Document:

Exhibit
4.1
  Execution Version
     
  ISIS
PHARMACEUTICALS, INC.
  
  25¤8 %
Convertible Subordinated Notes due 2027
  

  INDENTURE
  Dated as of January 23,
2007
  

  WELLS FARGO BANK, N.A.
  Trustee
     
  
  

TABLE OF CONTENTS

	
  ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  SECTION 1.01.
  Definitions

  	
   

  	
  1

  
	
  SECTION 1.02.
  Incorporation by Reference of Trust Indenture Act

  	
   

  	
  12

  
	
  SECTION 1.03.
  Rules of Construction

  	
   

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2 THE NOTES

  	
   

  	
  13

  
	
   

  	
   

  	
   

  
	
  SECTION 2.01.
  Designation, Amount and Issuance of Notes

  	
   

  	
  13

  
	
  SECTION 2.02.
  Form of the Notes

  	
   

  	
  14

  
	
  SECTION 2.03.
  Date and Denomination of Notes; Payment at Maturity; Payment of Interest

  	
   

  	
  15

  
	
  SECTION 2.04.
  Execution and Authentication

  	
   

  	
  16

  
	
  SECTION 2.05.
  Registrar and Paying Agent

  	
   

  	
  16

  
	
  SECTION 2.06.
  Paying Agent to Hold Money in Trust

  	
   

  	
  17

  
	
  SECTION 2.07.
  Noteholder Lists

  	
   

  	
  17

  
	
  SECTION 2.08.
  Exchange and Registration of Transfer of Notes; Restrictions on Transfer

  	
   

  	
  17

  
	
  SECTION 2.09.
  Replacement Notes

  	
   

  	
  22

  
	
  SECTION 2.10.
  Outstanding Notes

  	
   

  	
  23

  
	
  SECTION 2.11.
  Temporary Notes

  	
   

  	
  23

  
	
  SECTION 2.12.
  Cancellation

  	
   

  	
  23

  
	
  SECTION 2.13.
  Defaulted Interest

  	
   

  	
  24

  
	
  SECTION 2.14.
  CUSIP and ISIN Numbers

  	
   

  	
  24

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3 REDEMPTION AND REPURCHASE
  OF NOTES

  	
   

  	
  24

  
	
   

  	
   

  	
   

  
	
  SECTION 3.01.
  Optional Redemption of Notes

  	
   

  	
  24

  
	
  SECTION 3.02.
  Notice of Optional Redemption; Selection of Notes to Be Redeemed

  	
   

  	
  24

  
	
  SECTION 3.03.
  Payment of Notes Called for Redemption

  	
   

  	
  26

  
	
  SECTION 3.04.
  Repurchase at Option of Holders Upon a Fundamental Change

  	
   

  	
  27

  
	
  SECTION 3.05.
  Repurchase of Notes by the Company at the Option of Holders

  	
   

  	
  28

  
	
  SECTION 3.06.
  Company Repurchase Notice

  	
   

  	
  30

  
	
  SECTION 3.07.
  Effect of Repurchase Notice; Withdrawal

  	
   

  	
  31

  
	
  SECTION 3.08.
  Deposit of Repurchase Price

  	
   

  	
  32

  
	
  SECTION 3.09. Notes
  Repurchased in Part

  	
   

  	
  32

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4 COVENANTS

  	
   

  	
  32

  
	
   

  	
   

  	
   

  
	
  SECTION 4.01.
  Payment of Notes

  	
   

  	
  32

  
	
  SECTION 4.02.
  Maintenance of Office or Agency

  	
   

  	
  32

  
	
  SECTION 4.03.
  Reports; 144A Information

  	
   

  	
  33

  
	
  SECTION 4.04.
  Existence

  	
   

  	
  33

  
	
  SECTION 4.05.
  Payment of Taxes and Other Claims

  	
   

  	
  33

  

 

 i
 

 

	
  SECTION 4.06. Compliance
  Certificate

  	
   

  	
  34

  
	
