities, express or implied, shall give to any Person, other than the

                                       14

<PAGE>   22
parties hereto and their successors hereunder and the Holders, any benefit or
any legal or equitable right, remedy or claim under this Indenture.

               SECTION 112. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF
NEW YORK.

               SECTION 113. LEGAL HOLIDAYS. In any case where any Interest
Payment Date, Redemption Date or Stated Maturity of any Security or the last
date on which a Holder has the right to convert a Security at a particular
conversion price shall not be a Business Day at any Place of Payment, then
(notwithstanding any other provision of this Indenture or of the Securities
(other than a provision of any Security which specifically states that such
provision shall apply in lieu of this Section)) payment of interest or principal
(and premium, if any) or, if applicable to a particular series of Securities,
conversion need not be made at such Place of Payment on such date, but may be
made on the next succeeding Business Day at such Place of Payment with the same
force and effect as if made on the Interest Payment Date or Redemption Date, at
the Stated Maturity or on such last day for conversion, as the case may be.

               SECTION 114. INDENTURE AND SECURITIES SOLELY CORPORATE
OBLIGATIONS. No recourse for the payment of the principal of or premium, if any,
or interest on any Security, 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 Security, 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 Securities.

                                   ARTICLE TWO

                                 SECURITY FORMS

               SECTION 201. FORMS GENERALLY. The Securities of each series shall
be in substantially the form set forth in this Article, or in such other form as
shall be established by or pursuant to a Board Resolution or in one or more
indentures supplemental hereto, in each case with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this

                                       15

<PAGE>   23
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with the rules of any securities exchange or Depositary therefor or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution thereof. If the form of Securities of any series
is established by action taken pursuant to a Board Resolution, a copy of an
appropriate record of such action shall be certified by the Secretary or an
Assistant Secretary of the Company and delivered to the Trustee at or prior to
the delivery of the Company Order contemplated by Section 303 for the
authentication and delivery of such Securities. Any such Board Resolution or
record of such action shall have attached thereto a true and correct copy of the
form of Security referred to therein approved by or pursuant to such Board
Resolution.

               The definitive Securities shall be printed, lithographed or
engraved on steel engraved borders or may be produced in any other manner, all
as determined by the officers executing such Securities, as evidenced by their
execution of such Securities.

               SECTION 202. FORM OF FACE OF SECURITY. [Insert any legend
required by the Internal Revenue Code and the regulations thereunder.]

                           AXYS PHARMACEUTICALS, INC.

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

No.______                                                              $ _______

               Axys Pharmaceuticals, Inc., a corporation duly organized and
existing under the laws of Delaware (herein called the "Company," which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to _________________ , or registered
assigns, the principal sum of ___________ Dollars on ___________ [if the
Security is to bear interest prior to Maturity, insert -- , and to pay interest
thereon from ___________ or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, semi-annually on ___________ and
___________ in each year, commencing ___________, at the rate of __% per annum,
until the principal hereof is paid or made available for payment [if applicable,
insert --, provided that any principal and premium, and any such installment of
interest, which is overdue shall bear interest at the rate of __% per annum (to
the extent that the payment of such interest shall be legally enforceable), from
the dates such amounts are due until they are paid or made available for
payment, and such interest shall be payable on demand]. The interest so payable,
and punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at

                                       16

<PAGE>   24
the close of business on the Regular Record Date for such interest, which shall
be the ___________ or ___________ (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities of this series not less than 10 days prior to such Special Record
Date, or be paid at any time in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the Securities of this
series may be listed, and upon such notice as may be required by such exchange,
all as more fully provided in said Indenture].

               [If the Security is not to bear interest prior to Maturity,
insert -- The principal of this Security shall not bear interest except in the
case of a default in payment of principal upon acceleration, upon redemption or
at Stated Maturity and in such case the overdue principal and any overdue
premium shall bear interest at the rate of __% per annum (to the extent that the
payment of such interest shall be legally enforceable), from the dates such
amounts are due until they are paid or made available for payment. Interest on
any overdue principal or premium shall be payable on demand. Any such interest
on overdue principal or premium which is not paid on demand shall bear interest
at the rate of ___% per annum (to the extent that the payment of such interest
on interest shall be legally enforceable), from the date of such demand until
the amount so demanded is paid or made available for payment. Interest on any
overdue interest shall be payable on demand.]

               Payment of the principal of (and premium, if any) and [if
applicable, insert -- any such] interest on this Security will be made at the
office or agency of the Company maintained for that purpose in ___________, in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts [if applicable, insert
--; provided, however, that at the option of the Company payment of interest may
be made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register].

               Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.

               Unless the certificate of authentication hereon has been executed
by the Trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.

                                       17
<PAGE>   25
               IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed under its corporate seal.

Dated:                              AXYS PHARMACEUTICALS, INC.
      ---------------------

                                    By:
                                       -------------------------------

                                    Title:
                                          ----------------------------
Attest:
       --------------------

               SECTION 203. FORM OF REVERSE OF SECURITY. This Security is one of
a duly authorized issue of securities of the Company (herein called the
"Securities"), issued and to be issued in one or more series under an Indenture,
dated as of ___________, 2000 (herein called the "Indenture," which term shall
have the meaning assigned to it in such instrument), between the Company and
U.S. Bank Trust National Association, as Trustee (herein called the "Trustee,"
which term includes any successor trustee under the Indenture), and reference is
hereby made to the Indenture and all indentures supplemental thereto for a
statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee and the Holders of the Securities and of
the terms upon which the Securities are, and are to be, authenticated and
delivered. This Security is one of the series designated on the face hereof [if
applicable, insert -- , limited in aggregate principal amount to $ ___________].

                      [If applicable, insert -- The Securities of this series
are subject to redemption upon not less than [If applicable, insert -- 30] days'
notice by first class mail, [if applicable, insert -- (1)___________ on in any
year commencing with the year and ending with the year___________ through
operation of the sinking fund for this series at a Redemption Price equal to
100% of the principal amount, and (2)] at any time [if applicable, insert -- on
___________ or after ___________, 2000], as a whole or in part, at the election
of the Company, at the following Redemption Prices (expressed as percentages of
the principal amount): If redeemed [if applicable, insert -- on or before
___________, ___%, and if redeemed] during the 12-month period beginning
___________ of the years indicated, and thereafter at a Redemption Price equal
to __% of the principal amount, together in the case of any such redemption [if
applicable, insert -- (whether through operation of the sinking fund or
otherwise)] with accrued interest to the Redemption Date, but interest
installments whose Stated Maturity is on or prior to such Redemption Date will
be payable to the Holders of such Securities, or one or more Predecessor
Securities, of record at the close of business on the relevant Record Dates
referred to on the face hereof, all as provided in the Indenture.]

                                       18

<PAGE>   26
Year           Redemption Price                Year       Redemption Price

               [If applicable, insert -- The Securities of this series are
subject to redemption upon not less than [if applicable, insert -- 30] days'
notice by first class mail, (1) on ___________ in any year commencing with the
year ____ and ending with the year ____ through operation of the sinking fund
for this series at the Redemption Prices for redemption through operation of the
sinking fund (expressed as percentages of the principal amount) set forth in the
table below, and (2) at any time [if applicable, insert -- on or after
___________ ], as a whole or in part, at the election of the Company, at the
Redemption Prices for redemption otherwise than through operation of the sinking
fund (expressed as percentages of the principal amount) set forth in the table
below: If redeemed during the 12-month period beginning___________ of the years
indicated,

                 Redemption Price For                  Redemption Price For
                  Redemption Through                 Redemption Otherwise Than
                   Operation of the                  Through Operation of the
Year                 Sinking Fund                          Sinking Fund

and thereafter at a Redemption Price equal to __% of the principal amount,
together in the case of any such redemption (whether through operation of the
sinking fund or otherwise) with accrued interest to the Redemption Date, but
interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Securities, or one or more
Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.]

               [If applicable, insert -- Notwithstanding the foregoing, the
Company may not, prior to ___________, redeem any Securities of this series as
contemplated by [if applicable, insert -- Clause (2) of] the preceding paragraph
as a part of, or in anticipation of, any refunding operation by the application,
directly or indirectly, of moneys borrowed having an interest cost to the
Company (calculated in accordance with generally accepted financial practice) of
less than __% per annum.]

               [If applicable, insert -- The sinking fund for this series
provides for the redemption on ___________, in each year beginning with the year
___________ and ending with the year ___________ of [if applicable, insert --
not less than $ _____ ("mandatory sinking fund") and not more than] $____
aggregate principal amount of Securities of this series. Securities of this
series acquired or redeemed by the Company

                                       19
<PAGE>   27
otherwise than through [if applicable, insert -- mandatory] sinking fund
payments may be credited against subsequent [if applicable, insert -- mandatory]
sinking fund payments otherwise required to be made [if applicable, insert -- ,
in the inverse order in which they become due].]

               [If the Security is subject to redemption of any kind, insert --
In the event of redemption of this Security in part only, a new Security or
Securities of this series and of like tenor for the unredeemed portion hereof
will be issued in the name of the Holder hereof upon the cancellation hereof.]

               [If applicable, insert -- The Indenture contains provisions for
defeasance at any time of [the entire indebtedness of this Security] [or]
[certain restrictive covenants and Events of Default with respect to this
Security] [, in each case] upon compliance with certain conditions set forth in
the Indenture.]

               [If the Security is convertible into Common Stock of the Company,
insert -- Subject to the provisions of the Indenture, the Holder of this
Security is entitled, at its option, at any time on or before [insert date]
(except that, in case this Security or any portion hereof shall be called for
redemption, such right shall terminate with respect to this Security or portion
hereof, as the case may be, so called for redemption at the close of business on
the first Business Day next preceding the date fixed for redemption as provided
in the Indenture unless the Company defaults in making the payment due upon
redemption), to convert the principal amount of this Security (or any portion
hereof which is $1,000 or an integral multiple thereof), into fully paid and
non-assessable shares (calculated as to each conversion to the nearest 1/100th
of a share) of the Common Stock of the Company, as said shares shall be
constituted at the date of conversion, at the conversion price of $ ___________
principal amount of Securities for each share of Common Stock, or at the
adjusted conversion price in effect at the date of conversion determined as
provided in the Indenture, upon surrender of this Security, together with the
conversion notice hereon duly executed, to the Company at the designated office
or agency of the Company in ___________, accompanied (if so required by the
Company) by instruments of transfer, in form satisfactory to the Company and to
the Trustee, duly executed by the Holder or by its duly authorized attorney in
writing. Such surrender shall, if made during any period beginning at the close
of business on a Regular Record Date and ending at the opening of business on
the Interest Payment Date next following such Regular Record Date (unless this
Security or the portion being converted shall have been called for redemption on
a Redemption Date during the period beginning at the close of business on a
Regular Record Date and ending at the opening of business on the first Business
Day after the next succeeding Interest Payment Date, or if such Interest Payment
Date is not a Business Day, the second such Business Day), also be accompanied
by payment in funds acceptable to the Company of an amount equal to the interest
payable on such Interest Payment Date on the principal amount of this Security
then being

                                       20

<PAGE>   28
converted. Subject to the aforesaid requirement for payment and, in the case of
a conversion after the Regular Record Date next preceding any Interest Payment
Date and on or before such Interest Payment Date, to the right of the Holder of
this Security (or any Predecessor Security) of record at such Regular Record
Date to receive an installment of interest (with certain exceptions provided in
the Indenture), no adjustment is to be made on conversion for interest accrued
hereon or for dividends on shares of Common Stock issued on conversion. The
Company is not required to issue fractional shares upon any such conversion, but
shall make adjustment therefor in cash on the basis of the current market value
of such fractional interest as provided in the Indenture. The conversion price
is subject to adjustment as provided in the Indenture. In addition, the
Indenture provides that in case of certain consolidations or mergers to which
the Company is a party or the sale of substantially all of the assets of the
Company, the Indenture shall be amended, without the consent of any Holders of
Securities, so that this Security, if then outstanding, will be convertible
thereafter, during the period this Security shall be convertible as specified
above, only into the kind and amount of securities, cash and other property
receivable upon the consolidation, merger or sale by a holder of the number of
shares of Common Stock into which this Security might have been converted
immediately prior to such consolidation, merger or sale (assuming such holder of
Common Stock failed to exercise any rights of election and received per share
the kind and amount received per share by a plurality of non-electing shares).
In the event of conversion of this Security in part only, a new Security or
Securities for the unconverted portion hereof shall be issued in the name of the
Holder hereof upon the cancellation hereof.]

               [If the Security is convertible into other securities of the
Company, specify the conversion features.]

               [If the Security is not an Original Issue Discount Security,
insert -- If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.]

               [If the Security is an Original Issue Discount Security, insert
-- If an Event of Default with respect to Securities of this series shall occur
and be continuing, an amount of principal of the Securities of this series may
be declared due and payable in the manner and with the effect provided in the
Indenture. Such amount shall be equal to --insert formula for determining the
amount. Upon payment (i) of the amount of principal so declared due and payable
and (ii) of interest on any overdue principal, premium and interest (in each
case to the extent that the payment of such interest shall be legally
enforceable), all of the Company's obligations in respect of the payment of the
principal of and premium and interest, if any, on the Securities of this series
shall terminate.]

                                       21

<PAGE>   29
               The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities of
each series to be affected under the Indenture at any time by the Company and
the Trustee with the consent of the Holders of more than 50% in principal amount
of the Securities at the time Outstanding of each series to be affected. The
Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such series, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.

               As provided in and subject to the provisions of the Indenture,
the Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee
shall not have received from the Holders of a majority in principal amount of
Securities of this series at the time Outstanding a direction inconsistent with
such request, and shall have failed to institute any such proceeding, for 60
days after receipt of such notice, request and offer of indemnity. The foregoing
shall not apply to any suit instituted by the Holder of this Security for the
enforcement of any payment of principal hereof or any premium or interest hereon
on or after the respective due dates expressed herein.

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

               As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of and any
premium and interest on this Security are payable, duly endorsed by, or
accompanied by a written instrument of

                                       22

<PAGE>   30
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or its attorney duly authorized in writing, and
thereupon one or more new Securities of this series and of like tenor, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.

               The Securities of this series are issuable only in registered
form without coupons in denominations of $ 1,000 and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations therein
set forth, Securities of this series are exchangeable for a like aggregate
principal amount of Securities of this series and of like tenor of a different
authorized denomination, as requested by the Holder surrendering the same.

               No service charge shall be made to a Holder for any such
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.

               Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.

               All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.

               SECTION 204. FORM OF LEGEND FOR GLOBAL SECURITIES. Unless
otherwise specified as contemplated by Section 301 for the Securities evidenced
thereby, every Global Security authenticated and delivered hereunder shall bear
a legend in substantially the following form:

THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A
SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE
REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE
THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

               SECTION 205. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. The
Trustee's certificates of authentication shall be in substantially the following
form:

                                       23

<PAGE>   31
This is one of the Securities of the series designated herein referred to in the
within-mentioned Indenture.

                              U.S. BANK TRUST NATIONAL ASSOCIATION, as
                                  Trustee

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

               SECTION 206. FORM OF CONVERSION NOTICE.

To Axys Pharmaceuticals, Inc.:

               The owner of this Security hereby irrevocably exercises the
option to convert this Security, or portion hereof (which is $1,000 or an
integral multiple thereof) below designated, into shares of Common Stock of the
Company in accordance with the terms of the Indenture referred to in this
Security, and directs that the shares issuable and deliverable upon the
conversion, together with any check in payment for fractional shares and any
Securities representing any unconverted principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below. If this Notice is being delivered on a date after the close of
business on a Regular Record Date and prior to the opening of business on the
related Interest Payment Date (unless this Security or the portion thereof being
converted has been called for redemption on a Redemption Date within such
period), this Notice is accompanied by payment, in funds acceptable to the
Company, of an amount equal to the interest payable on such Interest Payment
Date of the principal of this Security to be converted. If shares are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect hereto. Any amount required to be
paid by the undersigned on account of interest accompanies this Security.

                        Principal Amount to be Converted
             (in an integral multiple of $1,000, if less than all)
                                U.S. $
                                       ---------

Dated:
      ------------------------          ---------------------------------------
                                        Signature(s) must be guaranteed by an
                                        eligible guarantor institution (banks,
                                        stock brokerages, savings and loan
                                        associations and credit unions) with

                                       24

<PAGE>   32
                                        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 delivered, or Securities to be
                                        issued, other than to and in the name of
                                        the registered owner.

                                        -------------------------------------
                                        Signature Guaranty

               Fill in for registration of shares of Common Stock and Security
if to be issued otherwise than to the registered Holder.

-------------------------------         -------------------------------------
(Name)                                         Social Security or Other Taxpayer
                                                   Identification Number

-------------------------------
(Address)

-------------------------------
Please print Name and Address
(including zip code number)

[The above conversion notice is to be modified, as appropriate, for conversion
into other securities or property of the Company.]

                                  ARTICLE THREE

                                 THE SECURITIES

               SECTION 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES. The aggregate
principal amount of Securities which may be authenticated and delivered under
this Indenture is unlimited.

               The Securities may be issued in one or more series. There shall
be established in or pursuant to a Board Resolution and, subject to Section 303,
set forth, or determined in the manner provided, in an Officers' Certificate, or

                                       25

<PAGE>   33
established in one or more indentures supplemental hereto, prior to the issuance
of Securities of any series,

               (1) the title of the Securities of the series (which shall
distinguish the Securities of the series from Securities of any other series);

               (2) any limit upon the aggregate principal amount of the
Securities of the series which may be authenticated and delivered under this
Indenture (except for Securities authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 304, 305, 306, 906 or 1107 and except for any
Securities which, pursuant to Section 303, are deemed never to have been
authenticated and delivered hereunder);

               (3) the Person to whom any interest on a Security of the series
shall be payable, if other than the Person in whose name that Security (or one
or more Predecessor Securities) is registered at the close of business on the
Regular Record Date for such interest;

               (4) the date or dates on which the principal of any Securities of
the series is payable;

               (5) the rate or rates at which any Securities of the series shall
bear interest, if any, the date or dates from which any such interest shall
accrue, the Interest Payment Dates on which any such interest shall be payable,
whether and under what circumstances interest shall be payable in cash or
another form of consideration and the Regular Record Date for any such interest
payable on any Interest Payment Date;

               (6) the place or places where the principal of and any premium
and interest on any Securities of the series shall be payable;

               (7) the period or periods within which, the price or prices at
which and the terms and conditions upon which any Securities of the series may
be redeemed, in whole or in part, at the option of the Company and, if other
than by a Board Resolution, the manner in which any election by the Company to
redeem the Securities shall be evidenced;

               (8) the obligation, if any, of the Company to redeem or purchase
any Securities of the series pursuant to any sinking fund or analogous
provisions or at the option of the Holder thereof and the period or periods
within which, the price or prices at which and the terms and conditions upon
which any Securities of the series shall be redeemed or purchased, in whole or
in part, pursuant to such obligation;

                                       26

<PAGE>   34
               (9) if other than denominations of $1,000 and any integral
multiple thereof, the denominations in which any Securities of the series shall
be issuable;

               (10) if the amount of principal of or any premium or interest on
any Securities of the series may be determined with reference to an index or
pursuant to a formula, the manner in which such amounts shall be determined;

               (11) if other than the currency of the United States of America,
the currency, currencies or currency units in which the principal of or any
premium or interest on any Securities of the series shall be payable and the
manner of determining the equivalent thereof in the currency of the United
States of America for any purpose, including for purposes of the definition of
"Outstanding" in Section 101; provided, however, that prior to the issuance of
any such Securities, the Company shall have obtained the written consent of the
Trustee, which consent may be withheld in the sole discretion of the Trustee, to
the currency, currencies or currency units so established;

               (12) if the principal of or premium, if any, or interest on any
Securities of the series is to be payable, at the election of the Company or the
Holder thereof, in one or more currencies or currency units other than that or
those in which such Securities are stated to be payable, the currency,
currencies or currency units in which the principal of or any premium or
interest on such Securities as to which such election is made shall be payable,
the periods within which and the terms and conditions upon which such election
is to be made and the amount so payable (or the manner in which such amount
shall be determined); provided, however, that prior to the issuance of any such
Securities, the Company shall have obtained the written consent of the Trustee,
which consent may be withheld in the sole discretion of the Trustee, to the
currency, currencies or currency units so established;

               (13) if other than the entire principal amount thereof, the
portion of the principal amount of any Securities of the series which shall be
payable upon declaration of acceleration of the Maturity thereof pursuant to
Section 502;

               (14) if the principal amount payable at the Stated Maturity of
any Securities of the series will not be determinable as of any one or more
dates prior to the Stated Maturity, the amount which shall be deemed to be the
principal amount of such Securities as of any such date for any purpose
thereunder or hereunder, including the principal amount thereof which shall be
due and payable upon any Maturity other than the Stated Maturity or which shall
be deemed to be Outstanding as of any date prior to the Stated Maturity (or, in
any such case, the manner in which such amount deemed to be the principal amount
shall be determined);

                                       27

<PAGE>   35
               (15) if applicable, that the Securities of the series, in whole
or any specified part, shall be defeasible pursuant to Section 1302 or Section
1303 or both such Sections and, if other than by a Board Resolution, the manner
in which any election by the Company to defease such Securities shall be
evidenced;

               (16) if applicable, the terms of any right to convert Securities
of the series into shares of Common Stock of the Company or other securities or
property;

               (17) if applicable, that any Securities of the series shall be
issuable in whole or in part in the form of one or more Global Securities and,
in such case, the respective Depositaries for such Global Securities, the form
of any legend or legends which shall be borne by any such Global Security in
addition to or in lieu of that set forth in Section 204 and any circumstances in
addition to or in lieu of those set forth in Clause (2) of the last paragraph of
Section 305 in which any such Global Security may be exchanged in whole or in
part for Securities registered, and any transfer of such Global Security in
whole or in part may be registered, in the name or names of Persons other than
the Depositary for such Global Security or a nominee thereof;

               (18) any addition to or change in the Events of Default which
applies to any Securities of the series and any change in the right of the
Trustee or the requisite Holders of such Securities to declare the principal
amount thereof due and payable pursuant to Section 502;

               (19) any addition to or change in the covenants set forth in
Article Ten which applies to Securities of the series; and

               (20) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture, except as permitted by
Section 901(5)).

               All Securities of any one series shall be substantially identical
except as to denomination, certificate number and except as may otherwise be
provided in or pursuant to the Board Resolution referred to above and (subject
to Section 303) set forth, or determined in the manner provided, in the
Officers' Certificate referred to above or in any such indenture supplemental
hereto.

               If any of the terms of the series are established by action taken
pursuant to a Board Resolution, a copy of an appropriate record of such action
shall be certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.

               SECTION 302. DENOMINATIONS. The Securities of each series shall
be issuable only in registered form without coupons and only in such

                                       28

<PAGE>   36
denominations as shall be specified as contemplated by Section 301. In the
absence of any such specified denomination with respect to the Securities of any
series, the Securities of such series shall be issuable in denominations of
$1,000 and any integral multiple thereof.

               SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. The
Securities shall be executed on behalf of the Company by its Chairman of the
Board, its Vice Chairman of the Board, its principal financial officer, its
President or one of its Vice Presidents, under its corporate seal reproduced
thereon attested by its Secretary or one of its Assistant Secretaries. The
signature of any of these officers on the Securities may be manual or facsimile.

               Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.

               At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities of any series
executed by the Company to the Trustee for authentication, together with a
Company Order for the authentication and delivery of such Securities, and the
Trustee in accordance with the Company Order shall authenticate and deliver such
Securities. If the form or terms of the Securities of the series have been
established by or pursuant to one or more Board Resolutions as permitted by
Sections 201 and 301, in authenticating such Securities, and accepting the
additional responsibilities under this Indenture in relation to such Securities,
the Trustee shall be entitled to receive, and (subject to Section 601) shall be
fully protected in relying upon, an Opinion of Counsel stating,

               (1) if the form of such Securities has been established by or
pursuant to Board Resolution as permitted by Section 201, that such form has
been established in conformity with the provisions of this Indenture;

               (2) if the terms of such Securities have been established by or
pursuant to Board Resolution as permitted by Section 301, that such terms have
been established in conformity with the provisions of this Indenture; and

               (3) that such Securities, when authenticated and delivered by the
Trustee and issued by the Company in the manner and subject to any conditions
specified in such Opinion of Counsel, will constitute valid and legally binding
obligations of the Company enforceable in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.

                                       29

<PAGE>   37
               If such form or terms have been so established, the Trustee shall
not be required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.

               Notwithstanding the provisions of Section 301 and of the
preceding paragraph, if all Securities of a series are not to be originally
issued at one time, it shall not be necessary to deliver the Officers'
Certificate otherwise required pursuant to Section 301 or the Company Order and
Opinion of Counsel otherwise required pursuant to such preceding paragraph at or
prior to the authentication of each Security of such series if such documents
are delivered at or prior to the authentication upon original issuance of the
first Security of such series to be issued.

               Each Security shall be dated the date of its authentication.

               No Security shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Security
a certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder. Notwithstanding the
foregoing, if any Security shall have been authenticated and delivered hereunder
but never issued and sold by the Company, and the Company shall deliver such
Security to the Trustee for cancellation as provided in Section 309, for all
purposes of this Indenture such Security shall be deemed never to have been
authenticated and delivered hereunder and shall never be entitled to the
benefits of this Indenture.

               SECTION 304. TEMPORARY SECURITIES. Pending the preparation of
definitive Securities of any series, the Company may execute, and upon Company
Order the Trustee shall authenticate and deliver, temporary Securities which are
printed, lithographed, typewritten, mimeographed or otherwise produced, in any
authorized denomination, substantially of the tenor of the definitive Securities
in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the officers executing such
Securities may determine, as evidenced by their execution of such Securities.

               If temporary Securities of any series are issued, the Company
will cause definitive Securities of that series to be prepared without
unreasonable delay. After the preparation of definitive Securities of such
series, the temporary Securities of such series shall be exchangeable for
definitive Securities of such series upon surrender of the temporary Securities
of such series at the office or

                                       30

<PAGE>   38
agency of the Company in a Place of Payment for that series, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities of any series, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor one or more definitive Securities
of the same series, of any authorized denominations and of like tenor and
aggregate principal amount. Until so exchanged, the temporary Securities of any
series shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities of such series and tenor.

               SECTION 305. REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office of the Trustee
a register (the register maintained in such office and in any other office or
agency of the Company in a Place of Payment being herein sometimes collectively
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Trustee is hereby appointed
"Security Registrar" for the purpose of registering Securities and transfers of
Securities as herein provided.

               Upon surrender for registration of transfer of any Security of a
series at the office or agency of the Company in a Place of Payment for that
series, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of the same series, of any authorized denominations and of like
tenor and aggregate principal amount.

               At the option of the Holder, Securities of any series may be
exchanged for other Securities of the same series, of any authorized
denominations and of like tenor and aggregate principal amount, upon surrender
of the Securities to be exchanged at such office or agency. Whenever any
Securities are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Securities which the Holder making
the exchange is entitled to receive.

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

               Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or its attorney duly authorized in writing.

                                       31

<PAGE>   39
               No service charge shall be made for any registration of transfer
or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 304, 906 or 1107 not involving any transfer.

               If the Securities of any series (or of any series and specified
tenor) are to be redeemed in part, the Company shall not be required (A) to
issue, register the transfer of or exchange any Securities of that series (or of
that series and specified tenor, as the case may be) during a period beginning
at the opening of business 15 days before the day of the mailing of a notice of
redemption of any such Securities selected for redemption under Section 1103 and
ending at the close of business on the day of such mailing, or (B) to register
the transfer of or exchange any Security so selected for redemption in whole or
in part, except the unredeemed portion of any Security being redeemed in part.

               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 designated for such Global Security
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
Security for all purposes of this Indenture.

               (2) Notwithstanding any other provision in this Indenture, no
Global Security may be exchanged in whole or in part for Securities 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 for such Global Security or a
nominee thereof unless (A) such 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)
there shall have occurred and be continuing an Event of Default with respect to
such Global Security or (C) there shall exist such circumstances, if any, in
addition to or in lieu of the foregoing as have been specified for this purpose
as contemplated by Section 301.

               (3) Subject to Clause (2) above, any exchange of a Global
Security for other Securities may be made in whole or in part, and all
Securities issued in exchange for a Global Security or any portion thereof shall
be registered in such names as the Depositary for such Global Security shall
direct.

               (4) Every Security authenticated and delivered upon registration
of transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Section, Section 304, 306, 906 or 1107
or otherwise, shall

                                       32

<PAGE>   40
be authenticated and delivered in the form of, and shall be, a Global Security,
unless such Security is registered in the name of a Person other than the
Depositary for such Global Security or a nominee thereof.

               SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES. If
any mutilated Security is surrendered to the Trustee, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a new
Security of the same series and of like tenor and principal amount and bearing a
number not contemporaneously outstanding.

               If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of the same series and of like tenor and principal amount and bearing a number
not contemporaneously outstanding.

               In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.

               Upon the issuance of any new Security under this Section, 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 (including the fees and expenses of the Trustee) connected therewith.

               Every new Security of any series issued pursuant to this Section
in lieu of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of that series duly issued hereunder.

               The provisions of this Section are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.

               SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Except as otherwise provided as contemplated by Section 301 with respect to any
series of Securities, interest on any Security which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be paid
to

                                       33

<PAGE>   41
the Person in whose name that Security (or one or more Predecessor Securities)
is registered at the close of business on the Regular Record Date for such
interest.

               Any interest on any Security of any series which is payable, but
is not punctually paid or duly provided for, on any Interest Payment Date
(herein called "Defaulted Interest") shall forthwith cease to be payable to the
Holder on the relevant Regular Record Date by virtue of having been such Holder,
and such Defaulted Interest may 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 Securities of such series (or their
respective Predecessor Securities) 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 proposed to be paid on each Security of such
series and the date of the proposed payment, and at the same time the Company
shall deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such 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 15 days and not less
than 10 days prior to the date of the proposed payment and not less than 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
given to each Holder of Securities of such series in the manner set forth in
Section 106, not less than 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 Securities of such series (or their respective
Predecessor Securities) are 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 on the
Securities of any series in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Securities may be listed,
and upon such notice as may be required by such exchange, 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.

                                       34

<PAGE>   42
               Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.

               Subject to the provisions of Section 1402, in the case of any
Security (or any part thereof) which is converted after any Regular Record Date
and on or prior to the next succeeding Interest Payment Date (other than any
Security the principal of (or premium, if any, on) which shall become due and
payable, whether at Stated Maturity or by declaration of acceleration prior to
such Interest Payment Date), interest whose Stated Maturity is on such Interest
Payment Date shall be payable on such Interest Payment Date notwithstanding such
conversion and such interest (whether or not punctually paid or duly provided
for) shall be paid to the Person in whose name that Security (or any one or more
Predecessor Securities) is registered at the close of business on such Regular
Record Date. Except as otherwise expressly provided in the immediately preceding
sentence or in Section 1402, in the case of any Security (or any part thereof)
which is converted, interest whose Stated Maturity is after the date of
conversion of such Security (or such part thereof) shall not be payable.

               SECTION 308. PERSONS DEEMED OWNERS. Prior to due presentment of a
Security for registration of transfer, the Company, the Trustee and any agent of
the Company or the Trustee may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of and any premium and (subject to Section 307) any interest on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and neither the Company, the Trustee nor any agent of the Company or
the Trustee shall be affected by notice to the contrary.

               SECTION 309. CANCELLATION. All Securities surrendered for
payment, redemption, registration of transfer or exchange or for credit against
any sinking fund payment shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and shall be promptly canceled by it. The
Company may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee (or to any
other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly canceled by the Trustee. No
Securities shall be authenticated in lieu of or in exchange for any Securities
canceled as provided in this Section, except as expressly permitted by this
Indenture. All canceled Securities held by the Trustee shall be disposed of as
directed by a Company Order.

                                       35

<PAGE>   43
               SECTION 310. COMPUTATION OF INTEREST. Except as otherwise
specified as contemplated by Section 301 for Securities of any series, interest
on the Securities of each series shall be computed on the basis of a 360-day
year of twelve 30-day months.

                                  ARTICLE FOUR

                           SATISFACTION AND DISCHARGE

               SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE. This
Indenture shall upon Company Request cease to be of further effect (except as to
any surviving rights of registration of transfer or exchange of Securities
herein expressly provided for), and the Trustee, at the expense of the Company,
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture, when

               (1) either

               (A) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 306 and (ii) Securities for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust, as provided in Section 1003) have been delivered to the Trustee for
cancellation; or

               (B) all such Securities not theretofore delivered to the Trustee
for cancellation

                (i) have become due and payable, or

                (ii) will become due and payable at their Stated Maturity within
        one year, or

                (iii) are to be called for redemption within one year under
        arrangements satisfactory to the Trustee for the giving of notice of
        redemption by the Trustee in the name, and at the expense, of the
        Company, and the Company, in the case of (i), (ii) or (iii) above, has
        deposited or caused to be deposited with the Trustee as trust funds in
        trust for the purpose money in an amount sufficient to pay and discharge
        the entire indebtedness on such Securities not theretofore delivered to
        the Trustee for cancellation, for principal and any premium and interest
        to the date of such deposit (in the case of Securities which have become
        due and payable) or to the Stated Maturity or Redemption Date, as the
        case may be;

                                       36

<PAGE>   44
               (2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and

               (3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.

               Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 607, the obligations
of the Trustee to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.

               SECTION 402. APPLICATION OF TRUST MONEY. Subject to the
provisions of the last paragraph of Section 1003, all money deposited with the
Trustee pursuant to Section 401 shall be held in trust and applied by it, in
accordance with the provisions of the Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal and any premium and interest for whose
payment such money has been deposited with the Trustee.

                                  ARTICLE FIVE

                                    REMEDIES

               SECTION 501. EVENTS OF DEFAULT. "Event of Default," wherever used
herein with respect to Securities of any series, means any one of the following
events (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):

               (1) default in the payment of any interest upon any Security of
that series when it becomes due and payable, and continuance of such default for
a period of 30 days; or

               (2) default in the payment of the principal of or any premium on
any Security of that series at its Maturity; or

                                       37

<PAGE>   45
               (3) default in the deposit of any sinking fund payment, when and
as due by the terms of a Security of that series; or

               (4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or warranty a
default in whose performance or whose breach is elsewhere in this Section
specifically dealt with or which has expressly been included in this Indenture
solely for the benefit of series of Securities other than that series), and
continuance of such default or breach for a period of 60 days after there has
been given, by registered or certified mail, to the Company by the Trustee or to
the Company and the Trustee by the Holders of at least 25% in principal amount
of the Outstanding Securities of that series a written notice specifying such
default or breach and requiring it to be remedied and stating that such notice
is a "Notice of Default" hereunder; or

               (5) the entry by a court having jurisdiction in the premises of
(A) a decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in respect
of the Company under any applicable Federal or State law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order for relief or any such other decree or order unstayed
and in effect for a period of 90 consecutive days; or

               (6) the commencement by the Company of a voluntary case or
proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the consent by it to the entry of a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable Federal or St ate bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, or the filing by it of a petition or
answer or consent seeking reorganization or relief under any applicable Federal
or State law, or the consent by it to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or of
any substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the admission by it in writing of its inability to
pay its debts generally as they become due, or the taking of corporate action by
the Company in furtherance of any such action; or

                                       38

<PAGE>   46
               (7) any other Event of Default provided with respect to
Securities of that series.

               SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than an Event of Default specified in Section
501(5) or 501(6)) with respect to Securities of any series at the time
Outstanding occurs and is continuing, then in every such case the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Securities
of that series may declare the principal amount of all the Securities of that
series (or, if any Securities of that series are Original Issue Discount
Securities, such portion of the principal amount of such Securities as may be
specified by the terms thereof) to be due and payable immediately, by a notice
in writing to the Company (and to the Trustee if given by Holders), and upon any
such declaration such principal amount (or specified amount) shall become
immediately due and payable. If an Event of Default specified in Section 501(5)
or 501(6) with respect to Securities of any series at the time Outstanding
occurs, the principal amount of all the Securities of that series (or, if any
Securities of that series are Original Issue Discount Securities, such portion
of the principal amount of such Securities as may be specified by the terms
thereof) shall automatically, and without any declaration or other action on the
part of the Trustee or any Holder, become immediately due and payable.

               At any time after such a declaration of acceleration with respect
to Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if

               (1) the Company has paid or deposited with the Trustee a sum
sufficient to pay

               (A) all overdue interest on all Securities of that series,

               (B) the principal (or other specified amount in the case of
Original Issue Discount Securities) of (and premium, if any, on) any Securities
of that series which have become due otherwise than by such declaration of
acceleration and any interest thereon at the rate or rates prescribed therefor
in such Securities,

               (C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate or rates prescribed therefor in such
Securities, and

                                       39

<PAGE>   47
               (D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and

               (2) all Events of Default with respect to Securities of that
series, other than the non-payment of the principal of Securities of that series
which have become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 513.

               No such rescission shall affect any subsequent default or impair
any right consequent thereon.

               SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE. The Company covenants that if

               (1) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default continues
for a period of 30 days, or

               (2) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof, the Company will,
upon demand of the Trustee, pay to it, for the benefit of the Holders of such
Securities, the whole amount then due and payable on such Securities for
principal and any premium and interest and, to the extent that payment of such
interest shall be legally enforceable, interest on any overdue principal and
premium and on any overdue interest, at the rate or rates prescribed therefor in
such Securities, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.

               If an Event of Default with respect to Securities of any series
occurs and is continuing, the Trustee may in its discretion proceed to protect
and enforce its rights and the rights of the Holders of Securities of such
series by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.

               SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of any
judicial proceeding relative to the Company (or any other obligor upon the
Securities), its property or its creditors, the Trustee shall be entitled and
empowered, by intervention in such proceeding or otherwise, to take any and all
actions authorized under the Trust Indenture Act in order to have claims of the
Holders and the Trustee allowed in any such proceeding. In particular, the
Trustee

                                       40

<PAGE>   48
shall be authorized to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Holder 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 Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 607.

               No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding; provided,
however, that the Trustee may, on behalf of the Holders, vote for the election
of a trustee in bankruptcy or similar official and be a member of a creditors'
or other similar committee.

               SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES. All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such 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 Securities in respect of which such
judgment has been recovered.

               SECTION 506. APPLICATION OF MONEY COLLECTED. Any money collected
by the Trustee pursuant to this Article shall be applied in the following order,
at the date or dates fixed by the Trustee and, in case of the distribution of
such money on account of principal or any premium or interest, upon presentation
of the Securities 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 607; and

               SECOND: To the payment of the amounts then due and unpaid for
principal of and any premium, if any, and interest on the Securities in respect
of which or for the benefit of which such money has been collected, ratably,
without

                                       41

<PAGE>   49
preference or priority of any kind, according to the amounts due and payable on
such Securities for principal and premium, if any, and interest, respectively.

               SECTION 507. LIMITATION ON SUITS. No Holder of any Security of
any series shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless

               (1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to the Securities of that
series;

               (2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;

               (3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;

               (4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding; and

               (5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities of that series;

it being understood and intended that no one or more of such Holders 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 of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.

               SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST AND TO CONVERT. Notwithstanding any other provision in this
Indenture, the Holder of any Security shall have the right, which is absolute
and unconditional, to receive payment of the principal of and any premium and
(subject to Section 307) interest on such Security on the respective Stated
Maturities expressed in such Security (or, in the case of redemption, on the
Redemption Date), to convert such Securities in accordance with Article Fourteen
and to institute suit for the enforcement of any such payment, and such rights
shall not be impaired without the consent of such Holder.

                                       42

<PAGE>   50
               SECTION 509. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee
or any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then
and in every such case, subject to any determination in such proceeding, the
Company, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.

               SECTION 510. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Securities in the last paragraph of Section 306, no right or
remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.

               SECTION 511. DELAY OR OMISSION NOT WAIVER. No delay or omission
of the Trustee or of any Holder of any Securities 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 an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee (subject to the limitations contained in this
Indenture) or by the Holders, as the case may be.

               SECTION 512. CONTROL BY HOLDERS. The Holders of a majority in
principal amount of the Outstanding Securities of any series 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, with respect to the Securities of such series, provided that

               (1) such direction shall not be in conflict with any rule of law
or with this Indenture and the Trustee shall not have determined that the action
so directed would be unjustly prejudicial to Holders of Securities of that
series, or any other series, not taking part in such direction, and

               (2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction or this Indenture.

                                       43

<PAGE>   51
               SECTION 513. WAIVER OF PAST DEFAULTS. The Holders of not less
than a majority in principal amount of the Outstanding Securities of any series
may on behalf of the Holders of all the Securities of such series waive any past
default hereunder with respect to such series and its consequences, except a
default

               (1) in the payment of the principal of or any premium or interest
on any Security of such series, or

               (2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security of such series affected.

               Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.

               SECTION 514. UNDERTAKING FOR COSTS. 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, suffered or omitted by it as Trustee, a court
may require any party litigant in such suit to file an undertaking to pay the
costs of such suit, and may assess costs against any such party litigant, in the
manner and to the extent provided in the Trust Indenture Act; provided that
neither this Section nor the Trust Indenture Act shall be deemed to authorize
any court to require such an undertaking or to make such an assessment in any
suit instituted by the Company or in any suit for the enforcement of the right
to convert any Security in accordance with Article Fourteen.

               SECTION 515. WAIVER OF USURY, STAY OR EXTENSION LAWS. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any usury, stay or extension law wherever enacted, now
or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not 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 had been enacted.

                                   ARTICLE SIX

                                   THE TRUSTEE

                                       44

<PAGE>   52
               SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES. The duties and
responsibilities of the Trustee shall be as provided by the Trust Indenture Act.
Notwithstanding the foregoing, no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it. Whether or not therein expressly
so 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.

               SECTION 602. NOTICE OF DEFAULTS. If a default occurs hereunder
with respect to Securities of any series which default is known to the Trustee,
the Trustee shall give the Holders of Securities of such series notice of such
default as and to the extent provided by the Trust Indenture Act; provided,
however, that in the case of any default of the character specified in Section
501(4) with respect to Securities of such series, no such notice to Holders
shall be given until at least 30 days after the occurrence thereof. For the
purpose of this Section, the term "default" means any event which is, or after
notice or lapse of time or both would become, an Event of Default with respect
to Securities of such series.

               SECTION 603. CERTAIN RIGHTS OF TRUSTEE. Subject to the provisions
of Section 601:

               (1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;

               (2) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order, and any
resolution of the Board of Directors shall be sufficiently evidenced by a Board
Resolution;

               (3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;

               (4) the Trustee may consult with counsel and the written advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and

                                       45

<PAGE>   53
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;

               (5) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;

               (6) 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, note, other evidence of indebtedness 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 upon reasonable advance
notice during normal business hours, personally or by agent or attorney; and

               (7) 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 Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.

               SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
SECURITIES. The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and neither the Trustee nor any Authenticating Agent assumes any
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of the Securities. Neither the
Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of Securities or the proceeds thereof.

               SECTION 605. MAY HOLD SECURITIES AND ACT AS TRUSTEE UNDER OTHER
INDENTURES. The Trustee, any Authenticating Agent, any Paying Agent, any
Security Registrar or any other agent of the Company, in its individual or any
other capacity, may become the owner or pledgee of Securities and, subject to
Sections 608 and 613, may otherwise deal with the Company with the same rights
it would have if it were not Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other agent.

               Subject to the limitations imposed by the Trust Indenture Act,
nothing in this Indenture shall prohibit the Trustee from becoming and acting as
trustee

                                       46

<PAGE>   54
under other indentures under which other securities, or certificates of interest
of participation in other securities, of the Company are outstanding in the same
manner as if it were not Trustee hereunder.

               SECTION 606. MONEY HELD IN TRUST. 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 otherwise agreed with the Company.

               SECTION 607. COMPENSATION AND REIMBURSEMENT. The Company agrees

               (1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);

               (2) except as otherwise expressly provided herein, to reimburse
the Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and

               (3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or bad faith
on its part, arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder.

               SECTION 608. CONFLICTING INTERESTS. 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. To the extent permitted by such Act, the Trustee shall
not be deemed to have a conflicting interest by virtue of being a trustee under
this Indenture with respect to Securities of more than one series.

               SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall
at all times be one (and only one) Trustee hereunder with respect to the
Securities of each series, which may be Trustee hereunder for Securities of one
or more other series. Each Trustee shall be a Person that is eligible pursuant
to the Trust Indenture Act to act as such and has (or if the Trustee is a
subsidiary of a

                                       47

<PAGE>   55
bank holding company its parent shall have) a combined capital and surplus of at
least $100,000,000. If any such Person publishes reports of condition at least
annually, pursuant to law or to the requirements of its supervising or examining
authority, then for the purposes of this Section and to the extent permitted by
the Trust Indenture Act, 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 with respect to the
Securities of any series 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 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
No resignation or removal of the Trustee and no appointment of a successor
Trustee pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the applicable
requirements of Section 611.

               The Trustee may resign at any time with respect to the Securities
of one or more series by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee required by Section 611 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Securities of such series.

               The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal amount
of the Outstanding Securities of such series, delivered to the Trustee and to
the Company.

               If at any time:

               (1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been a bona
fide Holder of a Security for at least six months, or

               (2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or by any
such Holder, 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, (A) the Company by a Board
Resolution may remove the

                                       48

<PAGE>   56
Trustee with respect to all Securities, or (B) subject to Section 514, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee with respect to all
Securities and the appointment of a successor Trustee or Trustees.

               If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, with
respect to the Securities of one or more series, the Company, by a Board
Resolution, shall promptly appoint a successor Trustee or Trustees with respect
to the Securities of that or those series (it being understood that any such
successor Trustee may be appointed with respect to the Securities of one or more
or all of such series and that at any time there shall be only one Trustee with
respect to the Securities of any particular series) and shall comply with the
applicable requirements of Section 611. If, within one year after such
resignation, removal or incapability, or the occurrence of such vacancy, a
successor Trustee with respect to the Securities of any series shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series delivered to the Company and the retiring
Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance
of such appointment in accordance with the applicable requirements of Section
611, become the successor Trustee with respect to the Securities of such series
and to that extent supersede the successor Trustee appointed by the Company. If
no successor Trustee with respect to the Securities of any series shall have
been so appointed by the Company or the Holders and accepted appointment in the
manner required by Section 611, the retiring Trustee may petition, or any Holder
who has been a bona fide Holder of a Security of such series for at least six
months may, on behalf of himself and all others similarly situated, petition,
any court of competent jurisdiction for the appointment of a successor Trustee
with respect to the Securities of such series.

               The Company shall give notice of each resignation and each
removal of the Trustee with respect to the Securities of any series and each
appointment of a successor Trustee with respect to the Securities of any series
to all Holders of Securities of such series in the manner provided in Section
106. Each notice shall include the name of the successor Trustee with respect to
the Securities of such series and the address of its Corporate Trust Office.

               SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. In case of
the appointment hereunder of a successor Trustee with respect to all Securities,
every such successor Trustee so appointed shall execute, acknowledge and deliver
to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the

                                       49

<PAGE>   57
retiring Trustee; but, on the request of the Company or the successor Trustee,
such retiring Trustee shall, upon payment of its charges, execute and deliver an
instrument transferring to such successor Trustee all the rights, powers and
trusts of the retiring Trustee and shall duly assign, transfer and deliver to
such successor Trustee all property and money held by such retiring Trustee
hereunder.

               In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor Trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (2)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(3) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co-trustees of the
same trust and that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee; and upon the execution and delivery of such supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates; but, on request of the Company or any successor Trustee, such
retiring Trustee shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder with
respect to the Securities of that or those series to which the appointment of
such successor Trustee relates.

               Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts referred
to in the first or second preceding paragraph, as the case may be.

               No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under this Article.

                                       50

<PAGE>   58
               SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS. Any corporation 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 succeeding to all or substantially all the corporate trust business
of the Trustee (including the trust created by this Indenture), shall be the
successor of the Trustee hereunder, provided such corporation shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto. In case
any Securities shall have been authenticated, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Securities
so authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.

               SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If and when the Trustee shall be or become a creditor of the Company (or any
other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).

               SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT. The Trustee may
appoint an Authenticating Agent or Agents with respect to one or more series of
Securities which shall be authorized to act on behalf of the Trustee to
authenticate Securities of such series issued upon original issue and upon
exchange, registration of transfer or partial redemption thereof or pursuant to
Section 306, and Securities so authenticated shall be entitled to the benefits
of this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as Authenticating
Agent, having (or if the Authenticating Agent is a subsidiary of a bank holding
company its parent shall have) a combined capital and surplus of not less than
$100,000,000 and subject to supervision or examination by Federal or State
authority. If such Authenticating Agent publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such Authenticating Agent 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 an

                                       51

<PAGE>   59
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.

               Any corporation into which an Authenticating Agent may be merged
or converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent (including the
authenticating agency contemplated by this Indenture), shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.

               An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
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 such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 106 to all Holders of Securities
of the series with respect to which such Authenticating Agent will serve. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.

               The Trustee agrees to pay to each Authenticating Agent from time
to time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 607.

               If an appointment with respect to one or more series is made
pursuant to this Section 614, the Securities of such series may have endorsed
thereon, in addition to the Trustee's certificate of authentication, an
alternative certificate of authentication in the following form:

               This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.

                           U.S. BANK TRUST NATIONAL ASSOCIATION, as
                               Trustee

                                       52

<PAGE>   60
                           By:
                              -------------------------------
                               As Authenticating Agent

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

                                  ARTICLE SEVEN

                HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY

               SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
HOLDERS. The Company will furnish or cause to be furnished to the Trustee

               (1) semi-annually, not later than 15 days after the Regular
Record Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders of Securities of each series as of such
Regular Record Date, as the case may be, and

               (2) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the time
such list is furnished;

provided that no such list need be furnished by the Company to the Trustee so
long as the Trustee is acting as Security Registrar.

               SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
HOLDERS. The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701, if any, and the names
and addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.

               The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding

                                       53

<PAGE>   61
rights and privileges of the Trustee, shall be as provided by the Trust
Indenture Act.

               Every Holder of Securities, 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 made pursuant to
the Trust Indenture Act.

               SECTION 703. REPORTS BY TRUSTEE. The Trustee shall transmit to
Holders such reports 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.

               Reports so required to be transmitted at stated intervals of not
more than 12 months shall be transmitted no later than July 1 in each calendar
year, commencing with the first July 1 after the first issuance of Securities
pursuant to this Indenture.

               A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which any Securities are listed, with the Commission and with the Company. The
Company will notify the Trustee when any Securities are listed on any stock
exchange.

               SECTION 704. REPORTS BY COMPANY. The Company shall file with the
Trustee and the Commission, and transmit to Holders, such information, documents
and other 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 the
Trust Indenture Act; provided that any such information, documents or reports
required to be filed by the Company 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.

                                  ARTICLE EIGHT

              CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

               SECTION 801. COMPANY MAY CONSOLIDATE, ETC. ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other Person (in a
transaction in which the Company is not the surviving corporation) or convey,
transfer or lease its properties and assets substantially as an entirety to any
Person, unless:

                                       54

<PAGE>   62
               (1) in case the Company shall consolidate with or merge into
another Person (in any transaction in which the Company is not the surviving
corporation) or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person which acquires
by conveyance or transfer, or which leases, the properties and assets of the
Company substantially as an entirety shall be a corporation, limited liability
company, partnership or trust, shall be organized and validly existing under the
laws of the United States of America, any State thereof or the District of
Columbia and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, the
due and punctual payment of the principal of and any premium and interest on all
the Securities and the performance or observance of every covenant of this
Indenture on the part of the Company to be performed or observed and the
conversion rights shall be provided for in accordance with Article Fourteen, if
applicable, or as otherwise specified pursuant to Section 301, by supplemental
indenture satisfactory in form to the Trustee, executed and delivered to the
Trustee, by the Person (if other than the Company) formed by such consolidation
or into which the Company shall have been merged or by the Person which shall
have acquired the Company's assets;

               (2) immediately after giving effect to such transaction and
treating any indebtedness which becomes an obligation of the Company or any
Subsidiary as a result of such transaction as having been incurred by the
Company or such Subsidiary at the time of such transaction, no Event of Default,
and no event which, after notice or lapse of time or both, would become an Event
of Default, shall have happened and be continuing; and

               (3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture comply
with this Article and that all conditions precedent herein provided for relating
to such transaction have been complied with.

               SECTION 802. SUCCESSOR SUBSTITUTED. Upon any consolidation of the
Company with, or merger of the Company into, any other Person or any conveyance,
transfer or lease of the properties and assets of the Company substantially as
an entirety in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under this Indenture and the
Securities.

                                       55

<PAGE>   63
                                  ARTICLE NINE

                             SUPPLEMENTAL INDENTURES

               SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:

               (1) to evidence the succession of another Person to the Company,
or successive successions, and the assumption by any such successor of the
covenants of the Company herein and in the Securities; or

               (2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are to be for
the benefit of less than all series of Securities, stating that such covenants
are expressly being included solely for the benefit of such series) or to
surrender any right or power herein conferred upon the Company; or

               (3) to add any additional Events of Default for the benefit of
the Holders of all or any series of Securities (and if such additional Events of
Default are to be for the benefit of less than all series of Securities, stating
that such additional Events of Default are expressly being included solely for
the benefit of such series); or

               (4) to add to or change any of the provisions of this Indenture
to such extent as shall be necessary to permit or facilitate the issuance of
Securities in bearer form, registrable or not registrable as to principal, and
with or without interest coupons, or to permit or facilitate the issuance of
Securities in uncertificated form; or

               (5) to add to, change or eliminate any of the provisions of this
Indenture in respect of one or more series of Securities, provided that any such
addition, change or elimination (A) shall neither (i) apply to any Security of
any series created prior to the execution of such supplemental indenture and
entitled to the benefit of such provision nor (ii) modify the rights of the
Holder of any such Security with respect to such provision or (B) shall become
effective only when there is no such Security Outstanding; or

               (6) to secure the Securities of any one or more series; or

                                       56

<PAGE>   64
               (7) to establish the form or terms of Securities of any series as
permitted by Sections 201 and 301; or

               (8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or more
series and to add to or change any of the provisions of this Indenture as shall
be necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of Section 611;
or

               (9) to make provision with respect to the conversion rights of
Holders or Holders of Securities of one or more series, pursuant to the
requirements of Article Fourteen, including providing for the conversion of the
securities into any security (other than the Common Stock of the Company) or
property of the Company; or

               (10) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or questions
arising under this Indenture, provided that such action pursuant to this Clause
(10) shall not adversely affect the interests of the Holders of Securities of
any series in any material respect; or

               (11) to supplement any of the provisions of the Indenture to such
extent as shall be necessary to permit or facilitate the defeasance and
discharge of any series of Securities pursuant to Articles Four and Thirteen,
provided that any such action shall not adversely affect the interests of the
Holders of Securities of such series or any other series of Securities in any
material respect.

               SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of a majority in principal amount of the
Outstanding Securities of each series affected by such supplemental indenture,
by Act of said Holders delivered to the Company and the Trustee, the Company,
when authorized by a Board Resolution, and the Trustee may 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 of modifying in any manner the rights of the Holders of
Securities of such series under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby,

               (1) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any Security, or reduce the
principal amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, or reduce the amount of the principal of an
Original Issue Discount Security or any other Security which would be due and
payable upon a

                                       57

<PAGE>   65
declaration of acceleration of the Maturity thereof pursuant to Section 502, or
change any Place of Payment where, or the coin or currency in which, any
Security or any premium or interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption, on or after the Redemption
Date), or modify the provisions of this Indenture with respect to the
subordination of such series of Securities in a manner adverse to the Holders of
Securities of such series, or

               (2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture, or

               (3) modify any of the provisions of this Section, Section 513 or
Section 1007, except to increase any percentage provided for herein or therein
or to provide that certain other provisions of this Indenture cannot be modified
or waived without the consent of the Holder of each Outstanding Security
affected thereby; provided, however, that this clause shall not be deemed to
require the consent of any Holder with respect to changes in the references to
"the Trustee" and concomitant changes in this Section and Section 1007, or the
deletion of this proviso, in accordance with the requirements of Sections 611
and 901(8), or

               (4) if applicable, make any change that adversely affects the
right to convert any security as provided in Article Fourteen or pursuant to
Section 301 (except as permitted by Section 901(9)) or decrease the conversion
rate or increase the conversion price of any such security.

               A supplemental indenture which changes or eliminates any covenant
or other provision of this Indenture which has expressly been included solely
for the benefit of one or more particular series of Securities, or which
modifies the rights of the Holders of Securities of such series with respect to
such covenant or other provision, shall be deemed not to affect the rights under
this Indenture of the Holders of Securities of any other series.

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

               SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing,
or accepting the additional trusts created by, any supplemental indenture
permitted by this Article or the modifications thereby of the trusts created by
this Indenture, the Trustee shall be entitled to receive, and (subject to
Sections 601 and 603) shall be fully protected in relying upon, an Opinion of

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<PAGE>   66
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.

               SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the
execution of any supplemental indenture under this Article, this Indenture shall
be modified in accordance therewith, and such supplemental indenture shall form
a part of this Indenture for all purposes; and every Holder of Securities
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby.

               SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT. Every
supplemental indenture executed pursuant to this Article shall conform to the
requirements of the Trust Indenture Act.

               SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities of any series authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities of such series.

                                   ARTICLE TEN

                                    COVENANTS

               SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The
Company covenants and agrees for the benefit of each series of Securities that
it will duly and punctually pay the principal of and any premium and interest on
the Securities of that series in accordance with the terms of the Securities and
this Indenture.

               SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY. The Company will
maintain in each Place of Payment for any series of Securities an office or
agency where Securities of that series may be presented or surrendered for
payment, where Securities of that series may be surrendered for registration of
transfer or exchange, where Securities of that series may be surrendered for
conversion and where notices and demands to or upon the Company in respect of
the Securities of that series and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in the

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<PAGE>   67
location, of such office or agency. 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 of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.

               The Company may also from time to time designate one or more
other offices or agencies where the Securities of one or more series may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in each Place of Payment for Securities of any series 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.

               SECTION 1003. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent with respect to any
series of Securities, it will, on or before each due date of the principal of or
any premium or interest on any of the Securities of that series, segregate and
hold in trust for the benefit of the Persons entitled thereto a sum sufficient
to pay the principal and any premium and interest so becoming due until such
sums shall be paid to such Persons or otherwise disposed of as herein provided
and will promptly notify the Trustee of its action or failure so to act.

               Whenever the Company shall have one or more Paying Agents for any
series of Securities, it will, on or prior to each due date of the principal of
or any premium or interest on any Securities of that series, deposit with a
Paying Agent a sum sufficient to pay such amount, such sum to be held as
provided by the Trust Indenture Act, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of its action or failure
so to act.

               The Company will cause each Paying Agent for any series of
Securities other than the Trustee to execute and deliver to the Trustee an
instrument in which such Paying Agent shall agree with the Trustee, subject to
the provisions of this Section, that such Paying Agent will (1) comply with the
provisions of the Trust Indenture Act applicable to it as a Paying Agent and (2)
during the continuance of any default by the Company (or any other obligor upon
the Securities of that series) in the making of any payment in respect of the
Securities of that series, upon the written request of the Trustee, forthwith
pay to the Trustee all sums held in trust by such Paying Agent for payment in
respect of the Securities of that series.

               The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by

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Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.

               Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of or any premium
or interest on any Security of any series and remaining unclaimed for a period
ending on the earlier of the date that is ten Business Days prior to the date
such money would escheat to the State or two years after such principal, premium
or interest has become due and payable shall be paid to the Company on Company
Request, or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Security shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the Company as trustee thereof, shall thereupon cease; provided, however,
that the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in a
newspaper published in the English language, customarily published on each
Business Day and of general circulation in each Place of Payment, notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.

               SECTION 1004. STATEMENT BY OFFICERS AS TO DEFAULT. The Company
will deliver to the Trustee, within 120 days after the end of each fiscal year
of the Company ending after the date hereof, an Officers' Certificate, stating
whether or not to the best knowledge of the signers thereof the Company is in
default in the performance and observance of any of the terms, provisions and
conditions of this Indenture (without regard to any period of grace or
requirement of notice provided hereunder) and, if the Company shall be in
default, specifying all such defaults and the nature and status thereof of which
they may have knowledge.

               SECTION 1005. EXISTENCE. Subject to Article Eight, the Company
will do or cause to be done all things necessary to preserve and keep in full
force and effect its existence.

               SECTION 1006. OPINIONS AS TO PLEDGED PROPERTY. In the case of any
series of Securities in respect of which the Company's obligations are secured
pursuant to an indenture supplemental hereto, promptly after the execution and
delivery of the supplemental indenture establishing such series of Securities,
and in any event prior to the first issuance of any Securities of such series,
the Company

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shall furnish to the Trustee an Opinion of Counsel stating that, in the opinion
of such counsel, such actions have been taken with respect to the recording and
filing of this Indenture and such supplemental indenture relating to such series
of Securities and with respect to the execution and filing of any financing
statements and continuation statements as are necessary to make effective and
perfect the Lien and security interest intended to be created by this Indenture
and such indenture supplemental hereto in favor of the Trustee for the benefit
of the Holders of Securities of such series, and reciting the details of such
action, or stating that, in the opinion of such counsel, no such action is
necessary to make such Lien and security interest effective.

               If after the first issuance of Securities of a particular series
in respect of which the Company's obligations are secured pursuant to an
indenture supplemental hereto the Company shall execute any other supplemental
indenture or other requisite document relating to such series of Securities,
promptly after such execution the Company shall furnish to the Trustee an
Opinion of Counsel stating that, in the opinion of such counsel, such actions
have been taken with respect to the recording, filing, re-recording and refiling
of this Indenture and any such supplemental indentures other requisite documents
relating to such series of Securities and with respect to the execution and
filing of any financing statements and continuation statements as are necessary
to make effective and perfect the Lien and security interest intended to be
created by this Indenture, such indentures supplemental hereto and such other
requisite documents in favor of the Trustee for the benefit of Holders of
Securities of such series and reciting the details of such action or referring
to prior Opinions of Counsel in which such details are given, or stating that,
in the opinion of such counsel, no such action is necessary to make such Lien
and security interest effective.

               On or before May 1, in each calendar year, beginning with the
first calendar year commencing more than three months after the date of
authentication and delivery of any Securities of any series that are secured by
any Lien on property, the Company shall furnish to the Trustee an Opinion of
Counsel either stating that, in the opinion of such counsel, such action has
been taken with respect to the recording, filing, re-recording and re-filing of
this Indenture, any indentures supplemental hereto and any other requisite
documents and with respect to the execution and filing of any financing
statements and continuation statements as is necessary to maintain the Lien and
security interest created by this Indenture and any such indentures supplemental
hereto with respect to the property pledged to secure such Securities and
reciting the details of such action or stating that in the opinion of such
counsel no such action is necessary to maintain such Lien and security interest.
Such Opinion of Counsel shall also describe the recording, filing,

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re-recording and re-filing of this Indenture, any indentures supplemental hereto
and any other requisite documents and the execution and filing of any financing
statements and any other requisite documents and the execution and filing of any
financing statements and continuation statements that will, in the opinion of
such counsel, be required to maintain the Lien and security interest of this
Indenture and any such indentures supplemental hereto with respect to such
property until May 1 in the following calendar year.

               SECTION 1007. WAIVER OF CERTAIN COVENANTS. Except as otherwise
specified as contemplated by Section 301 for Securities of such series, the
Company may, with respect to the Securities of any series, omit in any
particular instance to comply with any term, provision or condition set forth in
any covenant provided pursuant to Section 301(19), 901(2) or 901(7) for the
benefit of the Holders of such series if before the time for such compliance the
Holders of at least 50% in principal amount of the Outstanding Securities of
such series shall, by Act of such Holders, either waive such compliance in such
instance or generally waive compliance with such term, provision or condition,
but no such waiver shall extend to or affect such term, provision or condition
except to the extent so expressly waived, and, until such waiver shall become
effective, the obligations of the Company and the duties of the Trustee in
respect of any such term, provision or condition shall remain in full force and
effect.

                                 ARTICLE ELEVEN

                            REDEMPTION OF SECURITIES

               SECTION 1101. APPLICABILITY OF ARTICLE. Securities of any series
which are redeemable before their Stated Maturity shall be redeemable in
accordance with their terms and (except as otherwise specified as contemplated
by Section 301 for such Securities) in accordance with this Article.

               SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE. The election
of the Company to redeem any Securities shall be evidenced by a Board Resolution
or in another manner specified as contemplated by Section 301 for such
Securities. In case of any redemption at the election of the Company of less
than all the Securities of any series (including any such redemption affecting
only a single Security), the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the
principal amount of Securities of such series to be redeemed and, if applicable,
of the tenor of the Securities to be redeemed. In the case of any redemption of
Securities prior to the expiration of any restriction on such redemption
provided in the terms of such Securities or elsewhere

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in this Indenture, the Company shall furnish the Trustee with an Officers'
Certificate evidencing compliance with such restriction.

               SECTION 1103. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
If less than all the Securities of any series are to be redeemed (unless all the
Securities of such series and of a specified tenor are to be redeemed or unless
such redemption affects only a single Security), the particular Securities to be
redeemed shall be selected not more than 60 days prior to the Redemption Date by
the Trustee, from the Outstanding Securities of such series not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of a portion
of the principal amount of any Security of such series, provided that the
unredeemed portion of the principal amount of any Security shall be in an
authorized denomination (which shall not be less than the minimum authorized
denomination) for such Security. If less than all the Securities of such series
and of a specified tenor are to be redeemed (unless such redemption affects only
a single Security), the particular Securities to be redeemed shall be selected
not more than 60 days prior to the Redemption Date by the Trustee, from the
Outstanding Securities of such series and specified tenor not previously called
for redemption in accordance with the preceding sentence.

               If any Security selected for partial redemption is converted in
part before termination of the conversion right with respect to the portion of
the Security so selected, the converted portion of such Security shall be deemed
(so far as may be) to be the portion selected for redemption. Securities which
have been converted during a selection of Securities to be redeemed shall be
treated by the Trustee as Outstanding for the purpose of such selection.

               The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption as aforesaid and, in case of any Securities
selected for partial redemption as aforesaid, the principal amount thereof to be
redeemed.

               The provisions of the two preceding paragraphs shall not apply
with respect to any redemption affecting only a single Security, whether such
Security is to be redeemed in whole or in part. In the case of any such
redemption in part, the unredeemed portion of the principal amount of the
Security shall be in an authorized denomination (which shall not be less than
the minimum authorized denomination) for such Security.

               For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.

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               SECTION 1104. NOTICE OF REDEMPTION. Notice of redemption shall be
given by first-class mail, postage prepaid, mailed not less than 30 nor more
than 60 days prior to the Redemption Date, to each Holder of Securities to be
redeemed, at its address appearing in the Security Register.

               All notices of redemption shall state:

                (1) the Redemption Date,

                (2) the Redemption Price (including accrued interest, if any),

                (3) if less than all the Outstanding Securities of any series
        consisting of more than a single Security are to be redeemed, the
        identification (and, in the case of partial redemption of any such
        Securities, the principal amounts) of the particular Securities to be
        redeemed and, if less than all the Outstanding Securities of any series
        consisting of a single Security are to be redeemed, the principal amount
        of the particular Security to be redeemed,

                (4) that on the Redemption Date the Redemption Price will become
        due and payable upon each such Security to be redeemed and, if
        applicable, that interest thereon will cease to accrue on and after said
        date,

                (5) the place or places where each such Security is to be
        surrendered for payment of the Redemption Price,

                (6) if applicable, the conversion price, that the date on which
        the right to convert the principal of the Securities or the portions
        thereof to be redeemed will terminate will be the Redemption Date and
        the place or places where such Securities may be surrendered for
        conversion, and

                (7) that the redemption is for a sinking fund, if such is the
        case.

               Notice of redemption of Securities to be redeemed at the election
of the Company shall be given by the Company or, at the Company's request, by
the Trustee in the name and at the expense of the Company and shall be
irrevocable.

               SECTION 1105. DEPOSIT OF REDEMPTION PRICE. On or prior to any
Redemption 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 1003) an amount of money sufficient to pay the
Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date) accrued interest on, all the Securities which are to be redeemed
on that date.

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<PAGE>   73
               If any Security called for redemption is converted, any money
deposited with the Trustee or with a Paying Agent or so segregated and held in
trust for the redemption of such Security shall (subject to the right of any
Holder of such Security to receive interest as provided in the last paragraph of
Section 307) be paid to the Company on Company Request, or if then held by the
Company, shall be discharged from such trust.

               SECTION 1106. SECURITIES PAYABLE ON REDEMPTION DATE. Notice of
redemption having been given as aforesaid, the Securities so to be redeemed
shall, on the Redemption Date, become due and payable at the Redemption Price
therein specified, and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest. Upon surrender of any such Security for
redemption in accordance with said notice, such Security shall be paid by the
Company at the Redemption Price, together with accrued interest to the
Redemption Date; provided, however, that, unless otherwise specified as
contemplated by Section 301, installments of interest whose Stated Maturity is
on or prior to the Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such at the
close of business on the relevant Record Dates according to their terms and the
provisions of Section 307.

               If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and any premium shall, until
paid, bear interest from the Redemption Date at the rate prescribed therefor in
the Security.