  SECTION 4.07.
  Further Instruments and Acts

  	
   

  	
  34

  
	
  SECTION 4.08.
  Additional Interest Notice

  	
   

  	
  34

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5 SUCCESSOR COMPANY

  	
   

  	
  34

  
	
   

  	
   

  	
   

  
	
  SECTION 5.01.
  When Company May Merge or Transfer Assets

  	
   

  	
  34

  
	
  SECTION 5.02.
  Successor to be Substituted

  	
   

  	
  35

  
	
  SECTION 5.03.
  Officer’s Certificate and Opinion of Counsel to be Given Trustee

  	
   

  	
  36

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6 DEFAULTS AND REMEDIES

  	
   

  	
  36

  
	
   

  	
   

  	
   

  
	
  SECTION 6.01.
  Events of Default

  	
   

  	
  36

  
	
  SECTION 6.02.
  Acceleration

  	
   

  	
  37

  
	
  SECTION 6.03.
  Other Remedies

  	
   

  	
  39

  
	
  SECTION 6.04.
  Waiver of Past Defaults

  	
   

  	
  39

  
	
  SECTION 6.05.
  Control by Majority

  	
   

  	
  39

  
	
  SECTION 6.06.
  Limitation on Suits

  	
   

  	
  40

  
	
  SECTION 6.07.
  Rights of Noteholders to Receive Payment

  	
   

  	
  40

  
	
  SECTION 6.08.
  Collection Suit by Trustee

  	
   

  	
  40

  
	
  SECTION 6.09.
  Trustee May File Proofs of Claim

  	
   

  	
  41

  
	
  SECTION 6.10.
  Priorities

  	
   

  	
  41

  
	
  SECTION 6.11.
  Undertaking for Costs

  	
   

  	
  41

  
	
  SECTION 6.12.
  Waiver of Stay, Extension or Usury Laws

  	
   

  	
  41

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7 TRUSTEE

  	
   

  	
  42

  
	
   

  	
   

  	
   

  
	
  SECTION 7.01.
  Duties of Trustee

  	
   

  	
  42

  
	
  SECTION 7.02.
  Rights of Trustee

  	
   

  	
  43

  
	
  SECTION 7.03.
  Individual Rights of Trustee

  	
   

  	
  44

  
	
  SECTION 7.04.
  Trustee’s Disclaimer

  	
   

  	
  44

  
	
  SECTION 7.05.
  Notice of Defaults

  	
   

  	
  44

  
	
  SECTION 7.06.
  Reports by Trustee to Noteholders

  	
   

  	
  44

  
	
  SECTION 7.07.
  Compensation and Indemnity

  	
   

  	
  45

  
	
  SECTION 7.08.
  Replacement of Trustee

  	
   

  	
  45

  
	
  SECTION 7.09.
  Successor Trustee by Merger

  	
   

  	
  46

  
	
  SECTION 7.10.
  Eligibility; Disqualification

  	
   

  	
  46

  
	
  SECTION 7.11.
  Preferential Collection of Claims Against Company

  	
   

  	
  47

  
	
   

  	
   

  	
   

  
	
  ARTICLE 8 DISCHARGE OF INDENTURE

  	
   

  	
  47

  
	
   

  	
   

  	
   

  
	
  SECTION 8.01.
  Discharge of Liability on Notes

  	
   

  	
  47

  
	
  SECTION 8.02.
  Application of Trust Money

  	
   

  	
  47

  
	
  SECTION 8.03.
  Repayment to Company

  	
   

  	
  47

  
	
  SECTION 8.04.
  Reinstatement

  	
   

  	
  48

  
	
   

  	
   

  	
   

  
	
  ARTICLE 9 AMENDMENTS

  	
   

  	
  48

  

 

 ii
 

 

	
  SECTION 9.01. Without
  Consent of Noteholders

  	
   

  	
  48

  
	
  SECTION 9.02.
  With Consent of Noteholders

  	
   

  	
  49

  
	
  SECTION 9.03.
  Compliance with Trust Indenture Act

  	
   