               SECTION 1107. SECURITIES REDEEMED IN PART. Any Security which is
to be redeemed only in part shall be surrendered at a Place of Payment therefor
(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 Security without service charge, a new Security or
Securities of the same series and of like tenor, of any authorized denomination
as requested by such Holder, in aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal of the Security so
surrendered.

                                 ARTICLE TWELVE

                                  SINKING FUNDS

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               SECTION 1201. APPLICABILITY OF ARTICLE. The provisions of this
Article shall be applicable to any sinking fund for the retirement of Securities
of any series except as otherwise specified as contemplated by Section 301 for
such Securities.

               The minimum amount of any sinking fund payment provided for by
the terms of any Securities is herein referred to as a "mandatory sinking fund
payment," and any payment in excess of such minimum amount provided for by the
terms of such Securities is herein referred to as an "optional sinking fund
payment." If provided for by the terms of any Securities, the cash amount of any
sinking fund payment may be subject to reduction as provided in Section 1202.
Each sinking fund payment shall be applied to the redemption of Securities as
provided for by the terms of such Securities.

               SECTION 1202. SATISFACTION OF SINKING FUND PAYMENTS WITH
SECURITIES. The Company (1) may deliver Outstanding Securities of a series
(other than any previously called for redemption) and (2) may apply as a credit
Securities of a series which have been redeemed either at the election of the
Company pursuant to the terms of such Securities or through the application of
permitted optional sinking fund payments pursuant to the terms of such
Securities, in each case in satisfaction of all or any part of any sinking fund
payment with respect to any Securities of such series required to be made
pursuant to the terms of such Securities as and to the extent provided for by
the terms of such Securities; provided that the Securities to be so credited
have not been previously so credited. The Securities to be so credited shall be
received and credited for such purpose by the Trustee at the Redemption Price,
as specified in the Securities so to be redeemed, for redemption through
operation of the sinking fund and the amount of such sinking fund payment shall
be reduced accordingly.

               SECTION 1203. REDEMPTION OF SECURITIES FOR SINKING FUND. Not less
than 60 days prior to each sinking fund payment date for any Securities, the
Company will deliver to the Trustee an Officers' Certificate specifying the
amount of the next ensuing sinking fund payment for such Securities pursuant to
the terms of such Securities, the portion thereof, if any, which is to be
satisfied by payment of cash and the portion thereof, if any, which is to be
satisfied by delivering and crediting Securities pursuant to Section 1202 and
will also deliver to the Trustee any Securities to be so delivered. Not less
than 30 days prior to each such sinking fund payment date, the Trustee shall
select the Securities to be redeemed upon such sinking fund payment date in the
manner specified in Section 1103 and cause notice of the redemption thereof to
be given in the name of and at the expense of the Company in the manner provided
in Section 1104. Such notice having been duly given, the redemption of such
Securities shall be made upon the terms and in the manner stated in Sections
1106 and 1107.

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                                ARTICLE THIRTEEN

                       DEFEASANCE AND COVENANT DEFEASANCE

               SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT
DEFEASANCE. The Company may elect, at its option at any time, to have Section
1302 or Section 1303 applied to any Securities or any series of Securities, as
the case may be, designated pursuant to Section 301 as being defeasible pursuant
to such Section 1302 or 1303, in accordance with any applicable requirements
provided pursuant to Section 301 and upon compliance with the conditions set
forth below in this Article. Any such election shall be evidenced by a Board
Resolution or in another manner specified as contemplated by Section 301 for
such Securities.

               SECTION 1302. DEFEASANCE AND DISCHARGE. Upon the Company's
exercise of its option (if any) to have this Section applied to any Securities
or any series of Securities, as the case may be, the Company shall be deemed to
have been discharged from its obligations with respect to such Securities as
provided in this Section on and after the date the conditions set forth in
Section 1304 are satisfied (hereinafter called "Defeasance"). For this purpose,
such Defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by such Securities and to have
satisfied all its other obligations under such Securities and this Indenture
insofar as such Securities are concerned (and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging the same), subject to
the following which shall survive until otherwise terminated or discharged
hereunder: (1) the rights of Holders of such Securities to receive, solely from
the trust fund described in Section 1304 and as more fully set forth in such
Section, payments in respect of the principal of and any premium and interest on
such Securities when payments are due, (2) the Company's obligations with
respect to such Securities under Sections 304, 305, 306, 1002 and 1003, and, if
applicable, Article Fourteen, (3) the rights, powers, trusts, duties and
immunities of the Trustee hereunder and (4) this Article. Subject to compliance
with this Article, the Company may exercise its option (if any) to have this
Section applied to any Securities notwithstanding the prior exercise of its
option (if any) to have Section 1303 applied to such Securities.

               SECTION 1303. COVENANT DEFEASANCE. Upon the Company's exercise of
its option (if any) to have this Section applied to any Securities or any series
of Securities, as the case may be, (1) the Company shall be released from its
obligations under any covenants provided pursuant to Section 301(19), 901(2) or
901(7) for the benefit of the Holders of such Securities and (2) the occurrence
of any event specified in Section 501(4) (with respect to any such covenants
provided pursuant to Section 301(19), 901(2) or 901(7)), shall be deemed not to
be or result in an Event of Default, in each case with respect to such
Securities as provided in this

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Section on and after the date the conditions set forth in Section 1304 are
satisfied (hereinafter called "Covenant Defeasance"). For this purpose, such
Covenant Defeasance means that, with respect to such Securities, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such specified Section (to the extent
so specified in the case of Section 501(4)), whether directly or indirectly by
reason of any reference elsewhere herein to any such Section or Article or by
reason of any reference in any such Section or Article to any other provision
herein or in any other document, but the remainder of this Indenture and such
Securities shall be unaffected thereby.

               SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of Section 1302 or
Section 1303 to any Securities or any series of Securities, as the case may be:

               (1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee which satisfies the requirements
contemplated by Section 609 and agrees to comply with the provisions of this
Article applicable to it) as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefits of the Holders of such Securities, (A) money in an amount, or
(B) U.S. Government Obligations which through the scheduled payment of principal
and interest in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any payment, money in an amount, or
(C) a combination thereof, in each case sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge,
and which shall be applied by the Trustee (or any such other qualifying trustee)
to pay and discharge, the principal of and any premium and interest on such
Securities on the respective Stated Maturities, in accordance with the terms of
this Indenture and such Securities. As used herein, "U.S. Government Obligation"
means (x) any security which is (i) a direct obligation of the United States of
America for the payment of which the full faith and credit of the United States
of America is pledged or (ii) an obligation of a Person controlled or supervised
by and acting as an agency or instrumentality of the United States of America
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case (i) or (ii),
is not callable or redeemable at the option of the issuer thereof, and (y) any
depositary receipt issued by a bank (as defined in Section 3(a)(2) of the
Securities Act) as custodian with respect to any U.S. Government Obligation
which is specified in Clause (x) above and held by such bank for the account of
the holder of such depositary receipt, or with respect to any specific payment
of principal of or interest on any U.S. Government Obligation which is so
specified and held, provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depositary receipt from

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<PAGE>   77
any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal or interest evidenced by such
depositary receipt.

               (2) In the event of an election to have Section 1302 apply to any
Securities or any series of Securities, as the case may be, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (A) the Company
has received from, or there has been published by, the Internal Revenue Service
a ruling or (B) since the date of this instrument, there has been a change in
the applicable Federal income tax law, in either case (A) or (B) to the effect
that, and based thereon such opinion shall confirm that, the Holders of such
Securities will not recognize gain or loss for Federal income tax purposes as a
result of the deposit, Defeasance and discharge to be effected with respect to
such Securities and will be subject to Federal income tax on the same amount, in
the same manner and at the same times as would be the case if such deposit,
Defeasance and discharge were not to occur.

               (3) In the event of an election to have Section 1303 apply to any
Securities or any series of Securities, as the case may be, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of such Securities will not recognize gain or loss for Federal income
tax purposes as a result of the deposit and Covenant Defeasance to be effected
with respect to such Securities and will be subject to Federal income tax on the
same amount, in the same manner and at the same times as would be the case if
such deposit and Covenant Defeasance were not to occur.

               (4) The Company shall have delivered to the Trustee an Officers'
Certificate to the effect that neither such Securities nor any other Securities
of the same series, if then listed on any securities exchange, will be delisted
as a result of such deposit.

               (5) No event which is, or after notice or lapse of time or both
would become, an Event of Default with respect to such Securities or any other
Securities shall have occurred and be continuing at the time of such deposit or,
with regard to any such event specified in Sections 501(5) and (6), at any time
on or prior to the 90th day after the date of such deposit (it being understood
that this condition shall not be deemed satisfied until after such 90th day).

               (6) Such Defeasance or Covenant Defeasance shall not cause the
Trustee to have a conflicting interest within the meaning of the Trust Indenture
Act (assuming all Securities are in default within the meaning of such Act).

               (7) Such Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any other agreement or
instrument to which the Company is a party or by which it is bound.

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               (8) Such Defeasance or Covenant Defeasance shall not result in
the trust arising from such deposit constituting an investment company within
the meaning of the Investment Company Act unless such trust shall be registered
under such Act or exempt from registration thereunder.

               (9) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Defeasance or Covenant Defeasance have been
complied with.

               SECTION 1305. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO
BE HELD IN TRUST; MISCELLANEOUS PROVISIONS. Subject to the provisions of the
last paragraph of Section 1003, all money and U.S. Government Obligations
(including the proceeds thereof) deposited with the Trustee or other qualifying
trustee (solely for purposes of this Section and Section 1306, the Trustee and
any such other trustee are referred to collectively as the "Trustee") pursuant
to Section 1304 in respect of any Securities shall be held in trust and applied
by the Trustee, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any such Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities, of all sums due and to become due
thereon in respect of principal and any premium and interest, but money so held
in trust need not be segregated from other funds except to the extent required
by law.

               The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 1304 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of Outstanding Securities.

               Anything in this Article to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1304 with respect to any Securities which, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, are in excess of the
amount thereof which would then be required to be deposited to effect the
Defeasance or Covenant Defeasance, as the case may be, with respect to such
Securities.

               SECTION 1306. REINSTATEMENT. If the Trustee or the Paying Agent
is unable to apply any money in accordance with this Article with respect to any
Securities by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the obligations under this Indenture and such Securities from which the Company
has

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been discharged or released pursuant to Section 1302 or 1303 shall be revived
and reinstated as though no deposit had occurred pursuant to this Article with
respect to such Securities, until such time as the Trustee or Paying Agent is
permitted to apply all money held in trust pursuant to Section 1305 with respect
to such Securities in accordance with this Article; provided, however, that if
the Company makes any payment of principal of or any premium or interest on any
such Security following such reinstatement of its obligations, the Company shall
be subrogated to the rights (if any) of the Holders of such Securities to
receive such payment from the money so held in trust.

                                ARTICLE FOURTEEN

                            CONVERSION OF SECURITIES

               SECTION 1401. APPLICABILITY OF ARTICLE. The provisions of this
Article shall be applicable to the Securities of any series which are
convertible into shares of Common Stock of the Company, and the issuance of such
shares of Common Stock upon the conversion of such Securities, except as
otherwise specified as contemplated by Section 301 for the Securities of such
series.

               SECTION 1402. EXERCISE OF CONVERSION PRIVILEGE. In order to
exercise a conversion privilege, the Holder of a Security of a series with such
a privilege shall surrender such Security to the Company at the office or agency
maintained for that purpose pursuant to Section 1002, accompanied by a duly
executed conversion notice to the Company substantially in the form set forth in
Section 206 stating that the Holder elects to convert such Security or a
specified portion thereof. Such notice shall also state, if different from the
name and address of such Holder, 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. Securities surrendered for conversion shall
(if so required by the Company or the Trustee) be duly endorsed by or
accompanied by instruments of transfer in forms satisfactory to the Company and
the Trustee duly executed by the registered Holder or its attorney duly
authorized in writing; and Securities so surrendered for conversion (in whole or
in part) during the period from the close of business on any Regular Record Date
to the opening of business on the next succeeding Interest Payment Date
(excluding Securities or portions thereof called for redemption during the
period beginning at the close of business on a Regular Record Date and ending at
the opening of business on the first Business Day after the next succeeding
Interest Payment Date, or if such Interest Payment Date is not a Business Day,
the second such Business Day) shall also be accompanied by payment in funds
acceptable to the Company of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of such Security then being
converted, and such interest shall be payable to such registered Holder

                                       72

<PAGE>   80
notwithstanding the conversion of such Security, subject to the provisions of
Section 307 relating to the payment of Defaulted Interest by the Company. As
promptly as practicable after the receipt of such notice and of any payment
required pursuant to a Board Resolution and, subject to Section 303, set forth,
or determined in the manner provided, in an Officers' Certificate, or
established in one or more indentures supplemental hereto setting forth the
terms of such series of Security, and the surrender of such Security in
accordance with such reasonable regulations as the Company may prescribe, the
Company shall issue and shall deliver, at the office or agency at which such
Security is surrendered, to such Holder or on its written order, a certificate
or certificates for the number of full shares of Common Stock issuable upon the
conversion of such Security (or specified portion thereof), in accordance with
the provisions of such Board Resolution, Officers' Certificate or supplemental
indenture, and cash as provided therein in respect of any fractional share of
such Common Stock otherwise issuable upon such conversion. Such conversion shall
be deemed to have been effected immediately prior to the close of business on
the date on which such notice and such payment, if required, shall have been
received in proper order for conversion by the Company and such Security shall
have been surrendered as aforesaid (unless such Holder shall have so surrendered
such Security and shall have instructed the Company to effect the conversion on
a particular date following such surrender and such Holder shall be entitled to
convert such Security on such date, in which case such conversion shall be
deemed to be effected immediately prior to the close of business on such date)
and at such time the rights of the Holder of such Security as such Security
Holder shall cease and the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock of the Company shall be
issuable upon such conversion shall be deemed to have become the Holder or
Holders of record of the shares represented thereby. Except as set forth above
and subject to the final paragraph of Section 307, no payment or adjustment
shall be made upon any conversion on account of any interest accrued on the
Securities (or any part thereof) surrendered for conversion or on account of any
dividends on the Common Stock of the Company issued upon such conversion.

               In the case of any Security which is converted in part only, upon
such conversion the Company shall execute and the Trustee shall authenticate and
deliver to or on the order of the Holder thereof, at the expense of the Company,
a new Security or Securities of the same series, of authorized denominations, in
aggregate principal amount equal to the unconverted portion of such Security.

               SECTION 1403. NO FRACTIONAL SHARES. No fractional share of Common
Stock of the Company shall be issued upon conversions of Securities of any
series. If more than one Security 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 Securities (or specified portions thereof to the extent permitted hereby) so
surrendered. If,

                                       73

<PAGE>   81
except for the provisions of this Section 1403, any Holder of a Security or
Securities would be entitled to a fractional share of Common Stock of the
Company upon the conversion of such Security or Securities, or specified
portions thereof, the Company shall pay to such Holder an amount in cash equal
to the current market value of such fractional share computed, (i) if such
Common Stock is listed or admitted to unlisted trading privileges on a national
securities exchange or market, on the basis of the last reported sale price
regular way on such exchange or market on the last trading day prior to the date
of conversion upon which such a sale shall have been effected, or (ii) if such
Common Stock is not at the time so listed or admitted to unlisted trading
privileges on a national securities exchange or market, on the basis of the
average of the bid and asked prices of such Common Stock in the over-the-counter
market, on the last trading day prior to the date of conversion, as reported by
the National Quotation Bureau, Incorporated or similar organization if the
National Quotation Bureau, Incorporated is no longer reporting such information,
or if not so available, the fair market price as determined by the Board of
Directors. For purposes of this Section, "trading day" shall mean each Monday,
Tuesday, Wednesday, Thursday and Friday other than any day on which the Common
Stock is not traded on the Nasdaq National Market, or if the Common Stock is not
traded on the Nasdaq National Market, on the principal exchange or market on
which the Common Stock is traded or quoted.

               SECTION 1404. ADJUSTMENT OF CONVERSION PRICE. The conversion
price of Securities of any series that is convertible into Common Stock of the
Company shall be adjusted for any stock dividends, stock splits,
reclassifications, combinations or similar transactions in accordance with the
terms of the supplemental indenture or Board Resolutions setting forth the terms
of the Securities of such series.

               Whenever the conversion price is adjusted, the Company shall
compute the adjusted conversion price in accordance with terms of the applicable
Board Resolution or supplemental indenture and shall prepare an Officers'
Certificate setting forth the adjusted conversion price and showing in
reasonable detail the facts upon which such adjustment is based, and such
certificate shall forthwith be filed at each office or agency maintained for the
purpose of conversion of Securities pursuant to Section 1002 and, if different,
with the Trustee. The Company shall forthwith cause a notice setting forth the
adjusted conversion price to be mailed, first class postage prepaid, to each
Holder of Securities of such series at its address appearing on the Security
Register and to any conversion agent other than the Trustee. Unless and until a
Responsible Officer of the Trustee shall have received an Officers' Certificate
setting forth an adjustment of the conversion price, the Trustee may assume that
no such adjustment has been made and that the last conversion price of which it
has knowledge remains in effect.

               SECTION 1405. NOTICE OF CERTAIN CORPORATE ACTIONS. In case:

                                       74

<PAGE>   82
               (1) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable otherwise than in cash out of its
retained earnings (other than a dividend for which approval of any shareholders
of the Company is required) that would require an adjustment pursuant to Section
1404; or

               (2) the Company shall authorize the granting to all or
substantially all of the holders of its Common Stock of rights, options or
warrants to subscribe for or purchase any shares of capital stock of any class
or of any other rights (other than any such grant for which approval of any
shareholders of the Company is required); or

               (3) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding shares of Common
Stock, or of any consolidation, merger or share exchange to which the Company is
a party and for which approval of any shareholders of the Company is required),
or of the sale of all or substantially all of the assets of the Company; or

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

then the Company shall cause to be filed with the Trustee, and shall cause to be
mailed to all Holders at their last addresses as they shall appear in the
Security Register, at least 20 days (or 10 days in any case specified in Clause
(1) or (2) above) prior to the applicable record date hereinafter specified, a
notice in the form of an Officers' Certificate stating (i) the date on which a
record is to be taken for the purpose of such dividend, distribution, rights,
options 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, rights, options or warrants are to be determined, or (ii) the date
on which such reclassification, consolidation, merger, share exchange, sale,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger, share
exchange, sale, dissolution, liquidation or winding up. If at any time the
Trustee shall not be the conversion agent, a copy of such notice shall also
forthwith be filed by the Company with the Trustee. Unless and until a
Responsible Officer of the Trustee shall have received such Officers'
Certificate, the Trustee shall not be charged with knowledge of any event
described in this Section 1405.

               SECTION 1406. RESERVATION OF SHARES OF COMMON STOCK. The Company
shall at all times reserve and keep available, free from preemptive rights, out
of its authorized but unissued Common Stock, for the purpose of effecting the
conversion of Securities, the full number of shares of Common Stock of the

                                       75

<PAGE>   83
Company then issuable upon the conversion of all outstanding Securities of any
series that has conversion rights.

               SECTION 1407. PAYMENT OF CERTAIN TAXES UPON CONVERSION. Except as
provided in the next sentence, the Company will pay any and all taxes that may
be payable in respect of the issue or delivery of shares of its Common Stock on
conversion of Securities pursuant hereto. 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 shares of its Common Stock in a name other than
that of the Holder of the Security or Securities to be converted, and no such
issue or delivery shall be made unless and until the Person requesting such
issue has paid to the Company the amount of any such tax, or has established, to
the satisfaction of the Company, that such tax has been paid.

               SECTION 1408. NONASSESSABILITY. The Company covenants that all
shares of its Common Stock which may be issued upon conversion of Securities
will upon issue in accordance with the terms hereof be duly and validly issued
and fully paid and nonassessable.

               SECTION 1409. PROVISION IN CASE OF CONSOLIDATION, MERGER OR SALE
OF ASSETS. In case of any consolidation or merger of the Company with or into
any other Person, any merger of another Person with or into the Company (other
than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock of the Company)
or any conveyance, sale, transfer or lease of all or substantially all of the
assets of the Company, the Person formed by such consolidation or resulting from
such merger or which acquires such assets, as the case may be, shall execute and
deliver to the Trustee a supplemental indenture providing that the Holder of
each Security of a series then Outstanding that is convertible into Common Stock
of the Company shall have the right thereafter (which right shall be the
exclusive conversion right thereafter available to said Holder), during the
period such Security shall be convertible, to convert such Security only into
the kind and amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer or lease by a holder of the
number of shares of Common Stock of the Company into which such Security might
have been converted immediately prior to such consolidation, merger, conveyance,
sale, transfer or lease, assuming such holder of Common Stock of the Company (i)
is not a Person with which the Company consolidated or merged with or into or
which merged into or with the Company or to which such conveyance, sale,
transfer or lease was made, as the case may be (a "Constituent Person"), or an
Affiliate of a Constituent Person and (ii) failed to exercise his rights of
election, if any, as to the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance, sale, transfer
or lease (provided that if the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance, sale,

                                       76

<PAGE>   84
transfer, or lease is not the same for each share of Common Stock of the Company
held immediately prior to such consolidation, merger, conveyance, sale, transfer
or lease by others than a Constituent Person or an Affiliate thereof and in
respect of which such rights of election shall not have been exercised
("Non-electing Share"), then for the purpose of this Section 1409 the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer or lease by the holders of
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, for events subsequent to the
effective date of such supplemental indenture, shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article or in
accordance with the terms of the supplemental indenture or Board Resolutions
setting forth the terms of such adjustments. The above provisions of this
Section 1409 shall similarly apply to successive consolidations, mergers,
conveyances, sales, transfers or leases. Notice of the execution of such a
supplemental indenture shall be given by the Company to the Holder of each
Security of a series that is convertible into Common Stock of the Company as
provided in Section 106 promptly upon such execution.

               Neither the Trustee nor any conversion agent, if any, shall be
under any responsibility to determine the correctness of any provisions
contained in any such supplemental indenture relating either to the kind or
amount of shares of stock or other securities or property or cash receivable by
Holders of Securities of a series convertible into Common Stock of the Company
upon the conversion of their Securities after any such consolidation, merger,
conveyance, transfer, sale or lease or to any such adjustment, but may accept as
conclusive evidence of the correctness of any such provisions, and shall be
protected in relying upon, an Opinion of Counsel with respect thereto, which the
Company shall cause to be furnished to the Trustee upon request.

               SECTION 1410. DUTIES OF TRUSTEE REGARDING CONVERSION. Neither the
Trustee nor any conversion agent shall at any time be under any duty or
responsibility to any Holder of Securities of any series that is convertible
into Common Stock of the Company to determine whether any facts exist which may
require any adjustment of the conversion price, or with respect to the nature or
extent of any such adjustment when made, or with respect to the method employed,
whether herein or in any supplemental indenture, any resolutions of the Board of
Directors or written instrument executed by one or more officers of the Company
provided to be employed in making the same. Neither the Trustee nor any
conversion agent shall be accountable with respect to the validity or value (or
the kind or amount) of any shares of Common Stock of the Company, or of any
securities or property, which may at any time be issued or delivered upon the
conversion of any Securities and neither the Trustee nor any conversion agent
makes any representation with respect thereto. Subject to the provisions of
Section

                                       77

<PAGE>   85
601, neither the Trustee nor any conversion agent shall be responsible for any
failure of the Company to issue, transfer or deliver any shares of its Common
Stock or stock certificates or other securities or property upon the surrender
of any Security for the purpose of conversion or to comply with any of the
covenants of the Company contained in this Article Fourteen or in the applicable
supplemental indenture, resolutions of the Board of Directors or written
instrument executed by one or more duly authorized officers of the Company.

               SECTION 1411. REPAYMENT OF CERTAIN FUNDS UPON CONVERSION. Any
funds which at any time shall have been deposited by the Company or on its
behalf with the Trustee or any other paying agent for the purpose of paying the
principal of, and premium, if any, and interest, if any, on any of the
Securities (including, but not limited to, funds deposited for the sinking fund
referred to in Article Twelve hereof and funds deposited pursuant to Article
Thirteen hereof) and which shall not be required for such purposes because of
the conversion of such Securities as provided in this Article Fourteen shall
after such conversion be repaid to the Company by the Trustee upon the Company's
written request.

                                 ARTICLE FIFTEEN

                                   COLLATERAL

               SECTION 1501. RELEASES OF COLLATERAL. In case this Indenture or
any indenture supplemental hereto shall provide for the release of any property
from the Lien hereof or thereof in favor of the Holders of Securities of any
series the Trustee shall release the same from the Lien of this Indenture or
such indenture supplemental hereto upon receipt by the Trustee of an application
of the Company requesting such release and describing the Property to be so
released, together with:

               (a) a Board Resolution requesting such release and authorizing an
application to the Trustee therefor;

               (b) an Officers' Certificate, dated not more than 30 days prior
to the date of the application for such release, stating in substance as
follows:

                (i) the Company has sold or disposed of or has contracted to
        sell or dispose of the Property so requested to be released or the
        Company is otherwise entitled to the release of such Property, and in
        any such case identifying the section or sections of this Indenture or
        any indenture supplemental hereto under which the Company is entitled to
        the release of such Property;

                                       78

<PAGE>   86
                (ii) that, in the opinion of the signer, the security afforded
        by this Indenture and such indenture supplemental hereto will not be
        impaired by such release in contravention of the provisions hereof and
        thereof, and, in the case of Property to be disposed of by the Company,
        unless the Property (or comparable Property) is to be leased or rented
        by the Company, the Property to be released is not necessary for the
        efficient operation of its remaining Property that is used or useful in
        connection with its business;

                (iii) in case it shall be stated pursuant to clause (b)(i) that
        such Property is to be sold or disposed of, either (1) that the Company
        has disposed of or will dispose of, the Property so to be released for a
        consideration representing, in the opinion of the signers, its Fair
        Market Value, which consideration may consist of any one or more of the
        following: (A) cash, (B) obligations secured by a purchase money Lien
        upon the Property so to be released, and (C) any other Property that,
        upon acquisition thereof by the Company, would be subject to the Lien of
        this Indenture, and such indenture supplemental hereto subject to no
        Lien other than Liens permitted hereby and thereby, all of such
        consideration to be briefly described in the certificate, or (2) that
        the Property so to be released has been or is to be disposed of without
        consideration (or for consideration less than Fair Market Value), in
        which event such certificate shall state the reason for its disposition
        at less than Fair Market Value;

                (iv) that no Default or Event of Default exists;

                (v) the Fair Market Value, in the opinion of the signers, of the
        Property to be released; provided, however, that it shall not be
        necessary under this clause (v) to state the Fair Market Value of any
        Property whose Fair Market Value is certified in a certificate of an
        Independent Appraiser or Independent Financial Advisor under subdivision
        (c) of this Section;

                (vi) that all conditions precedent provided in this Indenture
        and any indenture supplemental hereto relating to the release of the
        Property in question have been complied with; and

                (vii) whether the aggregate of the Fair Market Value of the
        Property to be released and the Fair Market Value of all other Property
        released since the commencement of the then current calendar year (as
        previously certified to the Trustee in connection with releases) is 10%
        or more of the aggregate principal amount of all Securities of such
        series then outstanding and whether the Fair Market Value of the
        Property to be released is at least $25,000 and at least 1% of the
        aggregate principal amount of all Securities of such series at the time
        outstanding and if all the facts specified in this clause (vii) are
        present, that a certificate of an Independent Appraiser or

                                       79

<PAGE>   87
        Independent Financial Advisor as to the Fair Market Value of the
        Property to be released will be furnished under subdivision (c) of this
        Section;

               (c) in case it shall be stated pursuant to clause (b)(vii) that
the same shall be furnished, a certificate of an Independent Appraiser, or if
such Property consists of securities being pledged as collateral, a certificate
of an Independent Financial Advisor, dated not more that 30 days prior to the
application for such release, stating:

                (1) the Fair Market Value, in the opinion of the signer, of the
        Property to be released; and

                (2) that such release, in the opinion of the signer, will not
        impair the security under this Indenture and any indenture supplemental
        hereto in contravention of the terms hereof and thereof;

               (d) any cash or obligations received or to be received as
consideration for any Property so to be released or, if the Property so to be
released is subject to a Prior Lien, a certificate of the trustee, mortgagee or
other holder of such Prior Lien that it has received such money or obligations
and has been irrevocably authorized by the Company to pay over to the Trustee
any balance of such money or obligations, remaining after the discharge of such
Prior Lien; and, if any Property other than cash or obligations is included in
the consideration for any Property so to be released, such instruments of
conveyance, assignment and transfer, if any, as may be necessary, in the Opinion
of Counsel hereinafter referred to, to subject to the Lien of this Indenture and
any such indenture supplemental hereto all the right, title and interest of the
Company in and to such Property;

               (e) in case the consideration for a proposed release includes
Property other than cash or obligations, a certificate of an Appraiser, or if
such Property consists of securities being pledged as collateral, a certificate
of a Financial Advisor, stating, in the opinion of the signor, the Fair Market
Value thereof; and the Appraiser or the Financial Advisor shall be an
Independent Appraiser or an Independent Financial Advisor if

                (1) within six months prior to the date of acquisition by the
        Company, such Property has been used or operated, by a Person or Persons
        other than the Company, in a business similar to that in which it has
        been or is to be used or operated by the Company, and

                (2) the Fair Market Value of such Property as set forth in the
        certificate required by this subdivision (e) is not less than $25,000
        and not less than 1% of the aggregate principal amount of the Securities
        of such series outstanding; and

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<PAGE>   88
               (f) an Opinion of Counsel substantially to the effect (i) either
(1) that such instruments of conveyance, assignment and transfer as have been or
are then delivered to the Trustee are sufficient to subject to the Lien of this
Indenture and any such indenture supplemental hereto all the right, title and
interest of the Company in and to any Property, other than cash and obligations,
that is included in the consideration for the Property so to be released, or (2)
that no instruments of conveyance, assignment or transfer are necessary for such
purpose, (ii) that the Company has corporate power to own all Property included
in the consideration for such release, (iii) in case any part of the money or
obligations referred to in subdivision (d) of this Section 15.01 has been
deposited with a trustee, mortgagee or other holder of the Lien, that such
trustee, mortgagee or other holder of the Lien (specifying the trustee,
mortgagee or other holder) is entitled to receive the same, and (iv) that all
conditions precedent herein provided and provided in any indenture supplemental
hereto relating to the release of the Property in question have been complied
with.

               All cash received by the Trustee pursuant to the provisions of
this Section shall be held by the Trustee in trust and as collateral as provided
in this Indenture and any such indenture supplemental hereto.

                                       81

<PAGE>   89
               IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed all as of the day and year first above written.

                                    AXYS PHARMACEUTICALS, INC.

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

                                    U.S. BANK TRUST NATIONAL ASSOCIATION, AS
                                        TRUSTEE

                                    By:
                                        -------------------------------
                                         Title:<PAGE>   1

                                                                     EXHIBIT 4.2

                           AXYS PHARMACEUTICALS, INC.

                                       TO

                     U. S. BANK TRUST NATIONAL ASSOCIATION,

                                   AS TRUSTEE

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

                          FIRST SUPPLEMENTAL INDENTURE

                         Dated as of September __, 2000

                                   $20,000,000

                  8% Senior Secured Convertible Notes due 2004

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

            Supplemental to Indenture Dated as of September __, 2000

<PAGE>   2

                           AXYS PHARMACEUTICALS, INC.
                                       TO
                      U.S. BANK TRUST NATIONAL ASSOCIATION,
                                   AS TRUSTEE
                          FIRST SUPPLEMENTAL INDENTURE
                  8% Senior Secured Convertible Notes due 2004

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                       PAGE
<S>                                                                                    <C>
        Article One Definition
               Section 1.01 Definitions..................................................2

        Article Two Form of Notes.......................................................27
               Section 2.01  Form of Notes..............................................27
               Section 2.02  Form of Face of Notes......................................27
               Section 2.03  Form of Reverse of Notes...................................29
               Section 2.04  Form of Conversion Notice..................................32

        Article Three The Notes
               Section 3.01  Establishment of Series....................................34
               Section 3.02  Issuance of Common Stock in Lieu of Cash Interest..........34
               Section 3.03  Defeasance.................................................37

        Article Four Remedies
               Section 4.01  Events of Default..........................................37

        Article Five Covenants
               Section 5.01  Limitations on Certain Indebtedness........................39
               Section 5.02  Investment Company Act.....................................40
               Section 5.03  Limitations on Asset Sales, Liquidations, Etc..............40
               Section 5.04  Limitations on Liens.......................................41
               Section 5.05  Limitation on Certain Issuances of Securities..............41
               Section 5.06  Certain Obligations........................................42
               Section 5.07  Transactions with Affiliates...............................42
               Section 5.08  Notice of Defaults.........................................43
               Section 5.09  Limitations on Dividends, Other Share Payments and
                             Investments in Unrestricted Subsidiaries...................43
               Section 5.10  Further Documentation......................................44
               Section 5.11  Indemnification............................................45
               Section 5.12  Maintenance of Records.....................................46
</TABLE>

<PAGE>   3

<TABLE>
<CAPTION>
                                                                                       PAGE
<S>                                                                                    <C>
               Section 5.13  Limitation on Liens on Collateral and Akkadix Shares.......46
               Section 5.14  Limitations on Dispositions of Collateral and Akkadix
                             Shares.....................................................48
               Section 5.15  Performance of Contracts and Agreements Giving Rise to
                             Accounts...................................................48
               Section 5.16  Further Identification of Collateral.......................48
               Section 5.17  Notices....................................................48
               Section 5.18  Changes in Locations, Name, Etc............................49
               Section 5.19  Subsidiaries...............................................49
               Section 5.20  Waiver.....................................................49
               Section 5.21  Additional Collateral in Respect of Pledged Securities.....49

        Article Six Pledge and Security Interest; Collateral............................50
               Section 6.01  Grant of Security Interest and Pledge......................50
               Section 6.02  Rights of Trustee..........................................50
               Section 6.03  Trustee's Powers Respecting the Collateral.................52
               Section 6.04  Performance by Trustee of Company's Obligations............54
               Section 6.05  Remedies in General........................................54
               Section 6.06  Remedies With Respect to Pledged Securities................55
               Section 6.07  Limitation on Duties Regarding Preservation of
                             Collateral.................................................56
               Section 6.08  Powers Coupled with an Interest............................56
               Section 6.09  Termination of Security Interest...........................56
               Section 6.10  Concerning the Trustee.....................................57
               Section 6.11  Substitution of Collateral.................................57

        Article Seven Repurchase Upon a Repurchase Event................................59
               Section 7.01  Repurchase Right...........................................59
               Section 7.02  Notices....................................................59
               Section 7.03  Other......................................................60
               Section 7.04  Form of Company Notice.....................................61
               Section 7.05  Form of Holder Notice......................................62

        Article Eight Conversion........................................................63
               Section 8.01  Right to Convert...........................................63
               Section 8.02  Exercise of Conversion Privilege...........................64
               Section 8.03  Adjustment of Conversion Price.............................67
               Section 8.04  Effect of Reclassification, Consolidation, Merger or
                             Sale.......................................................75
               Section 8.05  Reservation of Shares......................................76
               Section 8.06  Notice to Holders Prior to Certain Actions.................77
               Section 8.07  Original Indenture.........................................78
</TABLE>

<PAGE>   4

<TABLE>
<CAPTION>
                                                                                       PAGE
<S>                                                                                    <C>
        Article Nine Sundry Provisions..................................................78
               Section 9.01  Representations, Warranties and Covenants of the
                             Company....................................................78
               Section 9.02  Trustee Not Responsible for Recitals.......................78
               Section 9.03  Effect of Headings and Table of Contents...................78
               Section 9.04  Successors and Assigns.....................................78
               Section 9.05  Separability Clause........................................78
               Section 9.06  Benefits of Supplemental Indenture.........................78
               Section 9.07  Governing Law..............................................78
               Section 9.08  Counterparts...............................................78
               Section 9.09  Enforceable Obligation.....................................79
               Section 9.10  Certain Performance........................................79
               Section 9.11  Amendments.................................................79
               Section 9.12  Reference to and Effect on Original Indenture..............79
               Section 9.13  Notices....................................................79
               Section 9.14  Payment of Notes on Repurchase.............................80
</TABLE>

SCHEDULE I         Permitted Indebtedness

SCHEDULE II        Certain Pledged Securities

SCHEDULE III       Subordination of Indebtedness

SCHEDULE IV        Form of Agreement Relating to the DPI Contracts

<PAGE>   5

                           AXYS PHARMACEUTICALS, INC.
                                       TO
                U. S. BANK TRUST NATIONAL ASSOCIATION, AS TRUSTEE
                          FIRST SUPPLEMENTAL INDENTURE
                  8% Senior Secured Convertible Notes due 2004

              FIRST SUPPLEMENTAL INDENTURE, dated as of September , 2000,
between AXYS PHARMACEUTICALS, INC., a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company"), having
its principal executive office at 180 Kimball Way, South San Francisco,
California 94080, and U. S. BANK TRUST NATIONAL ASSOCIATION, a national banking
association duly organized and existing under the laws of the United States of
America, as Trustee under the Original Indenture mentioned below (herein called
the "Trustee").