  	
  51

  
	
  SECTION 9.04.
  Revocation and Effect of Consents and Waivers

  	
   

  	
  51

  
	
  SECTION 9.05.
  Notation on or Exchange of Notes

  	
   

  	
  51

  
	
  SECTION 9.06.
  Trustee to Sign Amendments

  	
   

  	
  51

  
	
   

  	
   

  	
   

  
	
  ARTICLE 10 CONVERSION OF NOTES

  	
   

  	
  52

  
	
   

  	
   

  	
   

  
	
  SECTION 10.01.
  Right to Convert

  	
   

  	
  52

  
	
  SECTION 10.02.
  Exercise of Conversion Right; Issuance of Common Stock on Conversion; No
  Adjustment for Interest or Dividends

  	
   

  	
  54

  
	
  SECTION 10.03.
  Cash Payments in Lieu of Fractional Shares

  	
   

  	
  56

  
	
  SECTION 10.04.
  Conversion Rate

  	
   

  	
  56

  
	
  SECTION 10.05.
  Adjustment of Conversion Rate

  	
   

  	
  58

  
	
  SECTION 10.06.
  Effect of Reclassification, Consolidation, Merger or Sale

  	
   

  	
  67

  
	
  SECTION 10.07.
  Taxes on Shares Issued

  	
   

  	
  68

  
	
  SECTION 10.08.
  Reservation of Shares, Shares to be Fully Paid; Compliance with Governmental
  Requirements; Listing of Common Stock

  	
   

  	
  68

  
	
  SECTION 10.09.
  Responsibility of Trustee

  	
   

  	
  69

  
	
  SECTION 10.10.
  Notice to Holders Prior to Certain Actions

  	
   

  	
  69

  
	
  SECTION 10.11.
  Stockholder Rights Plans

  	
   

  	
  70

  
	
  SECTION 10.12.
  Settlement Upon Conversion

  	
   

  	
  70

  
	
  SECTION 10.13.
  Conversion After a Public Acquirer Change of Control

  	
   

  	
  72

  
	
  SECTION 10.14.
  Irrevocable Election of Cash Payment Upon Conversion

  	
   

  	
  73

  
	
   

  	
   

  	
   

  
	
  ARTICLE 11

  	
   

  	
  73

  
	
   

  	
   

  	
   

  
	
  RESERVED

  	
   

  	
  73

  
	
   

  	
   

  	
   

  
	
  ARTICLE 12 SUBORDINATION

  	
   

  	
  73

  
	
   

  	
   

  	
   

  
	
  SECTION 12.01.
  Agreement to Subordinate

  	
   

  	
  73

  
	
  SECTION 12.02.
  Liquidation, Dissolution, Bankruptcy

  	
   

  	
  73

  
	
  SECTION 12.03.
  Payments to Noteholders

  	
   

  	
  74

  
	
  SECTION 12.04.
  Acceleration of Securities

  	
   

  	
  75

  
	
  SECTION 12.05.
  When Distribution Must Be Paid Over

  	
   

  	
  75

  
	
  SECTION 12.06.
  Subrogation

  	
   

  	
  75

  
	
  SECTION 12.07.
  Relative Rights

  	
   

  	
  75

  
	
  SECTION 12.08.
  Subordination May Not Be Impaired

  	
   

  	
  76

  
	
  SECTION 12.09.
  Rights of Trustee and Paying Agent

  	
   

  	
  76

  
	
  SECTION 12.10.
  Distribution or Notice to Representative

  	
   

  	
  76

  
	
  SECTION 12.11.
  Article 12 Not to Prevent Events of Default or Limit Right to Accelerate

  	
   

  	
  76

  
	
  SECTION 12.12.
  Trustee Entitled to Rely

  	
   

  	
  76

  

 

 iii
 

 

	
  SECTION 12.13. Trustee to
  Effectuate Subordination

  	
   

  	
  77

  
	
  SECTION 12.14.
  Trustee Not Fiduciary for Holders of Senior Indebtedness

  	
   