                             RECITALS OF THE COMPANY

              The Company and the Trustee have heretofore entered into an
Indenture, dated as of September __, 2000 (hereinafter called the "Original
Indenture"), to provide, among other things, for the issuance from time to time
of Securities, unlimited as to principal amount, all as provided in the Original
Indenture.

              The Securities authorized hereby are the first series of
Securities to be authorized under the Original Indenture.

              Section 901 of the Original Indenture provides that, without the
consent of any Holders, the Company, when authorized by a Board Resolution, and
the Trustee, at any time or from time to time, may enter into one or more
indentures supplemental to the Original Indenture, in form satisfactory to the
Trustee, for the purpose of, among other things, establishing the form or terms
of Securities of any series as permitted by Sections 201 and 301 of the Original
Indenture, to add to, change or eliminate any provisions of the Original
Indenture in respect of any one or more series of Securities, to secure the
Securities or to make provision with respect to the conversion rights of
Holders.

              The Company desires to issue from time to time its 8% Senior
Secured Convertible Notes due 2004, and to add to the provisions of the Original
Indenture certain provisions with respect to such Notes.

              The entry into this Supplemental Indenture by the parties hereto
is in all respects authorized by the provisions of the Original Indenture.

<PAGE>   6

              All things necessary to make this Supplemental Indenture a valid
agreement of the Company in accordance with its terms have been done.

              NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:

              For and in consideration of the premises and the purchase of the
Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Notes, without preference,
priority or distinction of any of the Notes over any of the others by reason of
priority in time of issuance or otherwise, except as otherwise provided in the
Original Indenture or this Supplemental Indenture, as follows:

                                   ARTICLE ONE

                                   DEFINITIONS

              SECTION 1.01. DEFINITIONS. (a) For all purposes of this
Supplemental Indenture, except as otherwise herein expressly provided or unless
the context otherwise requires:

              (1) The terms defined in this Article have the meanings assigned
to them in this Article, and include the plural as well as the singular;

              (2) terms used herein in capitalized form and defined in the
Original Indenture and not otherwise defined herein shall have the respective
meanings specified in the Original Indenture;

              (3) the words "herein", "hereof" and "hereunder" and other words
of similar import used in this Supplemental Indenture refer to this Supplemental
Indenture as a whole and not to any particular Article, Section or other
subdivision of this Supplemental Indenture;

              (4) the terms defined in the introductory paragraph hereof and in
the first paragraph of the Recitals of the Company herein shall have the
respective meanings specified therein;

              (5) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as are
generally accepted in the United States at the date of such computation; and

                                       2
<PAGE>   7

              (6) The following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):

              "Accounts" means all rights to payment for goods sold or leased or
for services rendered, whether or not such rights have been earned by
performance.

              "Affiliate" means, with respect to any Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the subject Person. For purposes
of this definition, "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.

              "Akkadix" means Akkadix Corporation, a California corporation, and
its successors.

              "Akkadix Shares" means the 3,000,000 shares of Series A Preferred
Stock, $.001 par value per share, of Akkadix registered in the name of the
Company, any other shares of capital stock of Akkadix owned by the Company from
time to time, and any shares of capital stock of Akkadix into or for which such
shares shall be converted, exchanged, changed or reclassified.

              "AMEX" means the American Stock Exchange, Inc.

              "Applicable Rate" means 8 percent per annum; provided, however,
that if an Event of Default shall have occurred, then the Applicable Rate shall
be increased to the Default Rate during the period from the date of such Event
of Default until the date no Event of Default is continuing (or in either such
case such lesser rate as shall be the highest rate permitted by applicable law).

              "Board of Directors" means the Board of Directors of the Company.

              "Board Resolution" means 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, or duly authorized committee thereof (to the extent
permitted by applicable law), and to be in full force and effect on the date of
such certification, and delivered to the Holder.

                                       3
<PAGE>   8

              "Business Day" means any day other than a Saturday, Sunday or a
day on which commercial banks in The City of New York or the State of California
are authorized or required by law or executive order to remain closed.

              "California UCC" means the Uniform Commercial Code as in effect
from time to time in the State of California.

              "Cash, Cash Equivalents and Eligible Investment Balances" of any
Person on any date shall be determined from such Person's books maintained in
accordance with Generally Accepted Accounting Principles, and means (without
duplication) the sum of (1) the cash accrued by such Person and its subsidiaries
on a consolidated basis on such date and available for use by such Person and
its subsidiaries on such date, (2) all assets which would, on a consolidated
balance sheet of such Person and its subsidiaries prepared as of such date in
accordance with Generally Accepted Accounting Principles, be classified as cash
equivalents and (3) all Eligible Marketable Securities, in the amount thereof
that would be shown on such balance sheet.

              "Chattel Paper" shall have the meaning assigned to such term under
the Code.

              "Code" means the California UCC or the New York UCC, as
applicable.

              "Collateral" means each of the following, whether now existing or
hereafter arising:

              (1) the Pledged Securities;

              (2) all of the Company's right, title and interest in and to all
       Contracts relating to any of the Pledged Securities, including, without
       limitation, the DPI Contracts;

              (3) all General Intangibles of the Company, whether now existing
       or hereafter arising, in any way relating to or arising from items (1)
       through (2) immediately above;

              (4) all cash, securities, rights and other property at any time or
       from time to time received, receivable or otherwise distributed in
       respect of items (1) through (3) immediately above;

              (5) all insurance policies to the extent they relate to items (1)
       through (4) immediately above;

                                       4
<PAGE>   9

              (6) all books, ledgers, books of account, records, writings,
       databases, information and other property relating to, used or useful in
       connection with, evidencing, embodying, incorporating, or referring to
       any of the foregoing in this definition;

              (7) to the extent not otherwise included, all Proceeds, products,
       rents, issues, profits and returns of and from any and all of the
       foregoing in this definition, which Proceeds may be in the form of
       Accounts, Chattel Paper, Inventory or otherwise; and

              (8) any funds or Government Obligations deposited by the Company
       with the Trustee pursuant to Section 6.11.

              "Collateral Substitution" means the substitution by the Company of
Collateral pursuant to Section 6.11(a), and which will occur on the date that
the Company is entitled, in accordance with Section 6.11(a), to the release of
all Collateral other than the Collateral so deposited by the Company with the
Trustee pursuant to Section 6.11(a).

              "Collateral Value" as of any date means the sum of the following:

              (1) all cash held by the Trustee on such date that constitutes
       Collateral; and

              (2) the Fair Market Value, as set forth in a certificate signed by
       a Financial Advisor and delivered to the Trustee, of all Pledged
       Securities held by the Trustee on such date that constitute Collateral,
       taking into account any restrictions on sale of such Pledged Securities
       other than the restrictions arising from the Security Interest;

provided, however, that only such items of Collateral listed in the preceding
clauses (1) and (2) as to which the Trustee has a first priority perfected
security interest for the benefit of the Holders shall be included in the
calculation of Collateral Value.

              "Common Stock" includes the Company's Common Stock, $.001 par
value, and the related Preferred Share Purchase Rights (and any similar rights
issued with respect to the Common Stock) as authorized on the date hereof, and
any other securities into which or for which the Common Stock or the related
Preferred Share Purchase Rights (and any similar rights issued with respect to
the Common Stock) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise and any
stock (other than Common Stock) and other securities of the Company or any other
Person which the Holders at any time shall be entitled to receive, or shall have
received, on the conversion of the Notes, in lieu of or in addition to Common
Stock.

                                       5
<PAGE>   10

              "Common Stock Equivalent" means any warrant, option, subscription
or purchase right with respect to shares of Common Stock, any security
convertible into, exchangeable for, or otherwise entitling the holder thereof to
acquire, shares of Common Stock or any warrant, option, subscription or purchase
right with respect to any such convertible, exchangeable or other security.

              "Company" shall have the meaning provided in the first paragraph
of this Supplemental Indenture.

              "Company DPI Agreements" means, collectively, all agreements
between or among the Company and DPI, other than the DPI Contracts, whether
existing at the date of this Supplemental Indenture or entered into thereafter.

              "Company Certificate" means a certificate of the Company signed by
an Officer.

              "Company Notice" means a Company Notice in the form set forth in
Section 7.04 of this Supplemental Indenture.

              "Computation Date" shall have the meaning provided in Section
5.09.

              "Consolidated Net Current Assets" means the Net Current Assets of
the Company and its Restricted Subsidiaries consolidated in accordance with
Generally Accepted Accounting Principles.

              "Contracts" shall have the meaning assigned to such term under the
Code.

              "Conversion Date" means the date on which a Conversion Notice is
given in accordance with Section 8.02(a).

              "Conversion Notice" means a duly executed Notice of Conversion of
8% Senior Secured Convertible Note due 2004 substantially in the form set forth
in Section 2.04 of this Supplemental Indenture.

              "Conversion Price" means $___, subject to adjustment as provided
in Section 8.03.

              "Credit Agreement" means that certain Credit Agreement, dated as
of July 26, 1999, as amended, by and between the Company and Foothill Capital
Corporation, providing for up to $30 million of revolving credit borrowings,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and as amended, modified, renewed,

                                       6
<PAGE>   11

refunded, replaced or refinanced from time to time without increasing the
principal amount of borrowings thereunder and in compliance with the
requirements of this Supplemental Indenture.

              "Current Market Price" shall mean the arithmetic average of the
daily Market Prices per share of Common Stock for the ten 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 8.03(a), (b), (c), (d), (e), (f), or (g)
occurs during such ten consecutive Trading Days, the Market Price for each
Trading Day prior to the "ex" date for such other event shall be adjusted by
multiplying such Market 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 8.03(a), (b), (c), (d), (e), (f), or (g) occurs on or after the "ex"
date for the issuance or distribution requiring such computation and prior to
the day in question, the Market Price for each Trading Day on and after the "ex"
date for such other event shall be adjusted by multiplying such Market 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 or 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 Market 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 8.03(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 8.03(f), the Current Market Price of the Common Stock on any date shall
be deemed to be the arithmetic average of the daily Market 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 adjustment to the Conversion Price
pursuant to Section 8.03(a), (b), (c), (d), (e), (f) or (g), occurs on or after
the Expiration Time for the Tender Offer requiring such computation and prior to
the day in question, the Market Price for each Trading Day on and after the "ex"
date for such other event shall be adjusted by multiplying such Market 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

                                       7
<PAGE>   12

Market 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 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 Tender
Offer. Notwithstanding the foregoing, whenever successive adjustments to the
Conversion Price are called for pursuant to Section 8.03, such adjustments shall
be made to the Current Market Price as may be necessary or appropriate to
effectuate the intent of Section 8.03 and to avoid unjust or inequitable results
as determined in good faith by the Board of Directors.

              "Default" means any event that is, or with the passage of time or
the giving of notice or both would become, an Event of Default.

              "Default Interest" shall have the meaning provided in the first
paragraph of the Note.

              "Default Rate" means 15 percent per annum (or such lesser rate
equal to the highest rate permitted by applicable law).

              "Depositary" means The Depository Trust Company.

              "Documents" shall have the meaning assigned to such term under the
Code.

              "DPI" means Discovery Partners International, Inc., a Delaware
corporation, and its successors.

              "DPI Contracts" means Amendment No. 1 to the Amended and Restated
Shareholders' Agreement made as of April 28, 2000, by and among DPI, the
Company, the Shareholders, as defined therein, and the Existing Investors, as
defined therein (and all rights of the Company arising under, and all title and
interest of the Company in and to, such Amended and Restated Shareholders'
Agreement); the Standstill Agreement made as of April 28, 2000 by and between
DPI and the Company; and the Second Amended and Restated Investors' Rights
Agreement made as of April 28, 2000 by and between DPI and the Investors listed
on Schedule A thereto, including the Company.

              "DPI Escrow Agreement" means the Indemnity Escrow Agreement, dated
as of April 28, 2000, by and among DPI, the Company and U. S. Trust Company
National Association, as Escrow Agent.

                                       8
<PAGE>   13

              "DPI Merger Agreement" means the Agreement and Plan of Merger,
dated as of April 11, 2000, by and among DPI, DPII Newco, LLC, a Delaware
limited liability company and a wholly-owned subsidiary of DPI, Axys Advanced
Technologies, Inc., a Delaware corporation, and the Company, as in effect of the
date of this Supplemental Indenture.

              "Eligible Marketable Securities" of any Person on any date means
the amount of marketable securities which would be reflected as investments that
are current assets on a consolidated balance sheet of such Person and its
subsidiaries prepared as of such date in accordance with Generally Accepted
Accounting Principles on a basis consistent with the most recently published
audited consolidated balance sheet of such Person and its subsidiaries at the
time of such determination.

              "Event of Default" shall have the meaning provided in Section
4.01.

              "Excluded Transaction" means a consolidation or merger of the
Company or any Subsidiary with or into another entity where all of the following
requirements are met:

              (a) the stockholders of the Company immediately prior to such
       transaction collectively own at least 40% of the outstanding voting
       securities of the surviving entity of such consolidation or merger (or of
       the Company, in the case of a consolidation or merger of a Subsidiary in
       which the Company is not a constituent corporation in such consolidation
       or merger) immediately following such transaction;

              (b) such other entity and its Affiliates are principally engaged
       in businesses of the same general types as the Company and the
       Subsidiaries;

              (c) the ratio of pro forma combined Net Cash, Cash Equivalents and
       Eligible Investment Balances immediately prior to consummation of such
       consolidation or merger to the pro forma combined Quarterly Cash
       Requirements immediately prior to consummation of such consolidation or
       merger, in each such case of the surviving entity of such consolidation
       or merger (or of the Company, in the case of a consolidation or merger of
       a Subsidiary in which the Company is not a constituent corporation in
       such consolidation or merger) shall not be less than the ratio of the
       Company's Net Cash, Cash Equivalents and Eligible Investment Balances to
       the Company's Quarterly Cash Requirements, in each such case immediately
       prior to consummation of such consolidation or merger; and

              (d) the Board of Directors shall have determined prior to
       consummation of such consolidation or merger, as evidenced by a Board

                                       9
<PAGE>   14

       Resolution, that consummation of such consolidation or merger will not
       adversely affect the ability of the Company to pay and perform its
       obligations to the Holders under the Transaction Documents.

              Any such consolidation or merger shall be an Excluded Transaction
only if the Company shall have delivered to the Trustee at least ten days prior
to consummation of such consolidation or merger an Officers' Certificate signed
by the Company's Chief Executive Officer or Chief Financial Officer setting
forth in reasonable detail the facts showing that such consolidation or merger
is an Excluded Transaction.

              "Expiration Time" shall have the meaning provided in Section
8.03(f).

              "Fundamental Change" means

              (a) Any consolidation or merger of the Company or any Subsidiary
       with or into another entity (other than a consolidation or merger of a
       Subsidiary into the Company or a wholly-owned Subsidiary and other than
       an Excluded Transaction) where the stockholders of the Company
       immediately prior to such transaction do not collectively own at least
       51% of the outstanding voting securities of the surviving entity of such
       consolidation or merger (or of the Company, in the case of a
       consolidation or merger of a Subsidiary in which the Company is not a
       constituent corporation in such consolidation or merger) immediately
       following such transaction; or the sale of all or substantially all of
       the assets of the Company and the Subsidiaries in a single transaction or
       a series of related transactions; or

              (b) The occurrence of any transaction or event in connection with
       which all or substantially all the Common Stock shall be exchanged for,
       converted into, acquired for or constitute the right to receive
       consideration (whether by means of an exchange offer, liquidation, tender
       offer, consolidation, merger, combination, reclassification,
       recapitalization or otherwise) which is not all or substantially all
       common stock which is (or will, upon consummation of or immediately
       following such transaction or event, will be) listed on the NYSE or the
       AMEX or approved for quotation on Nasdaq or any similar United States
       system of automated dissemination of transaction reporting of securities
       prices; or

              (c) The acquisition by a Person or entity or group of Persons or
       entities acting in concert as a partnership, limited partnership,
       syndicate or group, as a result of a tender or exchange offer, open
       market purchases, privately negotiated purchases or otherwise, of
       beneficial ownership of securities of the Company representing 50% or
       more of the combined voting power of the outstanding voting securities of
       the Company ordinarily (and

                                       10
<PAGE>   15

       apart from rights accruing in special circumstances) having the right to
       vote in the election of directors other than pursuant to a Negotiated
       Transaction.

              "General Intangibles" shall have the meaning assigned to such term
under the Code.

              "Generally Accepted Accounting Principles" for any Person means
the generally accepted accounting principles and practices applied by such
Person from time to time in the preparation of its audited financial statements.

              "Government Obligations" means direct obligations of, or
obligations the timely payment of the principal of and the interest on which are
unconditionally guaranteed by, the United States of America and which are not,
by their terms, callable.

              "Hedging Obligations" means, with respect to any specified Person,
the obligations of such Person under:

              (1) interest rate swap agreements, interest rate cap agreements
       and interest rate collar agreements; and

              (2) other agreements or arrangements designed to protect such
       Person against fluctuations in interest rates.

              "Holder Notice" means a Holder Notice in the form set forth in
Section 7.05 of this Supplemental Indenture.

              "Indebtedness" as used in reference to any Person means all
indebtedness of such Person for borrowed money, the deferred purchase price of
property, goods and services and obligations under leases which are required to
be capitalized in accordance with Generally Accepted Accounting Principles and
shall include all such indebtedness guaranteed in any manner by such Person or
in effect guaranteed by such Person through a contingent agreement to purchase
and all indebtedness for the payment or purchase of which such Person has
contingently agreed to advance or supply funds and all indebtedness secured by
mortgage or other Lien upon property owned by such Person, although such Person
has not assumed or become liable for the payment of such indebtedness, and, for
all purposes hereof, such indebtedness shall be treated as though it has been
assumed by such Person; provided, however, that "Indebtedness" shall not include
trade debt incurred in the ordinary course of business to trade creditors that
is payable on customary trade terms.

              "Initial Allocation" shall have the meaning provided in Section
5.13.

                                       11
<PAGE>   16

              "Interest Payment Dates" shall mean each March 15, June 15,
September 15 and December 15 and the Maturity Date.

              "Interest Share Price" means, with respect to any Interest Payment
Date, an amount equal to 95 percent of the arithmetic average of the Market
Price of one share of Common Stock for each of the ten consecutive Trading Days
ending on and including the Trading Day immediately preceding such Interest
Payment Date.

              "Interest Shares" means the shares of Common Stock and the related
Preferred Share Purchase Rights issuable in payment of interest on the Notes in
accordance with Section 3.02.

              "Instrument" shall have the meaning assigned to such term under
the Code.

              "Inventory" shall have the meaning assigned to such term under the
Code, and in any event, including all inventory, merchandise, goods and other
personal property that are held by or on behalf of a Person for sale or lease or
to be furnished under a contract of service or which give rise to any Account,
including returned goods.

              "Investment Property" shall have the meaning assigned to such term
under the Code.

              "Issuance Date" means the date the Notes were first issued to the
original Holders of the Notes.

              "Issuing Agent" means Computershare Investor Services, LLC, its
successor or such other person who shall be serving as transfer agent and
registrar for the Common Stock and who shall have been authorized by the Company
to act as conversion agent for the Notes in accordance with the Issuing Agent
Instruction and the name, address and telephone number of whom shall have been
given to the Trustee and the Holders by notice from the Company.

              "Issuing Agent Instruction" means the Issuing Agent Instruction,
dated September ___, 2000, from the Company to the Issuing Agent for the benefit
of the Holders and the holders from time to time of the Warrants.

              "Lien" shall mean any lien, mortgage, security interest, chattel
mortgage, pledge, equity or other encumbrance (statutory or otherwise) of any
kind, including, without limitation, any agreement to give any of the foregoing,
any conditional sales or other title retention agreement, any lease in the
nature thereof, and the filing of or the agreement to give any financing
statement under the Code of

                                       12
<PAGE>   17

any jurisdiction or similar evidence of any encumbrance, whether within or
outside the United States.

              "Majority Holders" means at any time Holders who hold Notes that
are Outstanding which, based on the Outstanding principal amount thereof,
represent a majority of the aggregate Outstanding principal amount of all the
Notes.

              "Market Price" with respect to any security on any day shall mean
the closing bid price of such security on such day on the Nasdaq or the NYSE or
the AMEX, as applicable, or, if such security is not listed or admitted to
trading on the Nasdaq, the NYSE or the AMEX, on the principal national
securities exchange or quotation system on which such security is quoted or
listed or admitted to trading, in any such case as reported by Bloomberg, L.P.
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.

              "Maturity Date" means ____________, 2004.

              "Nasdaq" means the Nasdaq National Market.

              "Nasdaq SmallCap" means the Nasdaq SmallCap Market.

              "Negotiated Transaction" means an acquisition by a Person or
entity or group of Persons or entities acting in concert as a partnership,
limited partnership or group, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases or otherwise, of beneficial
ownership of securities of the Company representing 50% or more of the combined
voting power of the outstanding voting securities of the Company ordinarily (and
apart from rights accruing in special circumstances) having the right to vote in
the election of directors which acquisition meets all of the following
requirements:

              (1) such acquisition is made pursuant to a written agreement to
       which the Company is a party and which has been approved by the Board of
       Directors prior to such acquisition and which the Company and the other
       parties have entered into prior to such transaction; and

              (2) such agreement provides for the acquisition by such Person,
       entity, group of Persons or group of entities making such acquisition of
       such

                                       13
<PAGE>   18

       outstanding voting securities of the Company of all of the outstanding
       voting securities of the Company at the same price and in the same form
       of consideration per share for all voting securities of the Company of
       the same class or series.

              "Net Cash, Cash Equivalents and Eligible Investment Balances" of
any Person on any date means the consolidated Cash, Cash Equivalents and
Eligible Investment Balances of such Person and its subsidiaries on such date
less the sum (without duplication) of (1) the amount of any outstanding
Indebtedness of such Person or any of its subsidiaries which, directly or
indirectly, is secured in whole or in part by, or restricts the use of, the
consolidated Cash, Cash Equivalents and Eligible Investment Balances of such
Person or any of its subsidiaries plus (2) the amount of outstanding
Indebtedness of such Person and its subsidiaries which on such date is
classified as short-term debt in accordance with Generally Accepted Accounting
Principles.

              "Net Current Assets" of any Person at any date shall be determined
from books of such Person maintained in accordance with Generally Accepted
Accounting Principles, and means as of such date

              (1) the value shown by such books of all assets, exclusive of
       patents, patent applications, trademarks, copyrights, trade names, good
       will, organizational expense, research and development, other
       intangibles, treasury stock and unamortized debt, discount and expense,
       classified as current assets as of such date;

less

              (2) all current liabilities of such Person.

              "New York UCC" means the Uniform Commercial Code as in effect from
time to time in the State of New York.

              "Newly Issued Shares" shall have the meaning provided in Section
8.03(g).

              "1934 Act" means the Securities Exchange Act of 1934, as amended.

              "1933 Act" means the Securities Act of 1933, as amended.

              "Non-Recourse Debt" means Indebtedness:

              (1) as to which neither the Company nor any of its Restricted
       Subsidiaries (a) provides credit support of any kind (including any

                                       14
<PAGE>   19

       undertaking, agreement or instrument that would constitute Indebtedness),
       (b) is directly or indirectly liable as a guarantor or otherwise, or (c)
       constitutes the lender;

              (2) no default with respect to which (including any rights that
       the holders of the Indebtedness may have to take enforcement action
       against an Unrestricted Subsidiary) would permit upon notice, lapse of
       time or both any holder of any other Indebtedness of the Company or any
       of its Restricted Subsidiaries to declare a default on such other
       Indebtedness or cause the payment of such other Indebtedness to be
       accelerated or payable prior to its stated maturity; and

              (3) as to which the lenders have been notified in writing by the
       Company that they will not have any recourse to the stock or assets of
       the Company or any of its Restricted Subsidiaries.

              "Note Purchase Agreements" means the Note Purchase Agreements,
dated as of September __, 2000, by and between the Company and the several
original Holders of the Notes.

              "Notes" means the Company's 8% Senior Secured Convertible Notes
due 2004 issued pursuant to the Original Indenture and this Supplemental
Indenture.

              "NYSE" means the New York Stock Exchange, Inc.

              "Obligations" means:

              (1) the full and prompt payment when due of all obligations and
       liabilities to the Holders, whether now existing or hereafter arising,
       under the Notes, this Supplemental Indenture or the other Transaction
       Documents and the due performance and compliance with the terms of the
       Notes and the other Transaction Documents;

              (2) any and all sums advanced in accordance with the terms of the
       Notes, this Supplemental Indenture or applicable law by the Trustee or
       any Holder in order to preserve the Collateral or to preserve the
       Trustee's security interest in the Collateral;

              (3) in the event of any proceeding for the collection or
       enforcement of any obligations or liabilities of the Company referred to
       in the immediately preceding clauses (1) and (2) in accordance with the
       terms of the Notes and this Supplemental Indenture, the reasonable
       expenses of re-taking, holding, preparing for sale, selling or otherwise
       disposing of or realizing on the

                                       15
<PAGE>   20

       Collateral, or of any other exercise by the Trustee of its rights
       hereunder, together with reasonable attorneys' fees and court costs; and

              (4) any amounts for which any Holder is entitled to
       indemnification under Section 5.11.

              "Officer" means the Chairman of the Board, the Chief Executive
Officer, the President or the Chief Financial Officer of the Company.

              "Permitted Collateral or Akkadix Disposition" means a sale,
transfer or other disposition of Collateral or the Akkadix Shares in accordance
with, and as permitted by, Section 5.03(b)(1); provided, however, that if during
the period of 20 consecutive Trading Days ending on and including the Trading
Day immediately preceding the closing of a Permitted Collateral or Akkadix
Disposition on each such Trading Day (a) the Common Stock shall be listed on
Nasdaq, the NYSE or the Amex, and the Market Price of the Common Stock shall be
at least 200% of the Conversion Price in effect on each such Trading Day (b) no
Event of Default shall have occurred or be continuing and no Repurchase Event
shall have occurred with respect to which any Holder has the right to require
repurchase of any Note pursuant to Article Seven or with respect to which any
Holder has exercised such right and the Company shall not have paid or deposited
in accordance with Section 9.14 of this Supplemental Indenture the applicable
Repurchase Price, (c) the Registration Statement shall be effective and
available for use by the Company for the sale of shares of Common Stock to
holders of the Warrants upon exercise of the Warrants and is reasonably expected
to remain effective and available after such period of 20 Trading Days, and (d)
the Company shall have furnished to the Holders and the Trustee a Company
Certificate certifying the matters set forth in the immediately preceding
clauses (a) through (c), then such Permitted Collateral or Akkadix Disposition
shall not constitute a Repurchase Event.

              "Permitted Indebtedness" means

              (1) with respect to the Company or any of its Restricted
Subsidiaries:

              (a) Indebtedness outstanding on the Issuance Date and identified
       on SCHEDULE I;

              (b) Indebtedness incurred after the Issuance Date in an aggregate
       amount not to exceed $5 million at any one time outstanding so long as
       (x) such Indebtedness is incurred for the purpose of acquiring,
       constructing or improving an interest in real estate owned or used or to
       be owned or used by the Company or one of its Restricted Subsidiaries (or
       for the purpose of acquiring the capital stock or similar equity
       interests of a Restricted

                                       16
<PAGE>   21

       Subsidiary of the Company that is formed for the limited purpose of
       owning same and does not own or hold any other material assets) and does
       not exceed the purchase price of the interest in real estate, capital
       stock or other equity interest so acquired plus reasonable transaction
       expenses or the cost of such construction or improvements plus reasonable
       transaction expenses, as the case may be, (y) such Indebtedness, if
       secured, is secured solely by the interest of the Company or one of its
       Restricted Subsidiaries in the real estate so acquired, constructed or
       improved and rights related thereto and (z) the holder of such
       Indebtedness shall not have recourse to the Company or any Subsidiary for
       payment thereof or performance of any obligation relating thereto;

              (c) Indebtedness incurred after the Issuance Date in an aggregate
       amount not to exceed $15 million at any one time outstanding so long as
       (x) such Indebtedness is incurred for the purpose of acquiring equipment
       owned or used or to be owned or used by the Company or one of its
       Restricted Subsidiaries (or for the purpose of acquiring the capital
       stock or similar equity interests of a Restricted Subsidiary of the
       Company that is formed for the limited purpose of owning same and does
       not own or hold any other material assets) and does not exceed the
       purchase price of the equipment, capital stock or other equity interest
       so acquired plus reasonable transaction expenses and (y) such
       Indebtedness, if secured, is secured solely by the interest of the
       Company or one of its Restricted Subsidiaries in the equipment so
       acquired and rights related thereto;

              (d) endorsements for collection or deposit in the ordinary course
       of business;

              (e) Indebtedness of the Company incurred under and in accordance
       with the Credit Agreement in an aggregate amount not to exceed $30
       million at any time outstanding;

              (f) Indebtedness represented by the Notes;

              (g) Permitted Refinancing Indebtedness issued in exchange for, or
       the net proceeds of which are used to refund, refinance or replace,
       Indebtedness that is identified in subclauses (a) through (h) or (j) of
       this clause (1) of this definition;

              (h) Hedging Obligations that are incurred by the obligor on
       Indebtedness that is identified in subclauses (a) and (e) of this clause
       (1) of this definition (or Permitted Refinancing Indebtedness that is
       identified in subclause (g) of clause (1) of this definition and that
       refunds or replaces such Indebtedness) that does not have a fixed rate of
       interest and which Hedging

                                       17
<PAGE>   22

       Obligations are incurred solely for the bona fide purpose of fixing or
       hedging interest rate risk with respect to such Indebtedness;

              (i) Indebtedness constituting reimbursement obligations with
       respect to letters of credit issued in the ordinary course of business in
       respect of workers' compensation claims or self-insurance, or other
       Indebtedness with respect to reimbursement type obligations regarding
       workers' compensation claims or self-insurance, and obligations in
       respect of performance and surety bonds and completion guarantees
       incurred in the ordinary course of business; provided, however, that upon
       the drawing of such letters of credit or the incurrence of such
       Indebtedness, such obligations are reimbursed within 30 days following
       such drawing or incurrence;

              (j) Indebtedness in an aggregate amount at any one time
       outstanding not to exceed the greater of (A) $10 million and (B) an
       amount equal to 20% of the Consolidated Net Current Assets of the Company
       and its Restricted Subsidiaries, and in the case of both the preceding
       clauses (A) and (B) (x) which is subordinated to the Notes on the
       Subordination Terms and (y) for which no payment of principal of such
       Indebtedness is scheduled to be due prior to the date that is one year
       after the Maturity Date; and

              (k) Guaranties by the Company or any of its Restricted
       Subsidiaries of Indebtedness of the Company or any of its Restricted
       Subsidiaries which Indebtedness is Permitted Indebtedness that is of the
       type or character specified in subclauses (a), (c), (d), (e), (h) or (i)
       of clause (1) of this definition (including any such Permitted
       Indebtedness so specified that may have been incurred pursuant to
       subclause (g) of clause (1) of this definition) or subclause (c) of
       clause (2) of this definition; and

              (2) in the case of any Restricted Subsidiary of the Company:

              (a) Indebtedness owed by such Restricted Subsidiary to the
       Company; and

              (b) Indebtedness of such Restricted Subsidiary to another
       Restricted Subsidiary of the Company in an aggregate amount not to exceed
       $5 million at any one time outstanding for all Restricted Subsidiaries of
       the Company; and

              (c) Indebtedness of a Restricted Subsidiary of the Company
       existing at the time such Restricted Subsidiary is acquired by the
       Company so long as immediately prior to such acquisition the amount by
       which (x) the outstanding amount of such Indebtedness of such Restricted
       Subsidiary exceeds (y) the Cash, Cash Equivalents and Eligible Investment
       Balances of

                                       18
<PAGE>   23

       such Restricted Subsidiary does not exceed 20% of the Fair Market Value
       of the assets of such Restricted Subsidiary, as set forth in a
       certificate of the Chief Financial Officer of the Company delivered by
       the Company to the Trustee prior to such acquisition;

so long as, in the case of any Indebtedness specified in subclauses (c), (e) and
(j) of clause (1) of this definition (including any Indebtedness that is of the
type or character specified in subclause (c), (e) or (j) of clause (1) of this
definition and that the Company may propose to incur as Permitted Refinancing
Indebtedness pursuant to subclause (g) of clause (1) of this definition) or
Indebtedness specified in clause (2) of this definition, at the time of
incurrence of such Indebtedness no Default or Event of Default (A) has occurred
and is continuing by reason of Section 4.01(a), 4.01(b), 4.01(c) (with respect
to Sections 5.03, 5.06, 5.13, 5.14, 5.17, 5.18 and 5.21 of this Supplemental
Indenture only), 4.01(d) (with respect to Sections 5.10, 5.12, 5.15 and 5.16 and
Article Six of this Supplemental Indenture only), 4.01(h), 4.01(i) (with respect
to Section 501(2) of the Original Indenture only) or 4.01(k) of this
Supplemental Indenture or (B) would result from such incurrence; provided,
however, that, notwithstanding the occurrence or continuation of any Default or
Event of Default, the Company and its Restricted Subsidiaries shall not be
prohibited from incurring Indebtedness specified in clauses (c), (e) and (j) of
clause (1) of this definition (including any Indebtedness that is of the type or
character specified in subclause (c), (e) or (j) of clause (1) of this
definition and that the Company may propose to incur as Permitted Refinancing
Indebtedness pursuant to subclause (g) of clause (1) of this definition) or
Indebtedness specified in clause (2) of this definition so long as at the time
of such incurrence (x) the Collateral Substitution shall have occurred or (y)
the Collateral Value is at least 300% of the amount of the Obligations and, in
the case of either the preceding clause (x) or (y), no Default or Event of
Default would result from such incurrence.

              "Permitted Liens" means any of the following Liens, so long as
(except in the case of clause (2) of this definition) such Lien does not relate
to any of the Collateral or the Akkadix Shares:

              (1) Liens upon any property of any Restricted Subsidiary or
       Restricted Subsidiaries of the Company as security for indebtedness owing
       to the Company;

              (2) Liens securing the Notes ratably;

              (3) Liens for taxes or assessments or governmental charges or
       levies on the property of the Company or any of its Restricted
       Subsidiaries if such taxes or assessments or charges or levies shall not
       at the time be due and payable or if the amount, applicability, or
       validity of any such tax, assessment, charge or levy shall currently be
       contested in good faith by

                                       19
<PAGE>   24

       appropriate proceedings or necessary preliminary steps are being taken to
       contest, compromise or settle the amount thereof or to determine the
       applicability or validity thereof and if the Company or such Restricted
       Subsidiary, as the case may be, shall have set aside on its books
       reserves (segregated to the extent required by sound accounting practice)
       deemed by it adequate with respect thereto; deposits or pledges to secure
       payment of worker's compensation, unemployment insurance, old age
       pensions or other social security; deposits or pledges to secure
       performance of bids, tenders, contracts (other than contracts for the
       payment of money borrowed or credit extended), leases, public or
       statutory obligations, surety or appeal bonds, or other deposits or
       pledges for purposes of like general nature in the ordinary course of
       business; mechanics', carriers', workers', repairmen's or other like
       Liens arising in the ordinary course of business securing obligations
       which are not overdue for a period of 60 days, or which are in good faith
       being contested or litigated, or deposits to obtain the release of such
       Liens; Liens created by or resulting from any litigation or legal
       proceedings or proceedings being contested in good faith by appropriate
       proceedings, provided any execution levied thereon shall be stayed;
       leases made, or existing on property acquired, in the ordinary course of
       business; landlords' Liens under leases to which the Company or any of
       its Restricted Subsidiaries is a party; and zoning restrictions,
       easements, licenses or restrictions on the use of real property or minor
       irregularities in title thereto; provided that all such Liens described
       in this subsection (3) do not, in the aggregate, materially impair the
       use of such property in the operations of the business of the Company or
       any of its Restricted Subsidiaries or the value of such property for the
       purpose of such business;

              (4) Liens existing on the Issuance Date and listed in Schedule
       4(r) to the Note Purchase Agreement and Liens created by the Company on
       the property covered by the Liens so listed on such Schedule 4(r) which
       Liens secure Permitted Refinancing Indebtedness issued in accordance with
       subclause (g) of clause (1) of the definition of Permitted Indebtedness
       that is issued to refinance Indebtedness specified in subclause (a) or
       (e) of clause (1) of the definition of Permitted Indebtedness.

              (5) judgment Liens not giving rise to an Event of Default;

              (6) any interest or title of a lessor under any lease permitted by
       subclauses (b) and (c) of clause (1) of the definition of Permitted
       Indebtedness (including any such lease entered into pursuant to subclause
       (g) of clause (1) of the definition of Permitted Indebtedness);

              (7) purchase money Liens to finance the purchase price of property
       or assets purchased by the Company or any of its Restricted Subsidiaries

                                       20
<PAGE>   25

       acquired in the ordinary course of business; provided, however, that the
       Lien securing such Indebtedness shall be created within 180 days of such
       acquisition, the amount of such Indebtedness so secured in connection
       with any such acquisition of property or assets shall not exceed the
       purchase price of such property or assets and the Lien securing such
       Indebtedness shall not extend to any property or assets other than the
       property or assets so acquired;

              (8) Liens upon specific items of inventory or other goods of any
       Person and on proceeds thereof securing such Person's obligations in
       respect of banker's acceptances issued or created for the account of such
       Person to facilitate the purchase, shipment, or storage of such inventory
       or other goods;

              (9) Liens securing reimbursement obligations with respect to
       commercial letters of credit which encumber documents and other property
       relating to such letters of credit and products and proceeds thereof;

              (10) leases, subleases, licenses or sublicenses granted to others
       that do not materially interfere with the ordinary course of business of
       the Company and its Restricted Subsidiaries and which are entered into in
       compliance with Section 5.03; and

              (11) Liens arising from filing Uniform Commercial Code financing
       statements regarding leases permitted by subclauses (b), (c) and (g) of
       clause (1) of the definition of Permitted Indebtedness so long as the
       collateral described in such financing statements is limited to the
       property covered by such leases;

so long as, in the case of any Lien specified in clauses (6) and (7) of this
definition, at the time such Lien is created (A) no Default or Event of Default
has occurred and is continuing by reason of Section 4.01(a), 4.01(b), 4.01(c)
(with respect to Sections 5.03, 5.06, 5.13, 5.14, 5.17, 5.18 and 5.21 of this
Supplemental Indenture only), 4.01(d) (with respect to Sections 5.10, 5.12, 5.15
and 5.16 and Article Six of this Supplemental Indenture only), 4.01(h), 4.01(i)
(with respect to Section 501(2) of the Original Indenture only) or 4.01(k) of
this Supplemental Indenture or (B) would result from such creation of such Lien;
provided, however, that, notwithstanding the occurrence or continuation of any
Default or Event of Default, the Company and its Restricted Subsidiaries shall
not be prohibited from creating any Lien specified in clauses (6) and (7) of
this definition so long as at the time such Lien is created (x) the Collateral
Substitution shall have occurred or (y) the Collateral Value is at least 300% of
the amount of the Obligations and, in the case of either the preceding clause
(x) or (y), no Default or Event of Default would result from the creation of
such Lien.

                                       21
<PAGE>   26

              "Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that all of the following
requirements are met:

              (1) the principal amount (or accreted value, if applicable,
       determined in accordance with Generally Accepted Accounting Principles)
       of such Permitted Refinancing Indebtedness does not exceed the principal
       amount (or accreted value, if applicable, determined in accordance with
       Generally Accepted Accounting Principles) of the Indebtedness extended,
       refinanced, renewed, replaced, defeased or refunded (plus all accrued
       interest on the Indebtedness being extended, refinanced, renewed,
       replaced, defeased or refunded and the amount of all expenses and
       premiums incurred in connection therewith);

              (2) such Permitted Refinancing Indebtedness has a final maturity
       date later than the final maturity date of, and has a Weighted Average
       Life to Maturity equal to or greater than the Weighted Average Life to
       Maturity of, the Indebtedness being extended, refinanced, renewed,
       replaced, defeased or refunded;

              (3) if the Indebtedness being extended, refinanced, renewed,
       replaced, defeased or refunded is subordinated in right of payment to the
       Notes, such Permitted Refinancing Indebtedness has a final maturity date
       later than the final maturity date of, and is subordinated in right of
       payment to, the notes on terms at least as favorable to the Holders of
       Notes as those contained in the documentation governing the Indebtedness
       being extended, refinanced, renewed, replaced, defeased or refunded;

              (4) such Indebtedness is incurred by such of the Company or its
       Restricted Subsidiary that is the obligor on the Indebtedness being
       extended, refinanced, renewed, replaced, defeased or refunded;

              (5) the Indebtedness that is being extended, refinanced, renewed,
       replaced, defeased or refunded will not remain outstanding after the
       incurrence of such Permitted Refinancing Indebtedness; provided, however,
       that in the case of any extension, refinancing, renewal, replacement,
       defeasance or refunding of Indebtedness referred to in subclauses (a)
       through (h) or (j) of clause (1) of the definition of Permitted
       Indebtedness, if prior notice to the holder or holders of the
       Indebtedness to be extended, refinanced, renewed, replaced, defeased or
       refunded is required in order to repay such Indebtedness, then such
       Indebtedness may remain outstanding for up to 60

                                       22
<PAGE>   27

       days after the incurrence of such Permitted Refinancing Indebtedness so
       long as on or before the date of incurrence of such Permitted Refinancing
       Indebtedness the Company or the applicable Restricted Subsidiary shall
       have (a) given such notice to the holder or holders of such Indebtedness
       and (b) irrevocably deposited in trust with a trustee (other than the
       Company or any Subsidiary), for the exclusive benefit of the holder or
       holders of the Indebtedness being extended, refinanced, renewed,
       replaced, defeased or refunded, an amount at least equal to the aggregate
       amount that the Company or such Restricted Subsidiary will be obligated
       to pay in respect of such Indebtedness from such date to the date of
       payment in full of such Indebtedness; and

              (6) such Indebtedness is of the type or character specified in
       subclauses (a) through (f) or (h) through (k) of clause (1) of the
       definition of Permitted Indebtedness or subclause (a) or (b) of clause
       (2) of the definition of Permitted Indebtedness.

              "Person" means any natural person, corporation, partnership,
limited liability company, trust, incorporated organization, unincorporated
association or similar entity or any government, governmental agency or
political subdivision.

              "Pledged Securities" means:

              (1) the outstanding shares of capital stock of DPI described on
       SCHEDULE II hereto as "Pledged Securities"; and

              (2) any and all other shares of capital stock or other securities
       of DPI and any and all rights to acquire capital stock or other
       securities of DPI hereafter acquired by the Company and required to be
       delivered to the Trustee in accordance with Section 5.21.

              "Preferred Share Purchase Rights" means the Preferred Share
Purchase Rights issued or issuable pursuant to the Rights Agreement (or any
similar right hereafter issued by the Company with respect to the Common Stock).

              "Proceeds" shall have the meaning assigned to such term under the
Code.

              "Quarterly Cash Requirements" of any Person as of any date means
the cash used in operating activities and for payment of Indebtedness of such
Person and its subsidiaries, determined on a consolidated basis, for the fiscal
quarter of such Person most recently completed prior to the date of such
determination, as would be shown on a consolidated statement of cash flows of
such

                                       23
<PAGE>   28

Person and its subsidiaries for such fiscal quarter prepared in accordance with
Generally Accepted Accounting Principles.

              "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).

              "Registration Statement" means the Company's Registration
Statement on Form S-3 under the 1933 Act (Registration No. 333-35828), as
amended by any post effective amendment thereto, including all documents and
reports incorporated therein by reference.

              "Repurchase Date" means with respect to any Repurchase Event

              (a) the date that is 60 days after the latest date that any Holder
       may exercise the repurchase right pursuant to Article VII with respect to
       such Repurchase Event so long as (1) on the date of such Repurchase Event
       occurs the Collateral Substitution has occurred or (2) on the date such
       Repurchase Event occurs and at all times thereafter to such 60th day the
       Collateral Value is at least 200% of the amount of the Obligations;

              (b) if the immediately preceding clause (a) of this definition is
       not applicable on the date such Repurchase Event occurs, the date that is
       30 days after the latest date that any Holder may exercise the repurchase
       right pursuant to Article VII with respect to such Repurchase Event;

              (c) if the preceding clause (a) of this definition is applicable
       on the date such Repurchase Event occurs, and thereafter the Company
       fails to continue to meet the requirements of such clause (a), the later
       of (1) the date that is 30 days after the latest date that any Holder may
       exercise the repurchase right pursuant to Article VII with respect to
       such Repurchase Event and (2) the date that is five Business Days after
       the date the Company no longer continues to meet the requirements of such
       clause (a).

              "Repurchase Event" means the occurrence of any one or more of the
following events:

              (a) For any period of five consecutive Trading Days following the
       date hereof there shall be no reported sale price of the Common Stock on
       any of Nasdaq, the NYSE or the AMEX;

                                       24
<PAGE>   29

              (b) Any Fundamental Change;

              (c) The inability of the Company for twenty Trading Days (whether
       or not consecutive) on or after the Issuance Date in any period of 365
       consecutive days to sell shares of Common Stock to the holders of
       Warrants upon exercise of the Warrants pursuant to the Registration
       Statement (1) by reason of the requirements of the 1933 Act, the 1934 Act
       or any of the rules or regulations under either thereof or (2) due to the
       Registration Statement containing any untrue statement of material fact
       or omitting to state a material fact required to be stated therein or
       necessary to make the statements therein not misleading or other failure
       of the Registration Statement to comply with the rules and regulations of
       the SEC; provided, however, that at any time prior to the Maturity Date
       the Company shall be entitled to an aggregate of 20 additional Trading
       Days during which it is unable so to sell shares of Common Stock to the
       holders of Warrants without such inability constituting a Repurchase
       Event under this clause (c) of this definition.

              (d) Any Permitted Collateral or Akkadix Disposition.

              "Repurchase Percentage" means 100%.

              "Repurchase Portion" means, with respect to a particular
Repurchase Event:

              (a) in the case of a Repurchase Event specified in clause (a), (b)
       or (c) of the definition of the term Repurchase Event, 100 percent;

              (b) in the case of a Repurchase Event specified in clause (d) of
       the definition of the term Repurchase Event, if, after giving effect to
       the sale, conveyance or other disposition giving rise to such Repurchase
       Event, the Collateral Value of the remaining Collateral as to which the
       Trustee holds a perfected first priority security interest is at least
       equal to 150% of the amount by which (x) the amount of the Obligations
       exceeds (y) the principal amount of Notes that are Outstanding and of
       which the Holders have the right to require repurchase pursuant to
       Article Seven by reason of such sale, conveyance or other disposition
       (whether or not such right has been exercised), plus accrued interest
       thereon to the date of determination, then the quotient, expressed as a
       percentage, obtained by dividing (x) an amount equal to 50 percent of the
       amount of gross proceeds from such Permitted Collateral or Akkadix
       Disposition by (y) the principal amount of Notes that are Outstanding at
       the close of business on the Business Day immediately preceding such
       Permitted Collateral or Akkadix Disposition; and

                                       25
<PAGE>   30

              (c) in the case of a Repurchase Event specified in clause (d) of
       the definition of the term Repurchase Event, if, after giving effect to
       the sale, conveyance or other disposition giving rise to such Repurchase
       Event, the Collateral Value of the Collateral as to which the Trustee
       holds a perfected first priority security interest would be less than
       150% of the amount by which (x) the amount of the Obligations exceeds (y)
       the principal amount of the Notes that are Outstanding and of which the
       Holders have the right to require repurchase pursuant to Article Seven by
       reason of such sale, conveyance or other disposition (whether or not such
       right has been exercised), plus accrued interest thereon to the date of
       determination if 50% of the gross proceeds of such sale, conveyance or
       other disposition (plus the amount of any cash in addition to such
       proceeds which cash is deposited by the Company with the Trustee as
       Collateral in connection with such Permitted Collateral or Akkadix
       Disposition and which may be applied to pay the Repurchase Price of such
       Notes) were applied to repurchase of Notes pursuant to Article Seven,
       then the quotient, expressed as a percentage, obtained by dividing (x)
       such amount of the gross proceeds from such Permitted Collateral or
       Akkadix Disposition as shall be necessary so that, assuming such amount
       of such gross proceeds (plus the amount of any cash in addition to such
       proceeds which cash is deposited by the Company with the Trustee as
       Collateral in connection with such Permitted Collateral or Akkadix
       Disposition and which may be applied to pay the Repurchase Price of such
       Notes) is applied to repurchase Notes pursuant to Article Seven, the
       Collateral Value of the Collateral as to which the Trustee holds a
       perfected first priority security interest would be at least 150% of the
       amount by which the amount of the Obligations exceeds the principal
       amount of Notes Outstanding that would be so repurchased by (y) the
       principal amount of Notes that are Outstanding at the close of business
       on the Business Day immediately preceding such Permitted Collateral or
       Akkadix Disposition.

              "Repurchase Price" means with respect to any repurchase of a Note
pursuant to Sections 7.01 and 7.02 an amount in cash equal to the sum of (1) the
product of (x) the Repurchase Percentage times (y) the outstanding principal
amount of such Note to be repurchased in accordance with Article Seven plus (B)
accrued and unpaid interest on such principal amount to the date the Repurchase
Price is required to be paid plus (C) accrued and unpaid Default Interest, if
any, thereon at the Default Rate to the date of such repurchase.

              "Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.

                                       26
<PAGE>   31

              "Rights Agreement" means the Rights Agreement, dated as of October
8, 1998, between the Company and Computershare Investor Services, LLC, as Rights
Agent.

              "SEC" means the Securities and Exchange Commission.

              "Securities" shall have the meaning provided in Section 8.03(d).

              "Security Interest" means the security interest granted in the
Collateral pursuant to this Supplemental Indenture.

              "Share Payments" shall have the meaning provided in Section 5.09.

              "Specified Market Value" when used with respect to the Common
Stock as of a specified date means with respect to each share of Common Stock
the average of the closing prices of the Common Stock sold on all securities
exchanges (including the Nasdaq and the Nasdaq SmallCap Market) on which the
Common Stock may at the time be listed, or, if there have been no sales on any
such exchange on such day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on such day the
Common Stock is not so listed, the average of the representative bid and asked
prices quoted in the NASDAQ System as of 4:00 p.m., New York City time, or, if
on such day the Common Stock is not quoted in the NASDAQ System, the average of
the highest bid and lowest asked price on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of five Trading Days consisting of the day as of which the
Specified Market Value of Common Stock is being determined (or if such day is
not a Trading Day, the Trading Day next preceding such day) and the four
consecutive Trading Days prior to such day. If on the date for which Specified
Market Value is to be determined the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the Specified Market Value of Common Stock shall be the highest price
per share which the Company could then obtain from a willing buyer (not an
employee or director of the Company at the time of determination) for shares of
Common Stock sold by the Company, from authorized but unissued shares, as
determined in good faith by the Board of Directors.

              "Stock Payment Option" shall have the meaning provided in Section
3.02(a).

              "Subordination Terms" means the terms set forth in SCHEDULE III to
this Supplemental Indenture or such other terms of subordination as shall have
been approved in advance of the incurrence of the applicable Indebtedness by the
Majority Holders in their sole discretion, as evidenced by the written approval
of the

                                       27
<PAGE>   32

Majority Holders given to the Company and the Trustee prior to incurrence of
such Indebtedness.

              "Subsidiary" means any corporation or other entity of which a
majority of the capital stock or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by the
Company.

              "Tender Offer" means a tender offer or exchange offer.

              "Trading Day" means a day on which any of the national securities
exchange or Nasdaq which then constitutes the principal securities market for
the Common Stock is open for general trading of securities.

              "Transaction Documents" means the Original Indenture, this
Supplemental Indenture, the Notes, the Note Purchase Agreements, the Warrants
and the other agreements, instruments and documents contemplated hereby and
thereby.

              "Trigger Event" shall have the meaning provided in Section
8.03(d).

              "Unrestricted Subsidiary" means PPGx, Inc. and its Subsidiaries
and any Subsidiary of the Company that is designated by the Board of Directors
as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the
extent that such Subsidiary:

              (1) has no Indebtedness other than Non-Recourse Debt;

              (2) is not party to any agreement, contract, arrangement or
       understanding with the Company or any Restricted Subsidiary of the
       Company unless the terms of any such agreement, contract, arrangement or
       understanding comply with Section 5.07 (such compliance to be determined
       without regard to the proviso to Section 5.07);

              (3) is a Person with respect to which neither the Company nor any
       of its Restricted Subsidiaries has any direct or indirect obligation (a)
       to subscribe for additional equity interests or (b) to maintain or
       preserve such Person's financial condition or to cause such Person to
       achieve any specified levels of operating results; and

              (4) has not guaranteed or otherwise directly or indirectly
       provided credit support for any Indebtedness of the Company or any of its
       Restricted Subsidiaries.

                                       28
<PAGE>   33

              Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary will be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
preceding conditions. If, at any time, any Unrestricted Subsidiary would fail to
meet the preceding requirements as an Unrestricted Subsidiary, it will
thereafter cease to be an Unrestricted Subsidiary for purposes of this
Supplemental Indenture and will become a Restricted Subsidiary of the Company
for purposes of this Supplemental Indenture, and any Indebtedness, Liens and
activities of such Subsidiary will be deemed to be incurred or engaged in by a
Restricted Subsidiary of the Company as of such date and shall be required to
comply as of such date with the requirements of this Supplemental Indenture
applicable to the Company and its Restricted Subsidiaries. The Board of
Directors of the Company may at any time designate any Unrestricted Subsidiary
to be a Restricted Subsidiary of the Company; provided, however, that such
designation will be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation will only be permitted if (1) such Indebtedness
is permitted under this Supplemental Indenture; and (2) no Default or Event of
Default would be in existence following such designation.

              "Warrants" means the Common Stock Purchase Warrants of the Company
issued to the original Holders of the Notes pursuant to the Note Purchase
Agreements.

              "Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:

              (1) the sum of the products obtained by multiplying (a) the amount
       of each then remaining installment, sinking fund, serial maturity or
       other required payments of principal, including payment at final
       maturity, in respect of such Indebtedness, by (b) the number of years
       (calculated to the nearest one-twelfth) that will elapse between such
       date and the making of such payment; by

              (2) the outstanding principal amount of such Indebtedness at such
       date.

              (b) All the agreements or instruments herein defined shall mean
such agreements or instruments as the same may from time to time be supplemented
or amended or the terms thereof waived or modified to the extent permitted by,
and in accordance with, the terms thereof and of the Original Indenture, this
Supplemental Indenture and the Notes.

                                       29
<PAGE>   34

                                   ARTICLE TWO

                                  FORM OF NOTES

              SECTION 2.01. FORM OF NOTES. The Notes shall be in substantially
the form set forth in this Article, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by the Original
Indenture and this Supplemental Indenture, and may have such other letters,
numbers or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with the rules of any securities exchange
or Depositary therefor or as may, consistently herewith, be determined by the
officers executing the Notes, as evidenced by their execution thereof.

              SECTION 2.02. FORM OF FACE OF NOTES.

                           AXYS PHARMACEUTICALS, INC.

No.__________________

     $______________________

              Axys Pharmaceuticals, Inc., a corporation duly organized and
existing under the laws of Delaware (herein called the "Company," which term
includes any successor Person under the Original Indenture hereinafter referred
to), for value received, hereby promises to pay to                   , or
registered assigns, the principal sum of Dollars (or such lesser principal
amount of this Note as is outstanding on the date of payment) on September __,
2004, and to pay interest thereon from the Issuance Date or from the most recent
Interest Payment Date to which interest has been paid or duly provided for, on
each Interest Payment Date in each year, commencing December 15, 2000, and at
the Maturity of this Note, at the Applicable Rate, until the principal hereof is
paid or made available for payment, provided that any principal or amount of
interest which is overdue shall bear interest at a rate per annum equal to the
Default Rate (to the extent that the payment of such interest shall be legally
enforceable), from the dates such amounts are due until they are paid or made
available for payment, and such interest ("Default Interest") shall be payable
on demand. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Supplemental Indenture, be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the fifth Business Day preceding such Interest
Payment Date. Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name

                                       30
<PAGE>   35

this Security (or one or more Predecessor Securities) is registered at the close
of business on a Special Record Date for the payment of such Defaulted Interest
to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities of this series not less than ten days prior to such Special Record
Date, or be paid at any time in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the Securities of this
series may be listed, and upon such notice as may be required by such exchange,
all as more fully provided in the Original Indenture and the Supplemental
Indenture.

              Payment of the principal of and any such interest on this Security
and any other amounts payable in respect of this Security will be made at the
office or agency of the Company maintained for that purpose in the city in which
the Corporate Trust Office is located, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts or, at the option of the Company and subject to the
provisions of this Note, interest payable on the Interest Payment Dates may be
paid in whole or in part in fully paid and nonassessable shares of Common Stock;
provided, however, that at the option of the Company payment of interest may be
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register; provided further, however, that
cash payments shall be made by wire transfer of immediately available funds to
such account within the United States of America as the Holder may from time to
time designate by notice to the Company in accordance with the Original
Indenture and the Supplemental Indenture. Reference is hereby made to the
further provisions of this Security set forth on the reverse hereof, which
further provisions shall for all purposes have the same effect as if set forth
at this place.

              Unless the certificate of authentication hereon has been executed
by the Trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Original Indenture or
the Supplemental Indenture or be valid or obligatory for any purpose.

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

Dated:                                  AXYS PHARMACEUTICALS, INC.
      -------------------------------

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

Attest:
       ------------------------------

                                       31
<PAGE>   36

                     TRUSTEE'S CERTIFICATE OF AUTHENTICATION

U. S. Bank Trust National Association, as Trustee, certifies that this is one of
the Securities referred to in the within-mentioned Original Indenture.

                                        U. S. BANK TRUST NATIONAL
                                        ASSOCIATION, AS TRUSTEE

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

Date of Authentication:

              SECTION 2.03. FORM OF REVERSE OF NOTES. This Security is one of a
duly authorized issue of securities of the Company (herein called the
"Securities"), issued and to be issued in one or more series under an Original
Indenture, dated as of September __, 2000 (herein called the "Original
Indenture," which term shall have the meaning assigned to it in such
instrument), between the Company and U.S. Bank Trust National Association, as
Trustee (herein called the "Trustee," which term includes any successor trustee
under the Original Indenture), and the Supplemental Indenture, dated as of
September , 2000, between the Company and the Trustee (herein called the
"Supplemental Indenture," which term shall have the meaning assigned to it in
such instrument), and reference is hereby made to the Original Indenture, the
Supplemental Indenture and all indentures supplemental thereto for a statement
of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee and the Holders of the Securities and of
the terms upon which the Securities are, and are to be, authenticated and
delivered. This Security is one of the series designated on the face hereof,
limited in aggregate principal amount to $20,000,000 (except as otherwise
provided in the Original Indenture and the Supplemental Indenture).

              The Original Indenture and the Supplemental Indenture contain
provisions for defeasance at any time of certain restrictive covenants, Events
of Default or other circumstances with respect to this Security upon compliance
with certain conditions set forth in the Original Indenture and the Supplemental
Indenture. Certain of the Company's obligations with respect to this Security
are defeasible in accordance with Sections 1302 and 1303 of the Original
Indenture and related provisions of the Supplemental Indenture.

                                       32
<PAGE>   37

              Subject to the provisions of the Supplemental Indenture, the
Holder of this Security is entitled, at its option, at any time prior to the
close of business on September , 2004 (except that, if the Holder shall have
exercised repurchase rights under Article Seven of the Supplemental Indenture,
such conversion right shall terminate with respect to the portion of this
Security to be repurchased on the last Trading Day prior to the later of (x) the
date of such repurchase and (y) the date the Company pays or deposits in
accordance with the Supplemental Indenture the applicable Repurchase Price,
unless in any such case the Company shall default in payment due upon repurchase
hereof) to convert the principal amount of this Security, or any portion of such
principal amount which is at least $10,000 (or such lesser principal amount
hereof as shall be outstanding at such time), plus accrued and unpaid interest,
into that number of fully paid and non-assessable shares of Common Stock (as
such shares shall then be constituted) obtained by dividing (1) the sum of (x)
the principal amount of this Security or portion hereof being converted plus (y)
accrued and unpaid interest on the portion of the principal amount of this
Security being converted to the applicable Conversion Date plus (z) accrued and
unpaid Default Interest, if any, on the amount referred to in the immediately
preceding clause (y) to the applicable Conversion Date by (2) the Conversion
Price in effect on the applicable Conversion Date, by giving a Conversion Notice
in the manner provided in the Supplemental Indenture; provided, however, that,
if at any time this Security is converted in whole or in part, the Company does
not have available for issuance upon such conversion as authorized and unissued
shares or in its treasury at least the number of shares of Common Stock required
to be issued pursuant hereto, then, at the election of the Holder made by notice
from the Holder to the Company, this Security (or portion hereof as to which
conversion has been requested), to the extent that sufficient shares of Common
Stock are not then available for issuance upon conversion, shall be converted
into the right to receive from the Company, in lieu of the shares of Common
Stock into which this Security or such portion hereof would otherwise be
converted and which the Company is unable to issue, payment in an amount equal
to the product obtained by multiplying (x) the number of shares of Common Stock
which the Company is unable to issue times (y) the arithmetic average of the
Market Price for the Common Stock during the five consecutive Trading Days
immediately prior to the applicable Conversion Date. Any such payment shall, for
all purposes of this Security, be deemed to be a payment of principal plus a
premium equal to the total amount payable less the principal portion of this
Security converted as to which such payment is required to be made because
shares of Common Stock are not then available for issuance upon such conversion.
The Holder is not entitled to any rights of a holder of Common Stock until the
Holder has converted this Security to Common Stock, and only to the extent this
Security is deemed to have been converted to Common Stock under the Supplemental
Indenture. The Conversion Rate is subject to adjustment as provided in the
Supplemental Indenture.

                                       33
<PAGE>   38

              If an Event of Default with respect to Securities of this series
shall occur and be continuing, the principal of the Securities of this series
may be declared due and payable in the manner and with the effect provided in
the Original Indenture and the Supplemental Indenture.

              The Original Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities of
each series to be affected under the Original Indenture at any time by the
Company and the Trustee with the consent of the Holders of more than 50% in
principal amount of the Securities at the time Outstanding of each series to be
affected. The Original Indenture also contains provisions permitting the Holders
of specified percentages in principal amount of the Securities of each series at
the time Outstanding, on behalf of the Holders of all Securities of such series,
to waive compliance by the Company with certain provisions of the Original
Indenture and the Supplemental Indenture and certain past defaults under the
Original Indenture and the Supplemental Indenture and their consequences. Any
such consent or waiver by the Holder of this Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.

              As provided in and subject to the provisions of the Original
Indenture, the Holder of this Security shall not have the right to institute any
proceeding with respect to the Original Indenture or for the appointment of a
receiver or trustee or for any other remedy thereunder, unless such Holder shall
have previously given the Trustee written notice of a continuing Event of
Default with respect to the Securities of this series, the Holders of not less
than 25% in principal amount of the Securities of this series at the time
Outstanding shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default as Trustee and offered the
Trustee reasonable indemnity, and the Trustee shall not have received from the
Holders of a majority in principal amount of Securities of this series at the
time Outstanding a direction inconsistent with such request, and shall have
failed to institute any such proceeding, for 60 days after receipt of such
notice, request and offer of indemnity. The foregoing shall not apply to any
suit instituted by the Holder of this Security for the enforcement of any
payment of principal hereof or any premium or interest hereon on or after the
respective due dates expressed herein.

              No reference herein to the Original Indenture or the Supplemental
Indenture and no provision of this Security or of the Original Indenture or the
Supplemental 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

                                       34
<PAGE>   39

on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.

              As provided in the Original Indenture and the Supplemental
Indenture and subject to certain limitations therein set forth, the transfer of
this Security is registrable in the Security Register, upon surrender of this
Security for registration of transfer at the office or agency of the Company in
any place where the principal of and any premium and interest on this Security
are payable, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or its attorney duly authorized in writing, and
thereupon one or more new Securities of this series and of like tenor, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.

              The Securities of this series are issuable only in registered form
without coupons. As provided in the Original Indenture and the Supplemental
Indenture and subject to certain limitations therein set forth, Securities of
this series are exchangeable for a like aggregate principal amount of Securities
of this series and of like tenor of a different authorized denomination, as
requested by the Holder surrendering the same.

              No service charge shall be made to a Holder for any such
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.

              Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.

              All terms used in this Security which are defined in the
Supplemental Indenture shall have the meanings assigned to them in the
Supplemental Indenture.

              SECTION 2.04. FORM OF CONVERSION NOTICE. The Conversion Notice
shall be in substantially the following form or, in the case of any particular
conversion of a Note, in such other form as agreed by the Company and the
converting Holder:

                             NOTICE OF CONVERSION OF
                   8% SENIOR SECURED CONVERTIBLE NOTE DUE 2004
                          OF AXYS PHARMACEUTICALS, INC.

                                       35
<PAGE>   40

To:    Axys Pharmaceuticals, Inc.
       180 Kimball Way
       South San Francisco, California  94080

       Attention:  Chief Financial Officer

       Facsimile No.:  (650) 829-1067

       [Name and Address of Issuing Agent]

       Attention:
                 -----------------------------------------------------------
                   Special Issuances

       Facsimile No.:

       1. Pursuant to the terms of the 8% Senior Secured Convertible Note due
2004 (the "Note"), the undersigned hereby elects to convert $ of the Note into
shares of Common Stock of Axys Pharmaceuticals, Inc., a Delaware corporation, at
a Conversion Price per share equal to $ . Capitalized terms used herein and not
otherwise defined herein have the respective meanings provided in the Note.

       2. The number of shares of Common Stock issuable upon the conversion of
the Note to which this Notice relates is_______________________.

       3. Please issue a certificate or certificates for shares of Common Stock
in the name(s) specified immediately below or, if additional space is necessary,
on an attachment hereto:

------------------------------------------
Name

------------------------------------------
Address

------------------------------------------
SS or Tax ID Number

Delivery Instructions for Common Stock:

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

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

                                       36
<PAGE>   41

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

Date:
     -----------------------      ----------------------------------------------
                                       Name

                                  ----------------------------------------------
                                           Signature of Registered Holder
                                  (Must be signed exactly as name appears in the
                                                        Note.)

                                  ARTICLE THREE

                                    THE NOTES

              SECTION 3.01. ESTABLISHMENT OF SERIES; AMOUNT. There is hereby
established a series of Securities entitled "8% Senior Secured Convertible Notes
due 2004," which shall be limited in aggregate principal amount to $20,000,000
(except as otherwise provided in the Original Indenture or this Supplemental
Indenture). The Notes shall bear interest at the rate provided in the form of
Notes and interest on the Notes shall be payable quarterly on the Interest
Payment Dates specified in the form of Notes to the Persons who are Holders of
the Notes at the close of business on the fifth Business Day preceding each
Interest Payment Date. The Notes shall not be Original Issue Discount
Securities.