  	
  77

  
	
  SECTION 12.15.
  Reliance by Holders of Senior Indebtedness on Subordination Provisions

  	
   

  	
  77

  
	
  SECTION 12.16.
  Obligation of Company Unconditional

  	
   

  	
  77

  
	
  SECTION 12.17.
  Not to Prevent Events of Default

  	
   

  	
  78

  
	
   

  	
   

  	
   

  
	
  ARTICLE 13 MISCELLANEOUS

  	
   

  	
  78

  
	
   

  	
   

  	
   

  
	
  SECTION 13.01.
  Trust Indenture Act Controls

  	
   

  	
  78

  
	
  SECTION 13.02.
  Notices

  	
   

  	
  78

  
	
  SECTION 13.03.
  Communication by Noteholders with Other Noteholders

  	
   

  	
  79

  
	
  SECTION 13.04.
  Certificate and Opinion as to Conditions Precedent

  	
   

  	
  79

  
	
  SECTION 13.05.
  Statements Required in Certificate or Opinion

  	
   

  	
  79

  
	
  SECTION 13.06.
  When Notes Disregarded

  	
   

  	
  80

  
	
  SECTION 13.07.
  Rules by Trustee, Paying Agent and Registrar

  	
   

  	
  80

  
	
  SECTION 13.08.
  Legal Holidays

  	
   

  	
  80

  
	
  SECTION 13.09. GOVERNING
  LAW

  	
   

  	
  80

  
	
  SECTION 13.10.
  No Recourse Against Others

  	
   

  	
  80

  
	
  SECTION 13.11.
  Successors

  	
   

  	
  80

  
	
  SECTION 13.12.
  Multiple Originals

  	
   

  	
  80

  
	
  SECTION 13.13.
  Table of Contents; Headings

  	
   

  	
  80

  
	
  SECTION 13.14.
  Severability

  	
   

  	
  80

  
	
  SECTION 13.15.
  Indenture, Notes and Guarantee Solely Corporate Obligations

  	
   

  	
  81

  

 

	
  Exhibit A

  	
   

  	
  —

  	
   

  	
  Form of Note

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
  —

  	
   

  	
  Form of Restrictive Legend for Common Stock Issued
  Upon Conversion

  

 

 iv

  INDENTURE dated as of January 23, 2007, among ISIS
PHARMACEUTICALS, INC., a Delaware corporation (the “Company”), WELLS FARGO BANK, N.A., a national banking
association, as trustee (the “Trustee”).
  WHEREAS, the Company has duly authorized the creation
of an issue of its 2 5¤8
% Convertible Subordinated Notes due 2027 (the “Notes”), having the terms, tenor, amount and other provisions
hereinafter set forth, and, to provide therefor, the Company has duly
authorized the execution and delivery of this Indenture; and
  WHEREAS, all things necessary to make the Notes, when
the Notes are duly executed by the Company and authenticated and delivered
hereunder and duly issued by the Company, the valid obligations of the Company,
and when the Notes are duly executed by the Company and authenticated and
delivered hereunder and duly issued by the Company, and to make this Indenture
a valid and binding agreement of the Company, in accordance with their and its
terms, have been done and performed, and the execution of this Indenture and
the issue hereunder of the Notes have in all respects been duly authorized,
  NOW, THEREFORE, THIS INDENTURE WITNESSETH:
  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 Noteholders, as
follows:
  ARTICLE 1
  DEFINITIONS
AND INCORPORATION BY REFERENCE
  SECTION 1.01.  Definitions.
  “Additional Interest” has the meaning specified for
Additional Interest in Section 3(a) of the Registration Rights Agreement.
  “Additional Interest Notice” has the meaning specified
in Section 4.08.
  “Additional Notes” has the meaning set specified in
Section 2.01.
  “Additional Shares” has the meaning specified in
Section 10.04(b).
  “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 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.
  “Agent Members” has the meaning specified in Section
2.08(b)(vi).
  “Applicable Consideration” has the meaning specified
in Section 10.06(c).