              SECTION 3.02. ISSUANCE OF COMMON STOCK IN LIEU OF CASH INTEREST.
(a) If the Company exercises its option to make a payment of interest on the
Notes wholly or partly in shares of Common Stock (herein sometimes called the
"Stock Payment Option"), the issuance of Interest Shares upon such exercise of
the Stock Payment Option shall have been authorized by the Board of Directors.

              (b) The Company shall not be permitted to exercise the Stock
Payment Option with respect to any payment of interest on the Notes if:

              (i) the number of shares of Common Stock authorized, unissued and
       unreserved for all purposes other than payment of interest on the Notes,
       or held in the Company's treasury, after taking into account shares of
       Common Stock required to be reserved for conversion of the Notes and
       exercise of the Warrants, is insufficient to pay the portion of such
       interest to be paid in Common Stock;

                                       37
<PAGE>   42

              (ii) the issuance or delivery of Interest Shares or the public
       resale of such Interest Shares by the Holders who are not Affiliates of
       the Company for purposes of the 1933 Act would require registration or
       filing with or approval of any governmental authority under any law or
       regulation, and such registration, filing or approval has not been
       effected or obtained or is not in effect;

              (iii) the Interest Shares shall not at the time of issuance have
       been authorized for listing, upon official notice of issuance, on the
       principal securities exchange on which the Common Stock is then listed
       and traded;

              (iv) the Interest Share Price for the Interest Shares is less than
       the par value of the Common Stock;

              (v) an Event of Default has occurred and is continuing on the
       applicable Interest Payment Date or at any time thereafter to and
       including the date on which the Company delivers such Interest Shares to
       the Holders; or

              (vi) the Common Stock is neither (i) listed or admitted for
       trading on a national securities exchange nor (ii) quoted on Nasdaq.

              (c) (1) The Company shall have the right to elect the Stock
Payment Option for the Notes with respect to a particular Interest Payment Date
only if the Company gives notice of such election to the Trustee and the Holders
on or before the date that is 25 Trading Days prior to such Interest Payment
Date. Any election of the Stock Payment Option for a particular Interest Payment
Date shall be applicable pro rata (based on the amount of interest payable on
such Interest Payment Date) to all Notes that are outstanding on such Interest
Payment Date. If the Company elects the Stock Payment Option with respect to a
particular Interest Payment Date, the Company shall issue to each Holder in
respect of such Interest Payment Date the aggregate number of whole shares of
Common Stock determined by dividing the per share Interest Share Price of the
Common Stock on the applicable Interest Payment Date into an amount equal to the
total amount of lawful money of the United States of America which such Holder
would receive if the aggregate amount of interest on the Notes held by such
Holder which is being paid in Interest Shares were being paid in such lawful
money.

              (2) If the Company elects the Stock Payment Option with respect to
an Interest Payment Date, the Interest Shares for such Interest Payment Date
shall become issuable on such Interest Payment Date and the Company shall
deliver, or cause to be delivered, the appropriate number of Interest Shares to
the Holders within three Trading Days after the applicable Interest Payment
Date. If in any case the Company shall fail to deliver or cause to be delivered
such number

                                       38
<PAGE>   43

of Interest Shares to the Holders within five Trading Days after such Interest
Payment Date, then in addition to any other liabilities the Company may have
hereunder and under applicable law (A) the Company shall pay or reimburse the
Holders on demand for all out-of-pocket expenses, including, without limitation,
reasonable fees and expenses of legal counsel, incurred by the Holders as a
result of such failure, (B) if as a result of such failure the Holders shall
suffer any direct damages or liabilities from such failure (including, without
limitation, margin interest and the cost of purchasing securities to cover a
sale (whether by any Holder or any Holder's securities broker) or borrowing of
shares of Common Stock by such Holder for purposes of settling any trade
involving a sale of shares of Common Stock made by such Holder during the period
beginning on the applicable Interest Payment Date and ending on the date the
Company delivers or causes to be delivered to such Holder the Interest Shares
issuable in respect thereof), then the Company shall upon demand of such Holder
pay to such Holder an amount equal to the actual direct, out-of-pocket damages
and liabilities suffered by such Holder by reason thereof which such Holder
documents to the reasonable satisfaction of the Company, and (C) such Holder may
by written notice (which may be given by mail, courier, personal service or
telephone line facsimile transmission) or oral notice (promptly confirmed in
writing), given at any time prior to delivery to such Holder of the shares of
Common Stock issuable in connection with such exercise of the Stock Payment
Option, require payment in cash of the interest in respect of which the Company
exercised the Stock Payment Option, in which case the amount of such interest
shall be immediately due and payable, with Default Interest thereon from the
applicable Interest Payment Date until paid in full and upon such cash payment
in full the Company shall not be obligated to issue such Interest Shares to such
Holder. Notwithstanding the foregoing the Company shall not be liable to a
Holder under clause (B) of the immediately preceding sentence to the extent the
failure of the Company to deliver or to cause to be delivered such Interest
Shares results from fire, flood, storm, earthquake, shipwreck, strike, war, acts
of terrorism, crash involving facilities of a common carrier, acts of God, or
any similar event outside the control of the Company (it being understood that
the action or failure to act of the Issuing Agent shall not be deemed an event
outside the control of the Company except to the extent resulting from fire,
flood, storm, earthquake, shipwreck, strike, war, acts of terrorism, crash
involving facilities of a common carrier, acts of God, the bankruptcy,
liquidation or reorganization of the Issuing Agent under any bankruptcy,
insolvency or other similar law or any similar event outside the control of the
Issuing Agent). A Holder shall notify the Company in writing (or by telephone
conversation, confirmed in writing) as promptly as practicable following the
second Trading Day after such Interest Payment Date if such Holder becomes aware
that Interest Shares so issuable have not been received as provided herein, but
any failure so to give such notice shall not affect the rights of any Holder
under the Notes or otherwise.

                                       39
<PAGE>   44

              (3) No fractional shares of Common Stock shall be issued in
payment of interest on the Notes. In lieu thereof, the Company may, at its
option, issue a number of shares of Common Stock which reflects a rounding up to
the next whole number of shares or may pay lawful money of the United States of
America in payment of the amount of such interest in lieu of issuance of such
fractional share.

              (d) If the Company elects the Stock Payment Option with respect to
a payment of interest on the Notes with respect to a particular Interest Payment
Date, the Company shall deliver to the Trustee and each Holder, on or prior to
the date on which Interest Shares for such payment of interest on the Notes are
required to be received by the Holders, a Company Certificate setting forth (i)
the total amount of the cash interest payment to which such respective Holder is
entitled, (ii) the portion of such interest payment being made in Interest
Shares, (iii) the Interest Share Price and the Market Price on each Trading Day
used in computing the Interest Share Price, (iv) the number of Interest Shares
allocable to such payment, as calculated pursuant to this Section 3.02, (v) any
rounding adjustment to such number or any payment necessary to be made pursuant
to Section 3.02(c), (vi) a brief statement of the facts requiring such
adjustment, and (vii) a brief statement that none of the conditions set forth in
Section 3.02(b) has occurred and is existing and that all of the requirements of
this Section 3.02 have been met. Such Company Certificate shall be conclusive
evidence of the correctness of the calculation of the number of Interest Shares
allocable to the payments to which such Company Certificate relates and of any
adjustments to such number made pursuant to this Section 3.02 in the absence of
manifest error. On or before the pertinent Interest Payment Date, the Company
shall issue, or cause the Issuing Agent to prepare and issue, the Interest
Shares in the names of the Holders or their respective nominees before being so
delivered by the Company on such Interest Payment Date.

              (e) The Interest Shares, when issued pursuant to and in compliance
with this Section 3.02, shall be, and for all purposes shall be deemed to be,
validly issued, fully paid and nonassessable shares of Common Stock; the
issuance and delivery thereof has been in all respects authorized by the
Company; and the issuance thereof, together with lawful money of the United
States of America, if any, paid in lieu of fractional shares of such Common
Stock and any amount required to be paid by the Company pursuant to Section
3.02(c)(3) with respect to such interest payment, will be, and for all purposes
shall be deemed to be, in full discharge and satisfaction of the Company's
obligation to pay the interest on the Note to which such Interest Shares relate.

              SECTION 3.03. DEFEASANCE. Certain of the Company's obligations
with respect to the Notes shall be defeasible in accordance with Sections 1302
and 1303 of the Original Indenture. For purposes of any Defeasance of the Notes
pursuant to Section 1302 of the Original Indenture, in addition to any
obligations of

                                       40
<PAGE>   45

the Company which shall survive as provided in Section 1302 of the Original
Indenture until otherwise terminated or discharged, the Company's obligations
under Article Eight of this Supplemental Indenture shall survive until otherwise
terminated or discharged as provided in this Supplemental Indenture. Any cash or
property deposited by the Company with the Trustee pursuant to Section 1302 or
1303 of the Original Indenture in respect of the Notes shall constitute
Collateral for purposes of this Supplemental Indenture.

                                  ARTICLE FOUR

                                    REMEDIES

              SECTION 4.01. EVENTS OF DEFAULT. "Event of Default," whenever used
in the Original Indenture or this Supplemental Indenture with respect to the
Notes, means any of the following events:

              (a) FAILURE TO PAY INTEREST. The Company fails to pay any
installment of interest on any Note when due and such failure continues for a
period of five Business Days after the due date thereof; or

              (b) CONVERSION AND THE SHARES. The Company fails to issue or cause
to be issued shares of Common Stock (1) to any Holder upon exercise by such
Holder of such Holder's conversion rights in accordance with this Supplemental
Indenture and the Notes or (2) to the holder of any Warrant upon exercise by
such holder of such holder's purchase rights in accordance with the terms of
such Warrant, in either such case in the preceding clauses (1) and (2) within
two Trading Days after the due date therefor in accordance with the terms of any
Note, the Original Indenture, this Supplemental Indenture, or any Warrant, as
the case may be; provided, however, that if such failure occurs solely by reason
of any action that the Issuing Agent has taken or failed to take, then no Event
of Default shall occur under this Section 4.01(b) unless the Company fails so to
issue or to cause to be issued such shares of Common Stock within four Trading
Days after the due date therefor in accordance with the terms of any Note, the
Original Indenture, this Supplemental Indenture or any Warrant; or

              (c) BREACH OF CERTAIN COVENANTS OR WARRANTIES. Default in the
performance, or breach, of any covenant or warranty of the Company in Section
1005 or 1006 of the Original Indenture or Sections 5.01, 5.03, 5.05, 5.06, 5.07,
5.08, 5.09, 5.13, 5.14, 5.17, 5.18, or 5.21 of this Supplemental Indenture; or

              (d) BREACH OF OTHER COVENANTS OR WARRANTIES. Default in the
performance, or breach, of any covenant or warranty of the Company in the
Original Indenture or this Supplemental Indenture (other than a covenant or
warranty a

                                       41
<PAGE>   46

default in the performance or breach of which is elsewhere in this Section
specifically dealt with or which has expressly been included in the Original
Indenture solely for the benefit of a series of Securities other than the
Notes), and continuance of such default or breach for a period of 15 Business
Days after there has been given, by registered or certified mail, to the Company
by the Trustee or to the Company and the Trustee by the Holders of at least 25%
in principal amount of the Outstanding Securities of this series a written
notice specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder or within 30
Business Days after such notice is given if, and only if, such default is
reasonably capable of cure within 30 Business Days after such notice is given
and at all times during such 30 Business Days period the Company has been
diligently taking action to cure such default and such cure cannot reasonably be
completed in such 15-Business Day period; or

              (e) BREACH OF REPRESENTATION OR WARRANTY. Any representation or
warranty of the Company made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Transaction Documents) shall be false or
misleading in any material respect when made and, to the extent susceptible to
cure, such breach shall not have been cured within ten Business Days after there
has been given, by facsimile transmission or registered or certified mail, to
the Company by the Trustee or to the Company and the Trustee by the Holders of
at least 25% in principal amount of the Outstanding Securities of this series a
written notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder; or

              (f) JUDGMENTS. Any court of competent jurisdiction shall enter one
or more final judgments against the Company or any of its Restricted
Subsidiaries or any of their respective properties or other assets in an
aggregate amount in excess of $1,000,000, which is not vacated, bonded, stayed,
discharged, satisfied or waived for a period of 45 consecutive days; or

              (g) DEFAULT UNDER OTHER AGREEMENTS AND INSTRUMENTS. (1) The
Company or any of its Restricted Subsidiaries shall default in any payment with
respect to any Indebtedness for borrowed money (other than the Notes) which
Indebtedness has an outstanding principal amount in excess of $1,000,000
individually, or $2,000,000 in the aggregate, for the Company and its
Subsidiaries, beyond the period of grace, if any, provided in the instrument or
agreement under which such Indebtedness was created or (2) any Indebtedness of
the Company or any of its Restricted Subsidiaries which has an outstanding
principal amount in excess of $1,000,000 individually, or $2,000,000 in the
aggregate, shall, in accordance with its terms, be declared to be due and
payable, or required to be prepaid other than by a regularly scheduled or
required payment prior to the stated maturity thereof; or

                                       42
<PAGE>   47

              (h) DELISTING OF THE COMMON STOCK. The Common Stock shall cease to
be listed on any of Nasdaq, the NYSE or the AMEX; or

              (i) ORIGINAL INDENTURE EVENTS OF DEFAULT. Any Event of Default
specified in Section 501(2), 501(5) or 501(6) of the Original Indenture; or

              (j) SECURITY INTEREST; PLEDGED SECURITIES. The Trustee shall cease
to have a first priority perfected Security Interest for the benefit of the
Holders in any of the Collateral, other than Collateral that has been released
from the Lien of this Supplemental Indenture in accordance with the terms of the
Original Indenture and this Supplemental Indenture; or any of the Pledged
Securities shall not be duly and validly authorized, fully paid and
non-assessable shares of capital stock of the issuer thereof.

The Events of Default provided in Sections 501(1) and 501(4) of the Original
Indenture shall be superseded with respect to the Notes by the Events of Default
provided in Sections 4.01(a), 4.01(d) and 4.01(e) of this Supplemental
Indenture.

                                  ARTICLE FIVE

                                    COVENANTS

              So long as the Company shall have any obligation for any amount
outstanding under any Note, unless otherwise consented to in advance by the
Majority Holders:

              SECTION 5.01. LIMITATIONS ON CERTAIN INDEBTEDNESS. The Company
will not itself, and will not permit any of its Restricted Subsidiaries to,
create, assume, incur or in any manner become liable in respect of, including,
without limitation, by reason of any business combination transaction (all of
which are referred to herein as "incurring"), any Indebtedness other than
Permitted Indebtedness; provided, however, that if at any time during any period
of 20 consecutive Trading Days commencing after the Closing Date on each such
Trading Day (a) the Common Stock shall be listed on Nasdaq, the NYSE or the
AMEX, and the Market Price of the Common Stock shall be at least 300% of the
Conversion Price in effect on each such Trading Day, (b) no Event of Default
shall have occurred or be continuing and no Repurchase Event shall have occurred
with respect to which any Holder has the right to require repurchase of any Note
pursuant to Article Seven or with respect to which any Holder has exercised such
right and the Company shall not have paid or deposited in accordance with
Section 9.14 of this Supplemental Indenture the applicable Repurchase Price, (c)
the Registration Statement shall be effective and available for use by the
Company for the sale of

                                       43
<PAGE>   48

shares of Common Stock to holders of the Warrants upon exercise of the Warrants
and is reasonably expected to remain effective and available after such period
of 20 Trading Days, and (d) the Company shall have furnished to the Holders and
the Trustee a Company Certificate certifying the matters set forth in the
immediately preceding clauses (a) through (c), then thereafter the Company shall
no longer be obligated to comply with this Section 5.01.

              SECTION 5.02. INVESTMENT COMPANY ACT. The Company will not be or
become an open-end investment trust, unit investment trust or face-amount
certificate company that is or is required to be registered under Section 8 of
the Investment Company Act of 1940, as amended.

              SECTION 5.03. LIMITATIONS ON ASSET SALES, LIQUIDATIONS, ETC.;
CERTAIN MATTERS. (a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to,

              (1) sell, convey or otherwise dispose of (including, without
limitation, by way of lease or license) any assets which are material to the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company and its Restricted Subsidiaries, taken as
a whole, in a single transaction or a series of related transactions (including,
without limitation, in a transaction between the Company and any Subsidiary or
other Affiliate); or

              (2) sell, convey, pledge, transfer or otherwise dispose of (A) any
of the Pledged Securities or (B) any capital stock or other interest in Akkadix,
except in each such case referred to in the preceding clauses (A) and (B) as
permitted by Section 5.03(b); or

              (3) liquidate, dissolve or otherwise wind up its affairs.

              (b) Notwithstanding the foregoing restrictions in Sections
5.03(a)(1), and 5.03(a)(2), the Company shall be permitted to sell, convey or
otherwise dispose of all or a portion of the Pledged Securities or the Akkadix
Shares so long as:

              (1) the net cash proceeds of such sale, conveyance or other
       disposition (plus the amount of any cash in addition to such proceeds
       which cash is deposited by the Company with the Trustee as Collateral in
       connection with such Permitted Collateral or Akkadix Disposition and
       which may be applied to pay the Repurchase Price of the Notes) are
       sufficient to pay in full all amounts payable by the Company pursuant to
       Article Seven by reason of the repurchase rights arising from such
       transaction (assuming all Holders exercise their repurchase rights
       pursuant to Article Seven to the full extent permitted thereby),

                                       44
<PAGE>   49

              (2) the terms of such sale, conveyance or other disposition
       provide for payment to the Company by deposit with the Trustee on or
       before the date of such sale, conveyance or other disposition of an
       amount in cash (or instrument payable in next day funds) which, together
       with the amount of any cash in addition to such proceeds which cash is
       deposited by the Company with the Trustee on or before such date as
       Collateral in connection with such Permitted Collateral or Akkadix
       Disposition and which may be applied to pay the Repurchase Price of
       Notes, is at least equal to the amount specified in the immediately
       preceding clause (l),

              (3) after giving effect to such sale, conveyance or other
       disposition, the Collateral Value of the Collateral as to which the
       Trustee holds a perfected first priority security interest is at least
       equal to 150% of the amount by which (A) the amount of the Obligations
       exceeds (B) the principal amount of Notes that are Outstanding and of
       which the Holders have the right to require repurchase pursuant to
       Article Seven by reason of such sale, conveyance or other disposition
       (whether or not such right has been exercised), plus accrued interest
       thereon to the date of determination, and

              (4) no Default or Event of Default has occurred and is continuing.

              SECTION 5.04. LIMITATIONS ON LIENS. The Company will not itself,
and will not permit any of its Restricted Subsidiaries to, create, assume or
suffer to exist any Lien upon all or any part of its property of any character,
whether owned at the date hereof or thereafter acquired, except Permitted Liens.

              SECTION 5.05. LIMITATION ON CERTAIN ISSUANCES OF SECURITIES. The
Company shall not, and shall not permit any of its Restricted Subsidiaries to
(a) issue any Common Stock Equivalent that directly or indirectly is convertible
into, exchangeable for, or otherwise entitles the holder to acquire, shares of
Common Stock at a price that varies based on changes in the market price of the
Common Stock, (b) directly or indirectly issue any Common Stock or Common Stock
Equivalent under any agreement or arrangement that provides for re-pricing or
adjusting the price at which Common Stock is issued in connection therewith or
which adjusts the number of shares of Common Stock issued in connection
therewith or (c) enter into any agreement for the issuance of shares of Common
Stock under an arrangement for the Company to draw down from a commitment by any
Person to issue shares of Common Stock or which allows the Company or such
Subsidiary to exercise any put right with respect to shares of Common Stock or
any similar transaction.

              SECTION 5.06. CERTAIN OBLIGATIONS. (a) The Company shall not
amend, modify or waive any provision of DPI's charter or by-laws or any DPI

                                       45
<PAGE>   50

Contract, or enter into any agreement, arrangement or understanding with respect
to (1) the Pledged Securities or (2) which would impair the rights and remedies
of the Trustee with respect to the Collateral; provided, however, that nothing
in this Section 5.06(a) shall prohibit the Company from (x) entering into an
agreement for a transaction permitted by Section 5.03(b) or (y) amending,
modifying or waiving, or agreeing to amend, modify or waive, any provision of
DPI's charter or by-laws or any DPI Contract so long as (i) the terms of any
such amendment, modification or waiver treat the Company no less favorably than
other stockholders of DPI, (ii) such terms do not (A) adversely affect the
validity or enforceability of any Transaction Document, (B) materially impair
the ability of the Company to perform its obligations under the Transaction
Documents, (C) impair the existence, validity or priority of the Trustee's Lien
on and Security Interest in the Collateral for the benefit of the Holders or (D)
impair the rights of the Holders or the Trustee to enforce any of their
respective rights or remedies pursuant to the Transaction Documents, and (iii)
the Company gives the Holders and the Trustee at least ten Business Days prior
written notice of any such action which notice shall set forth in reasonable
detail the action proposed to be taken.

              (b) The Company shall perform and comply in all material respects
with DPI's charter and by-laws and the DPI Contracts.

              (c) The Company shall perform and comply with its obligations
under the Company DPI Agreements the failure to comply with which would give
rise to any claim by DPI against or in respect of any of the Pledged Securities;
provided, however, that the Company may surrender shares of DPI Common Stock
that constitute Pledged Securities only in accordance with Section 6.11(b).

              SECTION 5.07. TRANSACTIONS WITH AFFILIATES. The Company will not,
and will not permit any of its Restricted Subsidiaries, directly or indirectly,
to pay any funds to or for the account of, make any investment (whether by
acquisition of stock or Indebtedness, by loan, advance, transfer of property,
guarantee or other agreement to pay, purchase or service, directly or
indirectly, any Indebtedness, or otherwise) in, lease, sell, transfer or
otherwise dispose of any assets, tangible or intangible, to, or participate in,
or effect any transaction in connection with, any joint enterprise or other
joint arrangement with, any Affiliate of the Company, except as in existence on
the date the Note Purchase Agreements are executed and delivered by the parties
thereto and except on terms to the Company or, in the case of any such payment,
investment or transaction between any of its Restricted Subsidiaries and any
Affiliate, such Restricted Subsidiary no less favorable than terms that could be
obtained by the Company or such Restricted Subsidiary from a Person that is not
an Affiliate of the Company, as determined in good faith by the Board of
Directors; provided, however, that nothing in this Section 5.07 shall prohibit a
transaction between the Company, on the one hand, and a Restricted Subsidiary,
on the other hand, if the terms of the transaction do not (i) adversely

                                       46
<PAGE>   51

affect the validity or enforceability of any Transaction Document, (ii)
materially impair the ability of the Company to perform its obligations under
the Transaction Documents, (iii) impair the value of the Collateral or the
existence, validity or priority of the Trustee's Lien on and Security Interest
in the Collateral, or (iv) impair the rights of the Holders, or the Trustee to
enforce any of their respective rights or remedies pursuant to the Transaction
Documents.

              SECTION 5.08. NOTICE OF DEFAULTS. The Company shall notify the
Trustee and the Holders promptly, but in any event not later than five Business
Days after the Company becomes aware of the fact, of any failure by the Company
to comply with this Article Five. If the Company fails to give a notice required
by this Section 5.08 but nonetheless cures the failure to comply with this
Article Five that gave rise to the Company's obligation to give such notice
within the cure period, if any, applicable to such failure to comply with this
Article Five, from and after the time of such cure such failure to give such
notice shall cease to be a default under this Section 5.08.

              SECTION 5.09. LIMITATIONS ON DIVIDENDS, OTHER SHARE PAYMENTS AND
INVESTMENTS IN UNRESTRICTED SUBSIDIARIES. The Company covenants and agrees that
(i) it will not declare or pay any dividends (other than dividends payable
solely in shares of the Company, including, without limitation, Preferred Share
Purchase Rights) on any shares of any class of its capital stock or make any
payment on account of the purchase, redemption or other retirement or
acquisition of any shares of such stock or make or declare any distribution in
respect thereof, either directly or indirectly (such dividend payments,
purchases, redemptions, retirements, acquisitions or distributions being herein
called "Share Payments"), and (ii) it will not itself, and will not permit any
of its Restricted Subsidiaries to, make any investment in Unrestricted
Subsidiaries, unless, in the case of any such investment referred to in this
clause (ii), at the date of such investment (hereinafter called the "Computation
Date"), after giving effect, as if made, to the proposed investment, the sum of
the amount of aggregate unliquidated investment (computed as herein below
provided) of the Company and all of its Restricted Subsidiaries in Unrestricted
Subsidiaries, made on or after the date of this Supplemental Indenture, shall
not exceed the greater of (x) $5 million and (y) an amount equal to 10% of the
Company's Consolidated Net Assets determined as of the Computation Date.

              For the purpose of this Section 5.09, the amount of any investment
in an Unrestricted Subsidiary or capital contribution made through the transfer
of property, shall be deemed to be the net book value of such property at the
date of such investment or contribution.

                                       47
<PAGE>   52

              The Company shall not enter into any agreement or become bound by
any obligation to make any Share Payment that would be prohibited by this
Section 5.09.

              For the purpose of any computation under this Section 5.09, the
aggregate unliquidated investment of the Company and its Restricted Subsidiaries
in any Unrestricted Subsidiary shall be computed in accordance with Generally
Accepted Accounting Principles (subject to the above stated requirement to value
transferred property at the net book value) and shall include all investments by
means of share purchase, loan, advance, guarantee, capital contribution or
otherwise; provided, however, that

              (i) amounts invested by the Company through the exchange of its
       shares for shares of an Unrestricted Subsidiary shall be disregarded;

              (ii) except as otherwise specifically provided in clause (iii) of
       this proviso below, there shall not be deducted from the amounts invested
       in any Unrestricted Subsidiary any amounts received by the Company or any
       of its Restricted Subsidiaries (as dividends, interest or otherwise) as
       earnings on its investment in such Unrestricted Subsidiary;

              (iii) there shall be deducted from the amounts invested in any
       Unrestricted Subsidiary 50% of (x) any amounts received by the Company or
       any of its Restricted Subsidiaries as proceeds of the sale or other
       disposition of its interest in such Unrestricted Subsidiary on or after
       the date of this Supplemental Indenture, to the extent such interest
       arose from an investment in such Unrestricted Subsidiary that was made by
       the Company or any of its Restricted Subsidiaries on or after the date of
       this Supplemental Indenture, after payment or provision for all costs
       incurred by the Company or its Restricted Subsidiary in making such sale
       or other disposition and taxes arising from such sale or other
       disposition and (y) the cash dividends received by the Company or any of
       its Restricted Subsidiaries from its Unrestricted Subsidiaries on or
       after the date of this Supplemental Indenture;

              (iv) write-ups, write-downs or write-offs after December 31, 1999,
       of investments in Unrestricted Subsidiaries shall be disregarded; and

              (v) current accounts receivable from an Unrestricted Subsidiary
       arising in the ordinary course of business from the sale of goods or
       services shall not be included.

              The Company will not permit any of its Restricted Subsidiaries to
purchase any shares of any class of the Company other than a purchase of newly

                                       48
<PAGE>   53

issued shares from the Company for cash at a price per share equal to the
Current Market Price on the date of purchase.

              SECTION 5.10. FURTHER DOCUMENTATION; PLEDGE OF INSTRUMENTS AND
CHATTEL PAPER. At any time and from time to time, upon the written request of
the Trustee or Holders of at least 25% in principal amount of Notes that are at
the time Outstanding, and at the sole expense of the Company, the Company will
promptly and duly execute and deliver such further instruments and documents and
take such further action as the Trustee or such Holders may reasonably request
for the purpose of obtaining or preserving the full benefits of this
Supplemental Indenture and of the rights and powers herein granted, including,
without limitation, (i) the filing of any financing or continuation statements
under the Code or similar laws in effect in any such jurisdiction with respect
to the Liens created hereby and (ii) providing to the Trustee such documents or
instruments as shall be necessary or desirable for the exercise by the Trustee
on behalf of the Company of any and all rights relating to the Collateral. The
Company also hereby authorizes the Trustee to file any such financing or
continuation statement without the signature of the Company to the extent
permitted by applicable law. The Company agrees that a carbon, photographic or
other reproduction of this Supplemental Indenture may be filed as a financing
statement or attached to a financing statement in any jurisdiction where
permitted by applicable law. If any amount payable under or in connection with
any of the Collateral shall be or become evidenced by any Instrument or Chattel
Paper, such Instrument or Chattel Paper shall be immediately delivered to the
Trustee, duly endorsed in a manner satisfactory to the Trustee, to be held as
Collateral pursuant to this Supplemental Indenture.

              SECTION 5.11. INDEMNIFICATION. The Company agrees to indemnify and
hold harmless the Trustee and each Holder from and against any and all claims,
demands, losses, judgments and liabilities (including liabilities for penalties)
of whatsoever kind or nature, and to reimburse the Trustee and each Holder for
all costs and expenses, including reasonable attorneys' fees and expenses,
arising out of or resulting from this Supplemental Indenture, including any
breach hereof or Event of Default hereunder, or the exercise by the Trustee or
any Holder, as the case may be, of any right or remedy granted to it hereunder
or under the other Transaction Documents under applicable law; provided,
however, that the Company shall not be required to indemnify the Trustee or any
Holder to the extent any claim, demand, loss, judgment, liability, cost or
expense is determined by final judgment (not subject to further appeal) of a
court of competent jurisdiction to have arisen primarily from the gross
negligence or willful misconduct of the Trustee or such Holder, as the case may
be. In no event shall the Trustee or any Holder be liable, in the absence of a
determination of gross negligence or willful misconduct on its part by final
judgment (not subject to further appeal) of a court of competent jurisdiction,
for any matter or thing in connection with this

                                       49
<PAGE>   54

Supplemental Indenture other than to account for moneys actually received by it
in accordance with the terms hereof. If and to the extent that the obligations
of the Company under this Section 5.11 are unenforceable for any reason, the
Company hereby agrees to make the maximum contribution to the payment and
satisfaction of such obligations which is permissible under applicable law. In
any suit, proceeding or action brought by the Trustee or any Holder under any
Account or Contract that constitutes part of the Collateral for any sum owing
thereunder, or to enforce any provisions of any such Account or Contract, the
Company will save, indemnify and keep the Trustee and each Holder harmless from
and against all expense, loss or damage suffered by reason of any defense,
setoff, counterclaim, recoupment or reduction or liability whatsoever of the
account debtor or obligor thereunder, arising out of a breach by the Company of
any obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or obligor or
its successors from the Company.

              SECTION 5.12. MAINTENANCE OF RECORDS. The Company will keep and
maintain at its own cost and expense satisfactory and complete records of the
Collateral, including, without limitation, a record of all payments received and
all credits granted with respect to the Accounts that constitute part of the
Collateral. For the further security of the Trustee for the ratable benefit of
the Holders, the Company hereby grants to the Trustee, for the ratable benefit
of the Holders, a security interest in all of the Company's books and records
pertaining to the Collateral, and the Company shall turn over any such books and
records for inspection at the office of the Company to the Trustee or any Holder
or to their respective representatives during normal business hours at the
request of the Trustee upon reasonable prior notice from the Trustee or such
Holder to the Company.

              SECTION 5.13. LIMITATION ON LIENS ON COLLATERAL AND AKKADIX
SHARES. (a) The Company (x) will not create, incur or permit to exist, will
defend the Collateral against, and will take such other action as is necessary
to remove, any Lien or claim on or to the Collateral, other than the Liens
created hereby and Permitted Liens identified in clause (3) of the definition of
Permitted Liens that are inchoate Liens, and (y) will defend the right, title
and interest of the Trustee in and to any of the Collateral against the claims
and demands of all persons whomsoever other than Permitted Liens identified in
clause (3) of the definition of Permitted Liens that are inchoate Liens.

              (b) The Company will not create, incur or permit to exist, will
defend the Akkadix Shares against, and will take such other action as is
necessary to remove, any Lien or claim on or to the Akkadix Shares other than
(1) Permitted Liens identified in clause (3) of the definition of Permitted
Liens that are inchoate Liens and (2) Liens created in accordance with this
Section 5.13(b).

                                       50
<PAGE>   55

Notwithstanding the foregoing limitation in this Section 5.13(b), the Company
shall be permitted to create Liens on the Akkadix Shares so long as:

              (A) any such Lien secures only Indebtedness for borrowed money
that is Permitted Indebtedness and obligations of the Company relating thereto;

              (B) no Default or Event of Default will result from such
incurrence;

              (C) the Company shall have received a bona fide offer from one or
more persons to provide such Indebtedness to the Company with such Lien on the
Akkadix Shares;

              (D) the Company shall have given the holders at least 10 days'
notice, with a copy to the Trustee, which notice shall include statements of the
amount of such Indebtedness, the material terms of such Indebtedness and the
time or period within which the closing of the funding of such Indebtedness is
to occur (but in no event sooner than 30 days or later than 90 days after the
Company gives such notice to the Holders) and copies of any proposed documents
relating to such Indebtedness, and during such 10-day period each Holder shall
have the right to notify the Company, with a copy to the Trustee, that such
Holder wishes to provide such Holder's pro rata portion of such Indebtedness to
the Company, such pro rata portion to be determined from the ratio of the
principal amount of such Holder's Note or Notes that are Outstanding to the
aggregate principal amount of all Notes that are Outstanding, in each case at
the close of business on the date such notice is given by the Company (the
"Initial Allocation"), and whether such Holder wishes to provide more than such
Holder's Initial Allocation (and if so, the amount such Holder wishes to provide
in excess of such Holder's Initial Allocation, which amount may be all of such
Indebtedness or any portion thereof as so specified by such Holder);

              (E) if within such 10-day period (x) no Holder so notifies the
Company that it wishes to provide such Indebtedness or (y) one or more Holders
so notify the Company that such Holder or Holders wish to provide such
Indebtedness but the aggregate amount of such Indebtedness which such Holder or
Holders wish to provide (including all amounts in excess of their Initial
Allocations), as stated in such notices or notices from such Holder or Holders
to the Company, is less than the amount of such Indebtedness as stated in the
Company's notice to the Holders given pursuant to clause (D) of this Section
5.13(b), then in the case of either the preceding clause (x) or (y) no Holder
shall have any right to provide such Indebtedness and the Company shall be
entitled to complete the financing of such Indebtedness on the terms, and on or
before the date, or within the period, as the case may be, specified in such
notice from the Company to the Holders;

                                       51
<PAGE>   56

              (F) if within such 10-day period one or more Holders so notify the
Company that they wish to provide such Indebtedness and the aggregate amount of
such Indebtedness which such Holder or Holders wish to provide (including all
amounts in excess of their Initial Allocations), as stated in such notices or
notices from such Holder or Holders to the Company, is at least equal to the
amount of such Indebtedness as stated in the Company's notice to the Holders
given pursuant to clause (D) of this Section 5.13(b), then each Holder who so
notifies the Company shall be entitled to provide such pro rata portion of such
Indebtedness on the terms set forth in the Company's notice to the Holders given
in accordance with clause (D) of this Section 5.13(b); and, if all Holders do
not notify the Company that they wish to provide their Initial Allocations of
such Indebtedness, each Holder who shall have notified the Company that such
Holder wishes to provide more than its Initial Allocation shall be entitled to
provide a portion of the amount of such Indebtedness in excess of the aggregate
amount thereof which the Holders have offered to provide based on their Initial
Allocations, with the portion of such excess allocated to each such Holder to be
based on the ratio of the amount of such excess which such Holder offered to
provide to the aggregate amount of such excess that all such Holders offered to
provide (which procedure shall be followed successively until such excess is
fully allocated to such Holders);

              (G) the closing of the transaction for such Indebtedness with the
Holder or Holders entitled to provide such Indebtedness and the creation of such
Lien shall occur at such time or within such period specified in the notice
given by the Company to the Holders pursuant to clause (D) of this Section
5.13(b); and

              (H) if one or more Holders shall be entitled in accordance with
clause (F) of this Section 5.13(b) to provide such Indebtedness and such Holder
or Holders default in their obligations to provide such Indebtedness, then the
Company shall promptly give notice to the Holders of such default, with a copy
to the Trustee, and, notwithstanding any other provision of this Section
5.13(b), the Company shall have 60 days after such default to complete such
Indebtedness financing on terms no more favorable to the lenders providing such
Indebtedness than those contained in the notice provided by the Company to the
Holders in accordance with clause (D) of this Section 5.13(b).

If for any reason such closing and creation of such Lien do not occur within the
applicable period provided in this Section 5.13(b), thereafter any proposed
creation of a Lien on any of the Akkadix Shares shall again be subject to the
requirements of this Section 5.13(b).

              SECTION 5.14. LIMITATIONS ON DISPOSITIONS OF COLLATERAL AND
AKKADIX SHARES. (a) The Company will not sell, transfer, lease, assign or
otherwise dispose of any of the Collateral to any Person, including, without

                                       52
<PAGE>   57

limitation, any Subsidiary, or attempt, offer or contract to do so except as
expressly permitted by Section 5.03(b)(1) of this Supplemental Indenture.

              SECTION 5.15. PERFORMANCE OF CONTRACTS AND AGREEMENTS GIVING RISE
TO ACCOUNTS. The Company will (i) exercise promptly and diligently each and
every material right and perform each material obligation which it may have
under each Contract that constitutes part of the Collateral and each agreement
giving rise to an Account that constitutes part of the Collateral (other than
any right of termination) except where the Company determines in its reasonable
business judgment that the failure to exercise such right or perform such
obligation is in the best interest of the Company and consistent with the
protection and preservation of the rights and interests of the Trustee in the
Collateral or (ii) deliver to the Holder, upon request, a copy of each material
demand, notice or document received by it relating in any way to any Contract
that constitutes part of the Collateral or any agreement giving rise to an
Account that constitutes part of the Collateral. The Company will not amend or
modify the terms of, or waive any rights under, any Contract that constitutes
part of the Collateral in a manner which would adversely effect the Security
Interest or the value of the Collateral.

              SECTION 5.16. FURTHER IDENTIFICATION OF COLLATERAL. The Company
will furnish to the Trustee or any Holder from time to time, upon the request of
the Trustee or such Holder, statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Trustee or such Holder may reasonably request, all in
reasonable detail.

              SECTION 5.17. NOTICES. The Company will advise the Trustee
promptly, in reasonable detail, at its address in accordance with Section 9.13
(i) of any Lien (other than Liens permitted hereunder) on, or claim asserted
against, any of the Collateral of which the Company has actual notice, (ii) of
any Event of Default or any event which, with notice or the lapse of time, or
both, would become an Event of Default and (iii) of the occurrence of any other
event of which the Company is aware which could reasonably be expected to have a
material adverse effect on the Liens created hereunder.

              SECTION 5.18. CHANGES IN LOCATIONS, NAME, ETC. The Company will
not (i) change the location of its chief executive office/chief place of
business from 180 Kimball Way, South San Francisco, California 94080 or remove
its books and records from such location or (ii) change its name, identity or
corporate structure to such an extent that any financing statement filed in
connection with this Supplemental Indenture would become misleading, unless in
the case of the preceding clause (i) or (ii) it shall have given the Trustee at
least 30 days prior written notice thereof and, prior to such action or event,
shall have taken

                                       53
<PAGE>   58

appropriate action to preserve and protect the Trustee's security interest under
this Supplemental Indenture.

              SECTION 5.19. SUBSIDIARIES. The Company will not permit its
Subsidiaries or any other entities controlled by the Company to have any rights
in, or to exercise any control over, the Collateral, it being understood that
Pledged Securities released in accordance with Section 6.11(b) shall, upon such
release, cease to be Collateral and at such time shall cease to be subject to
the restrictions in this Section 5.19.

              SECTION 5.20. WAIVER. The Company, for itself and its successors
and assigns, does hereby irrevocably waive and release all preemptive,
first-refusal and other similar rights, if any, to purchase any or all of the
Pledged Securities upon any sale thereof by the Trustee hereunder, whether such
right to purchase arises under the organizational documents of the issuer of
such Pledged Securities, by agreement, by operation of law, or otherwise.

              SECTION 5.21. ADDITIONAL COLLATERAL IN RESPECT OF PLEDGED
SECURITIES. (1) In case any stock dividend shall be declared on any of the
Pledged Securities, or any shares of stock or fractions thereof shall be issued
pursuant to any stock split involving any of the Pledged Securities, or any
distribution of capital shall be made on any of the Pledged Securities or from
the issuer of any Pledged Securities, or any property shall be distributed upon
or with respect to the Pledged Securities or from the issuer of any Pledged
Securities pursuant to any recapitalization or reclassification of the capital
of the issuer of any Pledged Securities, or pursuant to a reorganization
thereof, the shares or other property so distributed shall be delivered to the
Trustee as additional collateral security for the Obligations. The Company will
forthwith deliver to the Trustee certificates therefor, accompanied by three
undated stock powers duly executed in blank by the Company for each such
certificate, with appropriate signature guarantees, in the case of capital stock
or such other instruments of transfer as are acceptable to the Trustee, and will
promptly thereafter deliver to the Trustee an Officers' Certificate describing
such stock and certifying that the same has been duly pledged to the Trustee and
deposited with the Trustee hereunder. The delivery of such stock powers and such
Officers' Certificate shall not be deemed for any purpose to be acts required
for creation of the Security Interest in such securities in favor of the Trustee
for the benefit of the Holders.

              (2) If an Event of Default occurs, then during any period in which
an Event of Default is continuing, all cash dividends payable in respect of the
Pledged Securities shall be paid to the Trustee and retained by it as part of
the Collateral. The Trustee shall also be entitled to retain as part of the
Collateral the following, all of which shall be received directly by the
Trustee:

                                       54
<PAGE>   59

              (A) all other or additional stock or securities or property (other
than cash) paid or distributed by way of dividend or otherwise, as the case may
be, in respect of the Pledged Securities;

              (B) all other or additional stock or other securities or property
(including cash) paid or distributed in respect of the Pledged Securities by way
of stock-split, spin-off, split-up, reclassification, combination of shares or
similar rearrangement; and

              (C) all other or additional stock or other securities or property
(including cash) which may be paid in respect of the Collateral by reason of any
consolidation, merger, exchange of stock, conveyance of assets, liquidation,
dissolution, or similar corporate reorganization.

              (3) All dividends, distributions or other payments which are
received by the Company contrary to the provisions of this Section 5.21 shall be
received in trust for the benefit of the Trustee, shall be segregated from other
property or funds of the Company and shall be forthwith paid over to the Trustee
by delivery to the Trustee as Collateral in the same form as so received (with
any necessary endorsement). If, upon the dissolution or liquidation (in whole or
in part) of any issuer of Pledged Securities, any sum shall be paid upon or with
respect to any of the Pledged Securities, such sum shall be paid over to the
Trustee to be held by the Trustee as additional collateral security for the
Obligations.

                                   ARTICLE SIX

                    PLEDGE AND SECURITY INTEREST; COLLATERAL

              SECTION 6.01. GRANT OF SECURITY INTEREST AND PLEDGE. As collateral
security for the Obligations and for the other purposes provided in this
Supplemental Indenture, the Company hereby (x) grants to the Trustee for the
ratable benefit of the Holders a first priority security interest in all of the
Collateral, (y) pledges to the Trustee for the ratable benefit of the Holders
all of the Pledged Securities and (z) assigns, transfers, hypothecates,
mortgages, charges and sets over to the Trustee for the ratable benefit of the
Holders all of the Company's right, title and interest in and to the Pledged
Securities (and in and to the certificates or instruments evidencing the Pledged
Securities), to be held by the Trustee upon the terms and conditions set forth
in this Supplemental Indenture.

              SECTION 6.02. RIGHTS OF TRUSTEE; LIMITATIONS ON TRUSTEE'S
OBLIGATIONS.

                                       55
<PAGE>   60

              (a) COMPANY REMAINS LIABLE UNDER ACCOUNTS AND CONTRACTS. Anything
herein to the contrary notwithstanding, the Company shall remain liable under
each of the Accounts and Contracts that constitute part of the Collateral to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any agreement
giving rise to each such Account and in accordance with and pursuant to the
terms and provisions of each such Contract. Except as specifically provided in
Sections 6.02(c) and 6.02(d), neither the Trustee nor any Holder shall have any
obligation or liability under any Account that constitutes part of the
Collateral (or any agreement giving rise thereto) or under any Contract that
constitutes part of the Collateral by reason of or arising out of this
Supplemental Indenture or the receipt by the Trustee of any payment relating to
such Account or Contract pursuant hereto, nor shall the Trustee be obligated in
any manner to perform any of the obligations of the Company under or pursuant to
any such Account (or any agreement giving rise thereto) or under or pursuant to
any such Contract, to make any payment, to make any inquiry as to the nature or
the sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any such Account (or any agreement giving rise
thereto) or under any such Contract, to present or file any claim, to take any
action to enforce any performance or to collect the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.

              (b) NOTICE TO CONTRACTING PARTIES. On or prior to the Issuance
Date, the Company shall notify all parties to the Contracts that constitute part
of the Collateral (and after the Issuance Date, the Company shall notify all
parties to any additional Contract that becomes part of the Collateral promptly
after such Contract becomes part of the Collateral) that (1) such Contracts have
been assigned as Collateral to the Trustee for the ratable benefit of the
Holders, (2) payments in respect thereof shall be made directly to the Trustee
or as the Trustee shall direct, (3) prior to notice to such party of the
occurrence of an Event of Default, copies of all notices given by such party to
the Company relating to such Contract shall also be given to the Trustee, at its
address set forth in such notice from the Company (or such other address
specified in writing by the Trustee), at the same time given to the Company and
(4) from and after notice to such party of the occurrence of an Event of Default
(until notice to such party that no Event of Default is continuing), all notices
by such party relating to such Contract shall be given to (and shall be
effective only when given to) the Trustee at its address set forth in such
notice from the Company (or such other address specified in writing by the
Trustee).

              (c) PLEDGED SECURITIES AND STOCK POWERS. At or prior to the first
issuance of any Note on the Issuance Date, the Company shall deliver to the
Trustee certificates for the Pledged Securities, accompanied by three undated
stock powers, duly executed in blank by the Company, for each such certificate,
with appropriate signature guaranties. The delivery of such stock powers shall
not be

                                       56
<PAGE>   61

deemed for any purpose to be acts required for creation of the Security Interest
in, or for the pledge of, the Pledged Securities in favor of the Trustee for the
benefit of the Holders.

              (d) DPI CONTRACTS. Prior to the issuance of any Notes, the
Trustee, DPI and the other parties referred to therein shall have executed and
delivered, one to the other, the agreements in the form set forth in SCHEDULE
IV.

              SECTION 6.03. TRUSTEE'S POWERS RESPECTING THE COLLATERAL.

              (a) POWERS. The Company hereby irrevocably constitutes and
appoints the Trustee and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Company and in the name of the
Company or in its own name, from time to time in the Trustee's discretion, if an
Event of Default occurs, then during any period in which an Event of Default is
continuing, for the purpose of carrying out the terms of this Supplemental
Indenture, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Supplemental Indenture, and, without limiting the generality of
the foregoing, the Company hereby gives the Trustee during such period the power
and right, on behalf of the Company, without notice to or assent by the Company,
except any notice required by law, to do the following:

              (i) to take possession of and endorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of moneys due
under or with respect to any Collateral and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise deemed
appropriate by the Trustee for the purpose of collecting any and all such moneys
due under or with respect to any such Collateral whenever payable, in each case
in the name of the Company or its own name, or otherwise;

              (ii) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral and to pay all or any part of the premiums
therefor and the costs thereof;

              (iii) (A) to direct any party liable for any payment under any of
the Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Trustee or as the Trustee shall direct; (B) to ask or
demand for, collect, receive payment of and receipt for, any and all moneys,
claims and other amounts due or to become due at any time in respect of or
arising out of any Collateral; (C) to sign and endorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, notices and other documents in connection
with any of the Collateral;

                                       57
<PAGE>   62

(D) to commence and prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the Collateral or any
thereof and to enforce any other right in respect of any Collateral; (E) to
defend any suit, action or proceeding brought against the Company with respect
to any Collateral; (F) to settle, compromise or adjust any suit, action or
proceeding described in clause (E) above and, in connection therewith, to give
such discharges or releases as the Trustee may deem appropriate; and (G)
generally, to sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though the
Trustee were the absolute owner thereof for all purposes, and to do, at the
Trustee's option and the Company's expense, at any time, or from time to time,
all acts and things which the Trustee deems necessary to protect, preserve or
realize upon the Collateral and the Trustee's Liens thereon and to effect the
intent of this Supplemental Indenture, all as fully and effectively as the
Company might do; and

              (iv) to exercise any and all voting power with respect to the
Pledged Securities.

The Company hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable until the Company shall have paid and
performed in full all of the Obligations.

              (b) VOTING AND OTHER RIGHTS. The Company shall be entitled to
exercise in a manner not inconsistent with the provisions of this Supplemental
Indenture or the other Transaction Documents all voting power with respect to
the Pledged Securities, except as provided in Section 6.03(a)(iv) in case an
Event of Default shall have occurred and be continuing. The Company will provide
the Trustee with at least ten Business Days notice of any permitted or proposed
exercise by the Company of any voting or other rights with respect to the
Pledged Securities unless the Company receives less than ten Business Days'
notice of such action, in which case the Company shall give the Trustee such
notice thereof as may be reasonable and practical under the circumstances. The
Company hereby appoints the Trustee, with full power of substitution, as the
Company's attorney-in-fact to vote the Pledged Securities, if an Event of
Default has occurred, during any period an Event of Default is continuing and to
exercise other rights with respect thereto, if an Event of Default has occurred,
during any period an Event of Default is continuing. On the Closing Date, the
Company will deliver to the Trustee an irrevocable proxy, duly executed in form
satisfactory to the Trustee, authorizing and directing the Trustee to vote in
its sole discretion all Pledged Securities, if an Event of Default has occurred,
during any period an Event of Default is continuing and to exercise all other
rights pertaining to such securities, if an Event of Default has occurred,
during any period an Event of Default is continuing.

                                       58
<PAGE>   63

              (c) OTHER POWERS. The Company also authorizes the Trustee, if an
Event of Default has occurred, and from time to time during any period in which
an Event of Default is continuing, to execute, in connection with the sale
provided for herein, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.

              (d) REGISTRATION AND ENDORSEMENTS OF PLEDGED SECURITIES. If an
Event of Default has occurred, then during any period an Event of Default is
continuing, (1) at any time and from time to time the Trustee may cause all or
any of the Pledged Securities to be transferred into its name or into the name
of its nominee or nominees and (2) the Trustee shall have the right, for and in
the name, place and stead of the Company and acting as its attorney-in-fact if
necessary, to execute endorsements, assignments and other instruments of
conveyance or transfer with respect to all or any of the Pledged Securities
whenever any such execution is required or permitted hereunder.

              (e) NO DUTY ON TRUSTEE'S PART. The powers conferred on the Trustee
hereunder are solely to protect the Trustee's interests in the Collateral and
shall not impose any duty upon the Trustee to exercise any such powers. The
Trustee shall be accountable only for amounts that it actually receives as a
result of the exercise of such powers, and neither it nor any of its officers,
directors, employees or agents shall be responsible to the Company for any act
or failure to act hereunder, except for their own gross negligence or willful
misconduct.

              SECTION 6.04. PERFORMANCE BY TRUSTEE OF COMPANY'S OBLIGATIONS. If
the Company fails to perform or comply with any of its agreements contained
herein and the Trustee, as provided for by the terms of this Supplemental
Indenture and following reasonable notice to the Company, shall itself perform
or comply, or otherwise cause performance or compliance, with such agreement,
the expenses of the Trustee incurred in connection with such performance or
compliance shall be payable by the Company to the Trustee on demand and shall
constitute Obligations secured hereby.

              SECTION 6.05. REMEDIES IN GENERAL. If an Event of Default has
occurred, then during any period an Event of Default is continuing, the Trustee
may exercise, in addition to all other rights and remedies granted to it in this
Supplemental Indenture and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a secured
party under the Code. Without limiting the generality of the foregoing, if an
Event of Default has occurred, then during any period an Event of Default is
continuing, the Trustee, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below or expressly provided for) to or upon the
Company or any other Person (all and each of which demands, defenses,
advertisements and notices are, to the extent

                                       59
<PAGE>   64

permitted by applicable law, hereby waived), may in such circumstances forthwith
collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and/or may forthwith sell, license, assign, give option or options to
purchase, or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing), at public or private sale or sales, at
any exchange, broker's board or office of the Trustee or elsewhere upon such
terms and conditions as it may deem advisable and at such prices as it may deem
best, for cash or on credit or for future delivery without assumption of any
credit risk. The Trustee shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold, free of any right
or equity of redemption in the Company, which right or equity is hereby waived,
to the extent permitted by applicable law, or released.

              The Company further agrees that, if an Event of Default has
occurred, then during any period an Event of Default is continuing, at the
Trustee's request, to assemble the Collateral and make it available to the
Trustee at places which the Trustee shall reasonably select, whether at the
Company's premises or elsewhere. The Trustee shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Trustee hereunder, including,
without limitation, reasonable attorneys' fees and disbursements, to the payment
in whole or in part of the Obligations, in such order as the Trustee may elect,
and only after such application and after the payment by the Trustee of any
other amount required by any provision of law, need the Trustee account for the
surplus, if any, to the Company. To the extent permitted by applicable law, the
Company waives all claims, damages and demands it may acquire against the
Trustee arising out of the exercise by it of any rights hereunder, provided,
that nothing contained in this Section 6.05 shall relieve the Trustee from
liability arising solely from its gross negligence or willful misconduct. If any
notice of a proposed sale or other disposition of Collateral shall be required
by law, such notice shall be deemed reasonable and proper if given at least ten
days before such sale or other disposition. The Company shall remain liable for
any deficiency if the proceeds of any sale or other disposition of the
Collateral are insufficient to pay the Obligations and the fees and
disbursements of any attorneys employed by the Trustee to collect such
deficiency.

              SECTION 6.06. REMEDIES WITH RESPECT TO PLEDGED SECURITIES. (a)
Without limiting the effect of Section 6.05, the Trustee shall have the further
rights with respect to the Pledged Securities set forth in this Section 6.06.
Upon the occurrence and during the continuance of an Event of Default, the
Trustee shall have, without obligation to resort to other security or to
recourse against any guarantor or other party secondarily liable, the right at
any time and from time to time to sell, resell, assign and deliver, in the
Trustee's discretion, all or any of the

                                       60
<PAGE>   65

Pledged Securities, in one or more parcels at the same or different times, and
all right, title, interest, claim and demand therein and right of redemption
thereof, at public or private sale, for cash, upon credit or for immediate or
future delivery, and at such price or prices and on such terms as the Trustee
may determine, the Company hereby agreeing that upon any such sale any and all
equity and right of redemption shall be automatically waived and released
without any further action on the part of the Company, and in connection
therewith the Trustee may grant options, all without any demand, advertisement
or notice, all of which are hereby expressly waived. In the event of any such
sale, the Trustee shall, at least ten days before the sale, give the Company
notice of its intention to sell which notice the Company agrees is reasonable.
Upon each such sale, the Trustee or the Company may purchase all or any of the
Pledged Securities being sold, free of any equity or right of redemption. The
proceeds of each such sale shall be applied to the payment of all costs and
expenses of every kind for sale or delivery, including reasonable compensation
to the agents and attorneys of the Trustee, and all other expenses, liabilities
and advances made or incurred by the Trustee in connection therewith, and after
deducting such costs and expenses from the proceeds of sale, the Trustee shall
apply any residue to the payment of the Obligations in such order as the Trustee
may deem fit. Upon the occurrence and during the continuance of an Event of
Default, the Trustee shall also have, without obligation to resort to other
security or to recourse against any guarantor or other party secondarily liable
and in addition to the other remedies provided in this Section 6.06, the right
at any time and from time to time, but not the obligation, to exercise ownership
of the Pledged Securities and to take all actions as may be permitted under
applicable law.

              (b) If at any time when the Trustee shall determine to exercise
its right to sell all or any part of the Pledged Securities pursuant to hereto,
such Pledged Securities or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under the 1933 Act, the Trustee may, in
its sole and absolute discretion, sell such Pledged Securities or part thereof
by private sale in such manner and under such circumstances as the Trustee may
deem necessary or advisable in order that such sale may legally be effected
without such registration provided that at least ten days' notice of the time
and place of any such sale shall be given to the Company. Without limiting the
generality of the foregoing, in any such event the Trustee, in its sole and
absolute discretion (i) may proceed to make such private sale notwithstanding
that a registration statement for the purpose of registering such Pledged
Securities or part thereof shall have been filed under the 1933 Act, (ii) may
approach and negotiate with a single possible purchaser to effect such sale, and
(iii) may restrict such sale to a purchaser who will represent and agree that
such purchaser is purchasing for its own account, for investment, and not with a
view to the distribution or sale of such Pledged Securities or part thereof. In
the event of any such sale, the Trustee shall incur no responsibility or
liability for selling all or any part of the Pledged Securities at a price which
the Trustee, in its sole and absolute discretion, may in good faith deem

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<PAGE>   66

reasonable under the circumstances, notwithstanding the possibility that a
substantially higher price might be realized if the sale were deferred until
after registration as aforesaid.

              SECTION 6.07. LIMITATION ON DUTIES REGARDING PRESERVATION OF
COLLATERAL. The Trustee's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under the Code or
otherwise, shall be to deal with it in the same manner as the Trustee deals with
similar property for its own account. Neither the Trustee or any Holder nor any
of their respective directors, officers, employees, members, partners or agents
shall be liable for failure to demand, collect or realize upon all or any part
of the Collateral or for any delay in doing so or shall be under any obligation
to sell or otherwise dispose of any Collateral upon the request of the Company
or otherwise.

              SECTION 6.08. POWERS COUPLED WITH AN INTEREST. All authorizations
and agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest until the Company has paid and performed in full
all of its obligations under the Transaction Documents.

              SECTION 6.09. TERMINATION OF SECURITY INTEREST; RELEASE OF
COLLATERAL.

              (a) Upon the payment and performance in full by the Company of the
Obligations, the Security Interest shall terminate and all rights to the
Collateral shall revert to the Company. At any time and from time to time prior
to such termination of the Security Interest, the Trustee shall release any of
the Collateral only (1) in accordance with Article Fifteen of the Original
Indenture, (2) in accordance with Section 6.11(b) or (3) with the prior written
consent of the Majority Holders.

              (b) Upon any such termination of the Security Interest, the
Trustee will, at the expense of the Company, promptly execute and deliver to the
Company such documents and take such other actions as the Company shall
reasonably request to evidence the termination of the Security Interest and
deliver to the Company all Collateral so released then in its possession.

              SECTION 6.10. CONCERNING THE TRUSTEE. The Company acknowledges
that the rights and responsibilities of the Trustee under this Supplemental
Indenture with respect to any action taken by the Trustee or the exercise or
nonexercise by the Trustee of any option, right, request, judgment or other
right or remedy provided for herein or resulting or arising out of this
Supplemental Indenture shall, as between the Trustee and the Holders, be
governed by the Original Indenture and this Supplemental Indenture and by such
other agreements with respect thereto as may exist from time to time among them,

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<PAGE>   67

but, as between the Trustee and the Company, except as expressly provided in
Section 6.09, the Trustee shall be conclusively presumed to be acting as agent
for the Holders with full and valid authority so to act or refrain from acting,
and the Company shall not be under any obligation to make any inquiry respecting
such authority. The Trustee hereby waives for the benefit of the Holders any
claim, right or Lien of the Trustee against the Collateral arising under
applicable law or arising from any business or transaction between the Trustee
and the Company other than pursuant to this Supplemental Indenture or any of the
other Transaction Documents.

              SECTION 6.11. SUBSTITUTION OF COLLATERAL. (a) If

              (i) the Company shall have deposited as Collateral with the
       Trustee, in trust, funds or Government Obligations, the principal of and
       interest on which when due will, together with any other funds in which,
       at the time of such deposit and at the end of the 92-day period referred
       to herein, the Trustee has a perfected first priority security interest
       for the benefit of the Holders, and without the necessity for investment
       or reinvestment of such funds or for further investment or reinvestment
       of the principal amount of or interest on such Government Obligations,
       provide funds sufficient to pay at maturity or upon repurchase pursuant
       to Article VII all of the Notes, including principal and interest due or
       to become due to the Maturity Date or earlier repurchase pursuant to
       Article VII;

              (ii) notice of such deposit shall have been given to the Holders,
       within ten days after the date of such deposit;

and the Company shall also pay or cause to be paid all other sums payable
hereunder by the Company, then on the date which is 92 days after the date of
such deposit by the Company with the Trustee, so long as during such 92-day
period no Event of Default specified in clause (5) or (6) of Section 5.01 of the
Original Indenture and no event which with notice or passage of time, or both,
would become an Event of Default specified in clause (5) or (6) of Section 5.01
of the Original Indenture has occurred, then on demand of the Company
accompanied by a Company Certificate and an opinion of counsel and at the cost
and expense of the Company, the Trustee shall release to the Company all
Collateral other than the Collateral so deposited and shall execute and deliver
to the Company such documents and take such other actions as the Company shall
reasonably request to evidence the termination of the Security Interest in the
Collateral so released and deliver to the Company all such Collateral so
released then in the Trustee's possession.

              (b) If, by reason of the Company's obligations under Section 8.2
of the DPI Merger Agreement, the Company shall become obligated to surrender to

                                       63
<PAGE>   68

DPI shares of DPI Common Stock that are Pledged Securities, the Company shall be
entitled to release from the Lien of this Supplemental Indenture shares of DPI
Common Stock that are Pledged Securities in accordance with this Section
6.11(b). In order to obtain such release of shares of DPI Common Stock that
constitute Pledged Securities, DPI shall:

              (1) furnish to the Trustee an Officers' Certificate stating

              (A) the amount in dollars of the obligation of the Company to DPI
       pursuant to Section 8.2 of the DPI Merger Agreement in respect of which
       the Company is obligated to surrender shares of DPI Common Stock that
       constitute Pledged Securities;

              (B) the value per share of DPI Common Stock for purposes of
       Section 8.2 of the DPI Merger Agreement;

              (C) the number of shares of DPI Common Stock that constitute
       Pledged Securities and that are required to be surrendered by the Company
       to DPI pursuant to Section 8.2 of the DPI Merger Agreement and which the
       Company is seeking release;

              (D) that at or before the delivery of such Officers' Certificate
       to the Trustee, the Company has delivered to the Trustee as Collateral
       under this Supplemental Indenture one or more certificates for a number
       of shares of DPI Common Stock equal to the number of shares of DPI Common
       Stock identified in paragraph (C) of such Officers' Certificate, in
       accordance with this Section 6.11(b); and

              (E) that all conditions precedent in the Original Indenture and
       this Supplemental Indenture for the release of the shares of DPI Common
       Stock requested in such Officers' Certificate have been satisfied;

              (2) furnish to the Trustee all documents, certificates and
       opinions required by Article Fifteen of the Original Indenture in
       connection with such release of shares of DPI Common Stock that
       constitute Collateral;

              (3) deliver to the Trustee as Collateral under this Supplemental
       Indenture one or more certificates for a number of shares of DPI Common
       Stock equal to the number of shares of DPI Common Stock to be so
       released, accompanied by three undated stock powers, duly executed in
       blank by the Company, for each such stock certificate, with appropriate
       signature guaranties; provided, however, that the delivery of such stock
       powers shall not be deemed for any purpose to be acts required for
       creation of the Security

                                       64
<PAGE>   69

       Interest in, or for the pledge of, such shares of DPI Common Stock in
       favor of the Trustee for the benefit of the Holders; and

              (4) furnish to the Trustee an Opinion of Counsel that (A) the
       release of such shares of DPI Common Stock and the substitution therefor
       of the shares of DPI Common Stock delivered to the Trustee in accordance
       with the immediately preceding clause (3) shall not be subject to
       avoidance by a trustee under Section 547(b) of the federal Bankruptcy
       Code in a case in which the Company is the debtor and (B) all conditions
       precedent in the Original Indenture and this Supplemental Indenture for
       the release of the shares of DPI Common Stock requested in such Officers'
       Certificate have been satisfied.

                                  ARTICLE SEVEN

                       REPURCHASE UPON A REPURCHASE EVENT

              SECTION 7.01. REPURCHASE RIGHT. If a Repurchase Event occurs, in
addition to any other right of the Holders, each Holder shall have the right, at
such Holder's option, to require the Company to repurchase the Repurchase
Portion of such Holder's Notes, or any portion thereof by depositing an amount
in cash with the Trustee equal to the applicable Repurchase Price payable to
such Holder on or before the applicable Repurchase Date for such Repurchase
Event. Each Holder shall have the right to require the Company to repurchase the
Repurchase Portion of such Holder's Notes or any portion of the Repurchase
Portion of such Holder's Notes if a Repurchase Event occurs at any time while
any portion of the principal amount of any Note held by such Holder is
outstanding. at a price equal to the Repurchase Price.

              SECTION 7.02. NOTICES; METHOD OF EXERCISING REPURCHASE RIGHTS,
ETC. (a) On or before the fifth Business Day after the occurrence of a
Repurchase Event, the Company shall give to the Trustee and each Holder a
Company Notice of the occurrence of the Repurchase Event and of the repurchase
right set forth herein arising as a result thereof. Such Company Notice shall
set forth:

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

              (ii) a description of the procedure (set forth in this Section
       7.02) which a Holder must follow to exercise the repurchase right.

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<PAGE>   70

No failure of the Company to give a Company Notice or defect therein shall limit
any Holder's right to exercise the repurchase right or affect the validity of
the proceedings for the repurchase of any Note or portion hereof.

              (b) To exercise the repurchase right, a Holder shall deliver to
the Company, with a copy to the Trustee, on or before the 20th day after a
Company Notice (or if no such Company Notice has been given, within 40 days
after such Holder first learns of the Repurchase Event) a Holder Notice setting
forth the name of such Holder and the principal amount of Notes to be
repurchased from such Holder. A Holder Notice may be revoked by the Holder
giving such notice at any time prior to the time the Company pays the applicable
Repurchase Price to such Holder.

              (c) If a Holder shall have given a Holder Notice with respect to a
Repurchase Event, then on or before the applicable Repurchase Date for such
Repurchase Event the Company shall deposit with the Trustee in immediately
available funds an amount equal to the aggregate Repurchase Price payable to the
Holders, which amount shall be held in trust by the Trustee and applied by the
Trustee as provided in this Section 7.03. On the applicable Repurchase Date, (or
such later date as a particular Holder surrenders the Note or Notes to be
repurchased to the Trustee duly endorsed for transfer to the Trustee of the
portion of the outstanding principal amount thereof to be repurchased), the
Trustee shall pay the applicable Repurchase Prices to the respective Holders who
have so exercised repurchase rights (x) in the case of any Holder who is the
Holder of one or more Notes in an aggregate principal amount in excess of $1.0
million, by wire transfer of immediately available funds to such accounts as
specified by such Holder in writing to the Trustee at least one Business Day
prior to the applicable payment date and (y) in all other cases, by check mailed
to such Holder on the applicable payment date at its registered address;
provided, however, that if the aggregate amount deposited by the Company with
the Trustee to pay the Repurchase Prices in connection with a particular
Repurchase Event shall be less than the aggregate amount of the Repurchase
Prices payable to all such Holders, then the amount paid to each such Holder
shall be an amount equal to the product obtained by multiplying (x) the total
amount so deposited by the Company with the Trustee in respect of the exercise
of repurchase rights by the Holders by reason of such Repurchase Event times (y)
a fraction of which the numerator is the amount of the Repurchase Price so
payable to such Holder and the denominator is the aggregate amount of Repurchase
Prices so payable to all such Holders.

              SECTION 7.03. OTHER. (a) If the Company fails to deposit with the
Trustee on or before the applicable Repurchase Date the Repurchase Price of any
Note (or portion thereof) as to which the repurchase right has been properly
exercised pursuant to this Article Seven, then the Repurchase Price for such
Note (or the portion thereof) which is required to have been so repurchased
shall bear

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<PAGE>   71

interest to the extent not prohibited by applicable law from the applicable date
the Company was required to make such deposit with the Trustee until so
deposited at the Default Rate.

              (b) The Company shall notify a Holder giving a Holder Notice of
any claim by the Company of manifest error in such Holder Notice promptly, but
in no event later than five Business Days, after such Holder gives such notice
and no such claim of error shall limit or delay performance of the Company's
obligation to repurchase such portion of the Notes which is not in dispute and
(ii) such notice shall be deemed for all purposes to be in proper form unless
the Company notifies such Holder within one Business Day after such notice has
been given (which notice from the Company shall specify all defects in such
notice) and any Holder Notice containing any such defect shall nonetheless be
effective on the date given if such Holder promptly undertakes in writing to
correct all such defects.

              (c) In case of any Repurchase Event as specified in clause (b) of
the definition of such term, the Company shall be entitled to satisfy its
obligations to repurchase Notes under this Article VII by causing a third party
to make payment on the applicable Repurchase Date of the applicable Repurchase
Prices of all Notes required to be repurchased by the Company, in which case the
Company shall notify the Holders of such fact, with a copy to the Trustee, at
least five Business Days prior to such Repurchase Date; provided, however, that
nothing herein shall relieve the Company of its obligation for payment of such
Repurchase Prices if such third party shall fail to pay the same when due.

              SECTION 7.04. FORM OF COMPANY NOTICE. A Company Notice shall be in
the following form:

                                 COMPANY NOTICE
                 (8% SENIOR SECURED CONVERTIBLE NOTE DUE 2004)

TO:
   ---------------------------------
        (Name of Holder)

              (1) A Repurchase Event described in clause ___________ the
definition of that term for the 8% Senior Secured Convertible Notes due 2004
(the "Notes") of Axys Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), occurred on ____________. As a result of such Repurchase Event, the
Holders are entitled to exercise repurchase rights pursuant to Article Seven of
the Supplemental Indenture.