    “Bank Indebtedness” means
any now existing or hereafter arising obligations for borrowed money, cash
management services, reimbursement obligations under letters of credit,
depositary arrangements and similar ancillary services in favor of Silicon
Valley Bank, including all amounts payable under or in respect of that certain
Loan and Security Agreement, dated December 15, 2003, between the Company and
Silicon Valley Bank, including the related negative pledge agreement, as each
such obligation and the documents evidencing the same may be amended, restated,
supplemented, waived, refinanced, replaced, renewed, extended or otherwise
modified from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, Guarantees, indemnities and all other
amounts payable thereunder or in respect thereof.
  “Bankruptcy Law” has the
meaning specified in Section 6.01.
  “Board of Directors” means the Board of Directors of
the Company or, other than in the case of the definition of “Continuing
Directors” and “Fundamental Change,” any committee thereof duly authorized to
act on behalf of such Board.
  “Business Day” means each day which is not a Legal
Holiday.
  “Capital Stock” of any Person means any and all
shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) equity of such
Person, including any Preferred Stock, but excluding any debt securities
convertible into such equity.
  “Cash Amount” has the meaning specified in Section
10.12.
  “Cash Equivalent” means (a) marketable direct
obligations issued or unconditionally guaranteed by the United States or any
agency or any State thereof having maturities of not more than one (1) year
from the date of acquisition; (b) commercial paper maturing no more than one
(1) year after its creation and having the highest rating from either Standard
& Poor’s Ratings Group or Moody’s Investors Service, Inc., (c) bank’s
certificates of deposit issued maturing no more than one (1) year after issue;
and (d) money market funds at least ninety-five percent (95%) of the assets of
which constitute Cash Equivalents of the kinds described in clauses (a) through
(c) of this definition.
  “Closing Sale Price” of any share of Common Stock or
any other security on any Trading Day means the closing sale price of such
security (or, if no closing sale price is reported, the average of the closing
bid and closing ask prices or, if more than one in either case, the average of
the average closing bid and the average closing ask prices) on such date as
reported in composite transactions for the principal U.S. securities exchange
on which the shares of Common Stock or other security are traded or, if the
shares of Common Stock or other security are not listed on a U.S. national or
regional securities exchange, as reported by the Nasdaq Stock Market or by Pink
Sheets LLC.  In the absence of such a
quotation, the Closing Sale Price shall be determined by a nationally
recognized securities dealer retained by the Company for that

 2
 

    purpose.  The
Closing Sale Price shall be determined without reference to extended or after
hours trading.
  “Closing Date” means the date of this Indenture.
  “Code” means the Internal Revenue Code of 1986, as
amended.
  “Common Stock” means any stock of any class of the
Company which has no preference in respect of dividends or of amounts payable
in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company and which is not subject to redemption by the
Company.  Subject to the provisions of
Section 10.06, however, shares issuable on conversion of Notes shall include only
shares of the class designated as common stock of the Company at the date of
this Indenture (namely, the Common Stock, par value $0.01) or shares of any
class or classes resulting from any reclassification or reclassifications
thereof and which have no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company and which are not subject to redemption by the
Company; provided that if at any time there shall be more than one such
resulting class, the shares of each such class then so issuable on conversion
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 party named as such in this
Indenture until a successor replaces it and, thereafter, means the successor
and, for purposes of any provision contained herein and required by the TIA,
each other obligor on the indenture securities.
  “Company Repurchase Notice” has the meaning specified
in Section 3.06.
  “Continuing Directors” means, as of any date of
determination, any member of the Board of Directors who (i) was a member of the
Board of Directors on the date of this Indenture; or (ii) was nominated for
election or elected to the Board of Directors with the approval of a majority
of the Continuing Directors who were members of the Board of Directors at the
time of such new director’s nomination or election.
  “Conversion Date” has the meaning specified in Section
10.02.
  “Conversion Notice” has the meaning specified in
Section 10.02.
  “Conversion Period” means the 20-Trading Day period
(i) if the Company has called the Notes delivered for conversion for
redemption, ending on the third Trading Day immediately preceding the
redemption date, (ii) with respect to conversions in connection with a
Fundamental Change, ending on the third Trading Day prior to the Repurchase
Date relating to such Fundamental Change, (iii) with respect to Conversion
Notices received during the period beginning 25 Trading Days preceding the
Maturity Date and ending one Trading Day preceding the Maturity Date, ending on
the third Trading Day immediately preceding the Maturity Date, (iv) if the Company
has irrevocably elected to make a cash payment of Principal upon conversion,
beginning on the third Trading Day following the Company’s receipt of the