              (2) Each Holder's repurchase right must be exercised on or before
_____________ .

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<PAGE>   72

              (3) At or before the date set forth in the preceding paragraph
(2), a Holder must deliver to the Company a Holder Notice, in the form set forth
in Section 7.05 of the Supplemental Indenture; and

              (4) In order to receive payment of the Repurchase Price, such
Holder must also surrender to the Trustee the Note or Notes to be repurchased,
duly endorsed for transfer to the Trustee of the portion of the principal amount
to be repurchased.

              (5) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Note, the Original Indenture and
the Supplemental Indenture.

Date                                    AXYS PHARMACEUTICALS, INC.
     -----------------------------

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

cc:     U. S. BANK TRUST NATIONAL ASSOCIATION,
          as Trustee
        550 South Hope Street
        Suite 500
        Los Angeles, California  90071

        Attention:  Mr. Brad Scarbrough, Assistant Vice President

              SECTION 7.05. FORM OF HOLDER NOTICE. A Holder Notice shall be in
substantially the following form:

                                  HOLDER NOTICE
                   8% SENIOR SECURED CONVERTIBLE NOTE DUE 2004

TO:     AXYS PHARMACEUTICALS, INC.

              (1) Pursuant to the terms of the 8% Senior Secured Convertible
Note due 2004 (the "Note"), the undersigned Holder hereby elects to exercise its
right to require repurchase by the Company pursuant to Article Seven of the
Supplemental Indenture of $ principal amount of the Note, accrued and unpaid
interest on such principal amount and, if applicable, Default Interest thereon,
at the Repurchase Price provided in the Supplemental Indenture.

                                       68
<PAGE>   73

              (2) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Note, the Original Indenture and
the Supplemental Indenture.

Date:                                   NAME OF HOLDER:
      ----------------

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

                                        By
                                          --------------------------------------
                                              Signature of Registered Holder
                                             (Must be signed exactly as name
                                                   appears in the Note.)

cc:     U. S. BANK TRUST NATIONAL ASSOCIATION,
          as Trustee
        550 South Hope Street
        Suite 500
        Los Angeles, California  90071

        Attention:  Mr. Brad Scarbrough, Assistant Vice President

                                  ARTICLE EIGHT

                                   CONVERSION

              SECTION 8.01. RIGHT TO CONVERT. Subject to and upon compliance
with the provisions of this Supplemental Indenture, the Holders shall have the
right, at the Holders' option, at any time prior to the close of business on the
Maturity Date (except that, if a Holder shall have exercised repurchase rights
under Article Seven of this Supplemental Indenture, such conversion right shall
terminate with respect to the portion of such Holder's Note or Notes to be
repurchased on the last Trading Day prior to the later of (x) the date of such
repurchase and (y) the date the Company pays or deposits in accordance with
Section 9.14 the applicable Repurchase Price, unless in any such case the
Company shall default in payment due upon repurchase thereof) to convert the
principal amount of such Holder's Note, or any portion of such principal amount
which is at least $10,000 (or such lesser principal amount thereof as shall be
outstanding at such time) into that number of fully paid and non-assessable
shares of Common Stock (as such shares shall then be constituted) obtained by
dividing (1) the

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<PAGE>   74

principal amount of such Note or portion thereof being converted by (2) the
Conversion Price in effect on the applicable Conversion Date, by giving a
Conversion Notice in the manner provided in Section 8.02 of this Supplemental
Indenture; provided, however, that, if at any time any Note is converted in
whole or in part pursuant to this Section 8.01, the Company does not have
available for issuance upon such conversion as authorized and unissued shares or
in its treasury at least the number of shares of Common Stock required to be
issued pursuant hereto, then, at the election of the converting Holder made by
notice from such Holder to the Company, such Note (or portion thereof as to
which conversion has been requested), to the extent that sufficient shares of
Common Stock are not then available for issuance upon conversion, shall be
converted into the right to receive from the Company, in lieu of the shares of
Common Stock into which such Note or such portion thereof would otherwise be
converted and which the Company is unable to issue, payment in an amount equal
to the product obtained by multiplying (x) the number of shares of Common Stock
which the Company is unable to issue times (y) the arithmetic average of the
Market Price for the Common Stock during the five consecutive Trading Days
immediately prior to the applicable Conversion Date. Any such payment shall, for
all purposes of such Note, be deemed to be a payment of principal plus a premium
equal to the total amount payable less the principal portion of such Note
converted as to which such payment is required to be made because shares of
Common Stock are not then available for issuance upon such conversion. In
connection with conversion of a Note or portion thereof, the Holder shall not be
entitled to payment or credit in respect of accrued and unpaid interest on such
Note or portion thereof converted and such interest shall not be deemed to have
been paid to such Holder. A Holder is not entitled to any rights of a holder of
Common Stock until such Holder has converted a Note to Common Stock, and only to
the extent such Note is deemed to have been converted to Common Stock under this
Article Eight. For purposes of Sections 8.05 and 8.06, whenever a provision
references the shares of Common Stock into which a Note (or a portion thereof)
is convertible or the shares of Common Stock issuable upon conversion of a Note
(or a portion thereof) or words of similar import, any determination required by
such provision shall be made as if a sufficient number of shares of Common Stock
were then available for issuance upon conversion in full of the Notes.

              SECTION 8.02. EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON
STOCK ON CONVERSION. (a) In order to exercise the conversion privilege with
respect to a Note, the Holder shall give a Conversion Notice (or such other
notice which is acceptable to the Company) to the Company and the Trustee or to
the office or agency designated by the Company for such purpose by notice to the
Holders. A Conversion Notice may be given by telephone line facsimile
transmission to the numbers set forth on the form of Conversion Notice.

              (b) As promptly as practicable, but in no event later than three
Trading Days (if the converting Holder has requested delivery through the
facilities

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<PAGE>   75

of The Depository Trust Company), after a Conversion Notice is given by a
Holder, the Company shall issue and shall deliver to such Holder or such
Holder's designee the number of full shares of Common Stock issuable upon such
conversion of such Holder's Note or portion thereof in accordance with the
provisions of this Article and deliver 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 8.02(f) and, if applicable, any cash payment
required pursuant to the proviso to the first sentence of Section 8.01 (which
payment, if any, shall be paid no later than three Trading Days after the
applicable Conversion Date).

              (c) Each conversion of a Note (or portion thereof) shall be deemed
to have been effected on the applicable Conversion Date, 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 such Conversion
Date the holder of record of the shares represented thereby; provided, however,
that if a Conversion Date is a date on which the stock transfer books of the
Company shall be closed such conversion 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 applicable
Conversion Date.

              (d) A Conversion Notice shall be deemed for all purposes to be in
proper form unless the Company notifies the Holder giving such Conversion Notice
by telephone line facsimile transmission within two Trading Days after such
Conversion Notice has been given (which notice from the Company shall specify
all defects in such Conversion Notice) and any Conversion Notice containing any
such defect shall nonetheless be effective on the date given if such Holder
promptly undertakes to correct all such defects. No such claim of error shall
limit or delay performance of the Company's obligation to issue upon such
conversion the number of shares of Common Stock which are not in dispute. The
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of shares of Common Stock or
other securities or property on conversion of any Note in a name other than that
of the Holder converting such Note, and the Company shall not be required to
issue or deliver any such shares or other securities or property unless and
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of any such tax or shall have established to the
reasonable satisfaction of the Company that such tax has been paid. A Holder
shall be responsible for the amount of any withholding tax payable in connection
with any conversion of such Holder's Note.

              (e) (1) If a Holder shall have given a Conversion Notice in
accordance with the terms of this Supplemental Indenture, the Company's
obligation to issue and deliver the certificates for Common Stock shall be
absolute and unconditional, irrespective of any action or inaction by the
Trustee or such

                                       71
<PAGE>   76

Holder to enforce the same, any waiver or consent with respect to any provision
hereof, the recovery of any judgment against any person or any action to enforce
the same, any failure or delay in the enforcement of any other obligation of the
Company to the Trustee or the Holders, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Trustee, any
Holder or any other person of any obligation to the Company or any violation or
alleged violation of law by the Trustee, any Holder or any other person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to such Holder in connection with such conversion;
provided, however, that nothing herein shall limit or prejudice the right of the
Company to pursue any such claim in any other manner permitted by applicable
law. The occurrence of an event which requires an adjustment of the Conversion
Price as contemplated by Section 8.03 shall in no way restrict or delay the
right of the Holders to receive certificates for Common Stock upon conversion of
Notes and the Company shall use its best efforts to implement such adjustment on
terms reasonably acceptable to the Holders within three Trading Days of such
occurrence.

              (2) If the Company fails to issue and deliver the shares of Common
Stock to a converting Holder in connection with a particular conversion of a
Note promptly, but in no event later than five Trading Days (if the converting
Holder has requested delivery through the facilities of The Depository Trust
Company), after such Holder gives the Conversion Notice for such conversion, in
addition to any other liabilities the Company may have hereunder and under
applicable law (A) the Company shall pay or reimburse such Holder on demand for
all out-of-pocket expenses, including, without limitation, reasonable fees and
expenses of legal counsel, incurred by such Holder as a result of such failure,
(B) if as a result of such failure such Holder shall suffer any direct damages
or liabilities from such failure (including, without limitation, margin interest
and the cost of purchasing securities to cover a sale (whether by such Holder or
such Holder's securities broker) or borrowing of shares of Common Stock by such
Holder for purposes of settling any trade involving a sale of shares of Common
Stock made by such Holder during the period beginning on the Issuance Date and
ending on the date the Company delivers or causes to be delivered to such Holder
such shares of Common Stock, then the Company shall upon demand of such Holder
pay to such Holder an amount equal to the actual direct, out-of-pocket damages
and liabilities suffered by such Holder by reason thereof which such Holder
documents to the reasonable satisfaction of the Company, and (C) such Holder may
by written notice (which may be given by mail, courier, personal service or
telephone line facsimile transmission) or oral notice (promptly confirmed in
writing) to the Company, with a copy to the Trustee, given at any time prior to
delivery to such Holder of the shares of Common Stock issuable in connection
with such exercise of such Holder's conversion right, rescind such exercise and
the Conversion Notice relating thereto, in which case such Holder shall
thereafter be entitled to convert that portion of such Note as to which such
exercise is so rescinded and to exercise its other rights and remedies with

                                       72
<PAGE>   77

respect to such failure by the Company. Notwithstanding the foregoing the
Company shall not be liable to any Holder under clause (B) of the immediately
preceding sentence to the extent the failure of the Company to deliver or to
cause to be delivered such shares of Common Stock results from fire, flood,
storm, earthquake, shipwreck, strike, war, acts of terrorism, crash involving
facilities of a common carrier, acts of God, or any similar event outside the
control of the Company (it being understood that the action or failure to act of
the Trustee shall not be deemed an event outside the control of the Company
except to the extent resulting from fire, flood, storm, earthquake, shipwreck,
strike, war, acts of terrorism, crash involving facilities of a common carrier,
acts of God, the bankruptcy, liquidation or reorganization of the Trustee under
any bankruptcy, insolvency or other similar law or any similar event outside the
control of the Trustee). A converting Holder shall notify the Company in writing
(or by telephone conversation, confirmed in writing) as promptly as practicable
following the third Trading Day after such Holder gives a Conversion Notice if
such Holder becomes aware that such shares of Common Stock so issuable have not
been received as provided herein, but any failure so to give such notice shall
not affect such Holder's rights under the Original Indenture, this Supplemental
Indenture, the Notes or otherwise.

              (f) No fractional shares of Common Stock shall be issued upon
conversion of any Note but, in lieu of any fraction of a share of Common Stock
which would otherwise be issuable in respect of such conversion, the Company may
round the number of shares of Common Stock issued on such conversion up to the
next highest whole share or may pay lawful money of the United States of America
for such fractional share, based on a value of one share of Common Stock being
equal to the Market Price of the Common Stock on the applicable Conversion Date.

              SECTION 8.03. 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 on or after the Issuance Date 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 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 8.03(a) is declared but not so paid or made, the

                                       73
<PAGE>   78

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 on or after the Issuance Date issue
rights or warrants (other than any rights or warrants (including the Preferred
Share Purchase Rights) referred to in Section 8.03(d)) to all holders of its
outstanding shares of Common Stock entitling them (for a period expiring within
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 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 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 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 holder 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 on or
after the Issuance Date be subdivided into a greater number of shares of Common
Stock, the Conversion Price in effect at the opening of business on the earlier
of the day following the day upon which such subdivision becomes effective and
the day on which "ex-" trading of the Common Stock begins with respect to such
subdivision shall be proportionately reduced, and conversely, in case
outstanding shares of

                                       74
<PAGE>   79

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 earlier of the
day following the day upon which such combination becomes effective and the day
on which "ex-" trading of the Common Stock with respect to such combination
begins shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the earlier of the day following the day upon which such subdivision or
combination becomes effective and the day on which "ex-" trading of the Common
Stock begins with respect to such subdivision or combination.

              (d) In case the Company shall on or after the Issuance Date, 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 8.03(a) applies) or evidences of its
indebtedness, cash or other assets (including securities, but excluding any
rights or warrants referred to in Section 8.03(b) and dividends and
distributions paid exclusively in cash and excluding any capital stock,
evidences of indebtedness, cash or assets distributed upon a merger or
consolidation to which Section 8.04 applies) (the foregoing hereinafter in this
Section 8.03(d) called the "Securities")), then, in each such case, subject to
the second paragraph of this Section 8.03(d), 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 with respect to such distribution by a fraction of which the
numerator shall be the Current Market Price 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 the Holders shall have the right to receive upon conversion of
the Notes (or any portion thereof) the amount of Securities each Holder would
have received had the Holder converted the Notes (or such 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 8.03(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 used in computing the
Current Market Price, to the extent possible.

                                       75
<PAGE>   80

              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 (a "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 not be deemed to have been
distributed for purposes of this Section 8.03 (and no adjustment to the
Conversion Price under this Section 8.03 will be required) until the occurrence
of the earliest Trigger Event. If any such rights or warrants, including any
such existing rights or warrants distributed prior to the Issuance Date
(including the Preferred Share Purchase Rights), are subject to Trigger Events,
upon the satisfaction of each of which such rights or warrants shall become
exercisable to purchase different securities, evidences of indebtedness or other
assets, then the occurrence of each such Trigger Event shall be deemed to be
such date of issuance and record date with respect to new rights or warrants
(and a termination or expiration of the existing rights or warrants without
exercise by the holder thereof) (so that, by way of illustration and not
limitation, the dates of issuance of any such rights shall be deemed to be the
dates on which such rights become exercisable to purchase capital stock of the
Company, and not the date on which such rights may be issued, or may become
evidenced by separate certificates, if such rights are not then so exercisable).
In addition, in the event of any distribution of rights or warrants, or any
Trigger Event with respect thereto (including the Preferred Share Purchase
Rights), that was counted for purposes of calculating a distribution amount for
which an adjustment to the Conversion Price under this Section 8.03 was made (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 or holders of Common Stock with respect to such rights or warrants
(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 (including the Preferred Share Purchase Rights)
which shall have expired or been terminated without exercise by any holders
thereof, the Conversion Price shall be readjusted as if such rights and warrants
had not been issued.

              For purposes of this Section 8.03(d) and Sections 8.03(a) and (b),
any dividend or distribution to which this Section 8.03(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 8.03(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 8.03(b)
applies (and any Conversion Price reduction

                                       76
<PAGE>   81

required by this Section 8.03(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 8.03(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 determination" and "Record Date"
within the meaning of Section 8.03(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
8.03(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
Record Date fixed for such determination" within the meaning of Section 8.03(a).

              (e) In case the Company shall on or after the Issuance Date, 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 8.04 applies or as part of a distribution referred to in Section
8.03(d)) in an aggregate amount that, combined with (1) the aggregate amount of
any other such distributions to all holders of its Common Stock made exclusively
in cash within the 12 months preceding the date of payment of such distribution,
and in respect of which no adjustment pursuant to this Section 8.03(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 set forth in a Board Resolution) of consideration payable in respect of any
Tender Offer by the Company or any Subsidiary for all or any portion of the
Common Stock concluded within the 12 months preceding the date of payment of
such distribution, and in respect of which no adjustment pursuant to Section
8.03(f) has been made, exceeds 10% of the product of (x) the Current Market
Price on the Record Date with respect to such distribution times (y) 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, unless the Company elects
to reserve such cash for distribution to the Holders upon the conversion of
Notes (and shall have made adequate provision by deposit with the Trustee) so
that the Holders will receive upon such conversion, in addition to the shares of
Common Stock to which the Holders are entitled, the amount of cash which the
Holders would have received if the Holders had, immediately prior to the Record
Date for such distribution of cash, converted the Notes into Common Stock, 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% and (y) the

                                       77
<PAGE>   82

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 the Record
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 the Holders shall
have the right to receive upon conversion of the Notes (or any portion thereof)
the amount of cash the Holders would have received had the Holders converted
their Notes (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.

              (f) In case a Tender Offer on or after the Issuance Date made by
the Company or any Subsidiary 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 Subsidiary for all or any portion of
the Common Stock expiring within the 12 months preceding the expiration of such
Tender Offer and in respect of which no adjustment pursuant to this Section
8.03(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 12 months
preceding the expiration of such Tender Offer and in respect of which no
adjustment pursuant to Section 8.03(e) has been made, exceeds 10% of the product
of (i) the Current Market Price as of the last time (the "Expiration Time")
tenders could have been made pursuant to such Tender Offer (as it may be
amended) times (ii) the number of shares of Common Stock outstanding (including
any tendered shares) at 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) at 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

                                       78
<PAGE>   83

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) at 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 8.03(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 8.03(f).

              (g) (1) In case at any time on or after the Issuance Date the
Company shall issue shares of its Common Stock or Common Stock Equivalents
(collectively, the "Newly Issued Shares"), other than an issuance pro rata to
all holders of its outstanding Common Stock, at a price below the Specified
Market Value of the Common Stock at the time of such issuance, then following
such issuance of Newly Issued Shares the Conversion Price shall be adjusted as
provided in this Section 8.03(g). The Conversion Price following any such
adjustment shall be determined by multiplying the Conversion Price immediately
prior to such adjustment by a fraction, of which the numerator shall be the sum
of (a) the number of shares of Common Stock outstanding immediately prior to the
issuance of the Newly Issued Shares (calculated on a fully-diluted basis
assuming the conversion of all options, warrants, purchase rights or convertible
securities which are exercisable at the time of the issuance of the Newly Issued
Shares) plus (b) the number of shares of Common Stock which the aggregate
consideration, if any, received by the Company for the number of Newly Issued
Shares would purchase at a price equal to the Specified Market Value of the
Common Stock at the time of such issuance, and the denominator shall be the sum
of (X) the number of shares of Common Stock outstanding immediately prior to the
issuance of the Newly Issued Shares (calculated on a fully-diluted basis
assuming the exercise or conversion of all options, warrants, purchase rights or
convertible securities which are exercisable or convertible at the time of the
issuance of the Newly Issued Shares) plus (Y) the number of Newly Issued Shares.
The adjustment provided for in this Section 8.03(g) may be expressed as the
following mathematical formula:

<TABLE>
<S>                                <C>                   <C>
                    ------------------------------------------------
                                    (O +(C / SMV))       x   CP
                    ------------------------------------------------
                      NCP             (O  +  N)
                    ------------------------------------------------
</TABLE>

where:

                                       79
<PAGE>   84

        C    =    aggregate consideration received by the Company for the Newly
                  Issued Shares

        N    =    number of Newly Issued Shares

        O    =    number of shares of Common Stock outstanding (on a fully
                  diluted basis, as described above) immediately prior to the
                  issuance of the Newly Issued Shares

        SMV  =    Specified Market Value of the Common Stock at the time of
                  issuance of the Newly Issued Shares

        CP   =    Conversion Price immediately prior to the issuance of the
                  Newly Issued Shares

        NCP  =    Conversion Price immediately after the issuance of the Newly
                  Issued Shares

              (2) Notwithstanding the foregoing, no adjustment shall be made
under this Section 8.03(g) by reason of:

              (A) the issuance by the Company of shares of Common Stock pro rata
       to all holders of the Common Stock so long as (i) any adjustment to the
       Conversion Price that is required by Section 8.03(a) is made and (ii) the
       Company shall have given notice of such issuance thereof to the Holders
       pursuant to Section 8.06;

              (B) the issuance by the Company of Newly Issued Shares in an
       offering for cash for the account of the Company that is underwritten on
       a firm commitment basis and (i) is registered under the 1933 Act or (ii)
       sold in an offering primarily to "qualified institutional buyers" as
       defined in, and in a transaction under, Rule 144A under the 1933 Act;

              (C) the issuance by the Company of shares of Common Stock upon
       conversion of the Notes or upon exercise of the Warrants in accordance
       with the terms hereof and thereof;

              (D) the issuance by the Company of shares of Common Stock in
       payment of interest on the Notes in accordance with the terms hereof and
       thereof;

              (E) the issuance by the Company of shares of Common Stock pursuant
       to the exercise of options, warrants or other rights outstanding as of

                                       80
<PAGE>   85

       the date of this Supplemental Indenture in accordance with their
       respective terms in effect on the date of this Supplemental Indenture;
       and

              (F) the issuance by the Company of shares of Common Stock pursuant
       to the Common Stock Purchase Agreement, dated as of July 21, 2000,
       between the Company and Acqua Wellington North American Equities Fund,
       Ltd., as in effect on the date of this Supplemental Indenture.

              (3) In case at any time on or after the Issuance Date the Company
shall issue shares of Common Stock or Common Stock Equivalents to any
Subsidiary, the Conversion Price shall be subject to adjustment as and to the
extent provided in this Section 8.03(g) by reason of such issuance. In case at
any time on or after the Issuance Date any Subsidiary shall sell any shares of
Common Stock or Common Stock Equivalents, such sale shall be deemed for purposes
of this Section 8.03(g) to be the issuance of such shares of Common Stock or
Common Stock Equivalents by the Company, and the Conversion Price shall also be
subject to further adjustment as and to the extent provided in this Section
8.03(g) by reason of such sale of shares of Common Stock or Common Stock
Equivalents by such Subsidiary.

              (h) The Company may make such reductions in the Conversion Price,
in addition to those required by Sections 8.03(a), (b), (c), (d), (e), (f), and
(g) 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.

              (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
8.03(i) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Article II
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 of the
Common Stock or from par value to no par value or from no par value to par
value.

              (j) Whenever the Conversion Price is adjusted as herein provided,
the Company shall promptly, but in no event later than five Business Days
thereafter, give a notice to the Holders, with a copy to the Trustee, setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment, but which statement shall not
include any information which would be material non-public information for
purposes of the

                                       81
<PAGE>   86

1934 Act. Failure to deliver such notice shall not affect the effectiveness,
legality or validity of any such adjustment.

              (k) In any case in which this Section 8.03 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
Holders in connection with any conversion of Notes 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 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 8.02(f).

              (l) For purposes of this Section 8.03, 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 other than (i) dividends or distributions
payable only in shares of Common Stock and (ii) the Preferred Share Purchase
Rights.

              SECTION 8.04. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. (a) 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 Person 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, or
(iii) any sale or conveyance of the properties and assets of the Company as, or
substantially as, an entirety to any other Person 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 prior to such reclassification, change, consolidation, merger, combination
or sale the Company or the successor or purchasing Person, as the case may be,
shall execute with the Trustee a written agreement providing that (x) the Notes
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 the holder of a number of shares of Common Stock issuable upon conversion of
the Notes immediately prior to such reclassification, change, consolidation,
merger, combination, sale or conveyance assuming such holder of Common Stock did
not exercise such holder's 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

                                       82
<PAGE>   87

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 share"),
then for the purposes of this Section 8.04 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), (y) in the case of any such successor or purchasing Person, upon such
consolidation, merger, combination, sale or conveyance such successor or
purchasing Person shall be jointly and severally liable with the Company for the
payment and performance of all of the Company's obligations under the Original
Indenture, this Supplemental Indenture and the Notes and the other Transaction
Documents and (z) if registration or qualification is required under the 1933
Act or applicable state law for the Notes, the Warrants or the issuance to the
Holders or the holders of the Warrants of the shares of such shares of stock and
other securities so issuable upon conversion of the Notes or exercise of the
Warrants, such registration or qualification shall be completed prior to such
reclassification, change, consolidation, merger, combination or sale. Such
written agreement 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 written agreement shall also be executed by such other
corporation and shall contain such additional provisions to protect the
interests of the Holders 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 Seven
herein.

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

              (c) If this Section 8.04 applies to any event or occurrence,
Section 8.03 shall not apply to such event or occurrence.

              SECTION 8.05. RESERVATION OF SHARES; SHARES TO BE FULLY PAID;
LISTING OF COMMON STOCK.

              (a) The Company shall reserve and keep available, free from
preemptive rights, out of its authorized but unissued shares of Common Stock or

                                       83
<PAGE>   88

shares of Common Stock held in treasury, solely for issuance upon conversion of
the Notes, and in addition to the shares of Common Stock required to be reserved
by the terms of the Warrants, sufficient shares to provide for the conversion of
the Notes from time to time as the Notes are converted.

              (b) 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.

              (c) The Company covenants that all shares of Common Stock issued
upon conversion of the 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.

              (d) The Company covenants that if any shares of Common Stock to be
provided for the purpose of conversion of the Notes hereunder require
registration with or approval of any governmental authority under any federal or
state law before such shares may be validly issued upon conversion, the Company
will in good faith and as expeditiously as possible endeavor to secure such
registration or approval, as the case may be.

              (e) The Company covenants that, so long as the Common Stock shall
be listed on the Nasdaq, the NYSE, the AMEX or any other national securities
exchange, the Company shall obtain and, so long as the Common Stock shall be so
listed on such market or exchange, maintain approval for listing thereon of all
Common Stock issuable upon conversion of or in payment of interest on the Notes.

              SECTION 8.06. NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS. In case
on or after the Issuance Date:

              (a) the Company shall declare a dividend (or any other
distribution) on its Common Stock (other than in cash out of retained earnings);
or

              (b) the Company shall authorize the granting to the holders 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) the Board of Directors shall authorize 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 any consolidation or merger or
other business combination transaction to which the Company is a party and for
which

                                       84
<PAGE>   89

approval of any stockholders of the Company is required, or the sale or transfer
of all or substantially all of the assets of the Company; or

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

the Company shall give the Holders, as promptly as possible but in any event at
least ten Trading 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, other business
combination transaction, 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 who shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, other business combination
transaction, sale, transfer, dissolution, liquidation or winding-up shall be
determined. Such notice shall not include any information which would be
material non-public information for purposes of the 1934 Act. 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. In the case of any such action
of which the Company gives such notice to the Holders or is required to give
such notice to the Holders, the Holders shall be entitled to give Conversion
Notices which are contingent on the completion of such action.

              SECTION 8.07. ORIGINAL INDENTURE. The conversion provisions of
this Article Eight shall supersede Sections 1402, 1403, 1404 and 1409 of the
Original Indenture.

                                  ARTICLE NINE

                                SUNDRY PROVISIONS

              SECTION 9.01. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
COMPANY. Except to the extent modified by this Supplemental Indenture, the
Company makes and reaffirms as of the date of execution of this Supplemental
Indenture all of its representations, warranties, covenants and agreements set
forth in the Original Indenture.

              SECTION 9.02. TRUSTEE NOT RESPONSIBLE FOR RECITALS. The recitals
contained herein shall be taken as the statements of the Company, and the

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Trustee assumes no responsibility for their correctness. The Trustee makes no
representation as to the validity of this Supplemental Indenture.

              SECTION 9.03. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The
Article and Section headings herein are for convenience only and shall not
affect the construction hereof.

              SECTION 9.04. SUCCESSORS AND ASSIGNS. All covenants and agreements
in this Supplemental Indenture by the Company shall bind its successors and
assigns, whether so expressed or not.

              SECTION 9.05. SEPARABILITY CLAUSE. In case any provision in this
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.

              SECTION 9.06. BENEFITS OF SUPPLEMENTAL INDENTURE. Nothing in this
Supplemental Indenture, express or implied, shall give to any Person, other than
the parties hereto, any Paying Agent, any Note Registrar and their successors
under the Original Indenture and the Holders of Notes, any benefit or any legal
or equitable right, remedy or claim under the Original Indenture.

              SECTION 9.07. GOVERNING LAW. This Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of New York.

              SECTION 9.08. COUNTERPARTS. This Supplemental Indenture may be
executed in any number of counterparts, each of which so executed shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.

              SECTION 9.09. ENFORCEABLE OBLIGATION. The Company represents and
warrants that at the time of the original issuance of each Note it received the
full purchase price payable pursuant to the Note Purchase Agreements pursuant to
which such Note is being issued in an amount at least equal to the original
principal amount of such Note, and that each Note is an enforceable obligation
of the Company which is not subject to any offset, reduction, counterclaim or
disallowance of any sort.

              SECTION 9.10. CERTAIN PERFORMANCE. The Company acknowledges and
agrees that, by reason of, among other things, the conversion rights of the
Holders, there shall be no adequate remedy at law for the Company's willful
failure to comply with the Original Indenture, this Supplemental Indenture or
the Notes, and that the repayment of principal of and interest on the Notes, and

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payment by the Company of the other amounts payable by the Company, in
connection with an Event of Default, will not adequately compensate the Holders
for any loss or impairment of the conversion rights. The Company agrees that, in
addition to any other rights or remedies, the Trustee and the Holders shall be
entitled to specific performance by the Company of its obligations under, and an
injunction against any action that would constitute a failure by the Company to
comply with, the Original Indenture, this Supplemental Indenture and the Notes.

              SECTION 9.11. AMENDMENTS. In addition to the requirements of
Section 902 of the Original Indenture, no supplemental indenture shall, without
the consent of the Holder of each Outstanding Note affected thereby, change the
obligations of the Company to redeem or repurchase Notes pursuant to Article
Seven of this Supplemental Indenture.

              SECTION 9.12. REFERENCE TO AND EFFECT ON ORIGINAL INDENTURE. This
Supplemental Indenture shall be construed as supplemental to the Original
Indenture and all the terms and conditions of this Supplemental Indenture shall
be deemed to be part of the terms and conditions of the Original Indenture.
Except as set forth herein, the Original Indenture heretofore executed and
delivered is hereby ratified, approved and confirmed. The provisions of this
Supplemental Indenture shall for the purposes of this series of Securities
supersede the provisions of the Original Indenture heretofore executed and
delivered to the extent such Original Indenture heretofore executed and
delivered is expressly inconsistent herewith. This Supplemental Indenture is
subject to the provisions of the Trust Indenture Act, and shall, to the extent
applicable, be governed by such provisions.

              SECTION 9.13. NOTICES. Notwithstanding Sections 105 and 106 of the
Original Indenture, whenever under the provisions of the Original Indenture,
this Supplemental Indenture or the Notes any notice is required or permitted to
be given, such notice shall be in writing (except as otherwise specifically
provided in the Original Indenture, this Supplemental Indenture or the Notes)
and shall be sent by telephone line facsimile transmission to such telephone
line facsimile transmission number as shall be set forth below or shall have
been provided for purposes hereof by the Person entitled to such notice or, if
no such telephone line facsimile transmission number shall have been so
provided, may be sent by first class mail (postage prepaid), personal delivery
or courier (charges prepaid) addressed as follows:

              If to the Company:

                      Axys Pharmaceuticals, Inc.
                      180 Kimball Way
                      South San Francisco, California  94080

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<PAGE>   92

                      Attention:  Chief Financial Officer

                      Facsimile No.: (650) 829-1067

              If to the Trustee:

                      U. S. Bank Trust National Association,
                        as Trustee
                      550 South Hope Street
                      Suite 500
                      Los Angeles, California  90071

                      Attention:  Mr. Brad Scarbrough, Assistant Vice President

                      Facsimile No.: (213) 533-8729

and if to any Holder, at such Holder's telephone line facsimile transmission
number or address set forth in the Security Register for the Notes. Any notice
so sent by telephone line facsimile transmission, personal delivery or courier
shall be effective upon receipt, and any such notice sent by mail shall be
effective three Business Days after being deposited with the facilities of the
United States Postal Service. The Company or the Trustee may change its
telephone line facsimile transmission number or address for purposes of notices
under the Original Indenture and hereunder by giving three Business Days' notice
to the other, in each case with similar notice to all of the Holders. Any Holder
may change its telephone line facsimile transmission or address for purposes of
notices under the Original Indenture or hereunder by giving three Business Days'
notice to the Trustee. Whenever under the provisions of this Supplemental
Indenture a Holder is required or permitted to give any notice to the Company
and such provision also calls for giving a copy of such notice to the Trustee,
if such Holder gives such notice to the Company but fails to give such notice to
the Trustee, such failure shall not affect the validity of such notice.

              SECTION 9.14. PAYMENT OF NOTES ON REPURCHASE; DEPOSIT OF
REPURCHASE PRICE, ETC. If any Note or any portion of any Note is to be
repurchased as provided in Article Seven and any notice required in connection
therewith shall have been given as provided therein and the Company shall have
otherwise complied with the requirements of this Supplemental Indenture with
respect thereto, then the Note or Notes or the portion or portions thereof to be
so repurchased and with respect to which any such notice has been given shall
become due and payable on the date stated in such notice at the applicable
Repurchase Price. On and after the repurchase date so stated in such notice,
provided that the

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Company shall have deposited with the Trustee on or prior to such repurchase
date, an amount sufficient to pay the applicable Repurchase Price interest on
such Note or Notes or the portion or portions thereof to be so redeemed or
repurchased shall cease to accrue, and such Note or Notes or such portion
thereof shall be deemed not to be Outstanding and shall not be entitled to any
benefit with respect to principal of or interest on the portion to be so
repurchased except to receive payment of the applicable Repurchase Price. On
presentation and surrender of such Note or Notes or such portion or portions
thereof, such Note or Notes or the specified portion or portions thereof shall
be paid and repurchased at the applicable Repurchase Price. If a portion of any
Note is to be repurchased, upon surrender of such Note to the Trustee in
accordance with the terms hereof, the Company shall execute and deliver to the
Holder of such note without service charge, a new Note or Notes, having the same
date as the Note so surrendered and containing identical terms and conditions,
in such denomination or denominations as requested by such Holder in aggregate
principal amount equal to, and in exchange for, the unrepurchased portion of the
principal amount of the Note so surrendered.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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

                                   AXYS PHARMACEUTICALS, INC.

                                   By:
                                      ------------------------------------------

                                   U. S. BANK TRUST NATIONAL
                                    ASSOCIATION, AS TRUSTEE

                                   By:
                                      ------------------------------------------

<PAGE>   95

                        SCHEDULES INTENTIONALLY OMITTED

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