 3
 

    Conversion Notice and (v) in all other cases,
beginning on the Trading Day following the final Trading Day of the Conversion
Retraction Period.
  “Conversion Price” on any date of determination means
$1,000 divided by the Conversion Rate in effect on that date.
  “Conversion Rate” means the number of shares of Common
Stock into which each $1,000 principal amount of Notes is convertible, which is
initially 68.3761, subject to adjustments as set forth herein.
  “Conversion Retraction Period” means the two-Trading
Day period beginning on the Trading Day after the Company notifies the Trustee
of the method of settlement for the conversion of Notes.
  “Conversion Value” has the meaning specified in
Section 10.12.
  “Corporate Trust Office” or other similar term, means
the designated office of the Trustee at which at any particular time its
corporate trust business as it relates to this Indenture shall be administered,
which office is, at the date as of which this Indenture is dated, located at
Wells Fargo Bank, N.A., Corporate Trust Services, 608 2nd Avenue South, MAC N9303-120, Minneapolis,
MN  55479, Attention: Isis Pharmaceuticals
Account Manager or at any other time at such other address as the Trustee may
designate from time to time by notice to the Company.
  “Current Market Price” has the meaning specified in
Section 10.05(g)(i).
  “Custodian” has the meaning specified in Section 6.01.
  “Daily Conversion Value” has the meaning specified in
Section 10.12.
  “Default” means any event which is, or after notice or
passage of time or both would be, an Event of Default.
  “Depositary” means the clearing agency registered
under the Exchange Act that is designated to act as the Depositary for the
Global Notes.  DTC shall be the initial
Depositary, until a successor shall have been appointed and become such
pursuant to the applicable provisions of this Indenture, and thereafter, “Depositary”
shall mean or include such successor.
  “Designated Senior Indebtedness” means (i) the Bank
Indebtedness and (ii) the Company’s obligations under any other particular
Senior Indebtedness with respect to which the instrument creating or evidencing
the same or the assumption or Guarantee thereof (or related agreements or
documents to which the Company is a party) expressly provides that such Senior
Indebtedness shall be “designated Senior indebtedness” for the purposes of this
Indenture (provided that such instrument, agreement or other document may place
limitations and conditions on the right of such Senior Indebtedness to exercise
the rights of Designated Senior Indebtedness).
  “Determination Date” has the meaning specified in
Section 10.05(k).

 4
 

    “Distributed Assets” has the meaning specified in
Section 10.05(d).
  “Distribution Notice” has the meaning specified in
Section 10.01(c).
  “DTC” means The Depository Trust Company.
  “Effective Date” has the meaning specified in Section
10.04(b).
  “Event of Default” has the meaning specified in
Section 6.01.
  “Exchange Act” means the Securities Exchange Act of
1934, as amended.
  “Expiration Time” has the meaning specified in Section
10.05(f).
  “Fair Market Value” has the meaning specified in
Section 10.05(g)(ii).
  “Fiscal Quarter” means, with respect to the Company,
the fiscal quarter publicly disclosed by the Company.  The Company shall confirm the ending dates of
its fiscal quarters for the current fiscal year to the Trustee upon the Trustee’s
request.
  “Fundamental Change” means the occurrence of any of
the following after the original issuance of the Notes:
  (a)           the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any “person” acquires more than 50%
of the Company’s Capital Stock that is at the time entitled to vote by the
holder thereof in the election of the Board of Directors (or comparable body);
  (b)           the first day on
which a majority of the members of the Board of Directors are not Continuing
Directors;
  (c)           the adoption of a
plan relating to the liquidation or dissolution of the Company;
  (d)           the consolidation or
merger of the Company with or into any other Person, or the sale, lease,
transfer, conveyance or other disposition, in one or a series of related
transactions, of all or substantially all of the Company’s assets and those of
its subsidiaries taken as a whole to any “person” (as this term is used in
Section 13(d)(3) of the Exchange Act), other than:
  (i)            any
transaction:
  (A)          that does not result
in any reclassification, conversion, exchange or cancellation of outstanding
shares of the Company’s Capital Stock; and
  (B)           pursuant to which
the holders of 50% or more of the total voting power of all shares of the
Company’s Capital Stock entitled to vote generally in elections of directors of
the Company immediately prior to

 5
 

    such
transaction have the right to exercise, directly or indirectly, 50% or more of
the total voting power of all shares of the Company’s Capital Stock entitled to
vote generally in elections of directors of the continuing or surviving Person
immediately after giving effect to such transaction; or
  (ii)           any merger primarily for the purpose
of changing the Company’s jurisdiction of incorporation and resulting in a
reclassification, conversion or exchange of outstanding shares of Common Stock
solely into shares of common stock of the surviving entity; or
  (e)           the termination of
trading of the Common Stock, which will be deemed to have occurred if the
Common Stock or other common stock into which the
Notes are convertible is neither listed for trading on a United States national
securities exchange nor approved for listing on the Nasdaq Global Select Market
or the Nasdaq Global Market or any similar United States system of automated
dissemination of quotations of securities prices, and no American Depositary
Shares or similar instruments for such common stock are so listed or approved
for listing in the United States.
  However, a Fundamental Change will be deemed not to
have occurred if more than 90% of the consideration in the transaction or
transactions (other than cash payments for fractional shares and cash payments
made in respect of dissenters’ appraisal rights) which otherwise would
constitute a Fundamental Change under clauses (a) or (d) above consists of
shares of Common Stock, depositary receipts or other certificates representing
common equity interests traded or to be traded immediately following such
transaction on a U.S. national securities exchange or quoted on the Nasdaq Global
Select Market or the Nasdaq Global Market and, as a result of the transaction
or transactions, the Notes become convertible solely into such common stock,
depositary receipts or other certificates representing common equity interests
(and any rights attached thereto) and other Applicable Consideration.
  “Fundamental Change Repurchase Date” has the meaning
specified in Section 3.04(a).
  “GAAP” means generally accepted accounting principles
in the United States of America as in effect on the Closing Date, including
those set forth in (i) the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants,
(ii) statements and pronouncements of the Financial Accounting Standards Board,
(iii) such other statements by such other entity as approved by a significant
segment of the accounting profession, and (iv) the rules and regulations of the
SEC governing the inclusion of financial statements (including pro forma
financial statements) in periodic reports required to be filed pursuant to
Section 13 of the Exchange Act, including opinions and pronouncements in staff
accounting bulletins and similar written statements from the accounting staff
of the SEC.  All ratios and computations
based on GAAP contained in this Indenture shall be computed in conformity with
GAAP.
  “Global Notes” has the meaning specified in Section
2.02.
  “Guarantee” means any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any Indebtedness
of any other Person and any obligation, direct or

 6
 

    indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term “Guarantee” shall not
include endorsements for collection or deposit in the ordinary course of
business.  The term “Guarantee” used as a
verb has a corresponding meaning.  The
term “Guarantor” shall mean any Person Guaranteeing any obligation.
  “Incur” means create, issue, assume, Guarantee, incur,
or otherwise become liable for; provided, however, that any
Indebtedness or Capital Stock of a Person existing at the time such Person
becomes a Subsidiary (whether by merger, consolidation, acquisition or
otherwise) shall be deemed to be Incurred by such Person at the time it becomes
a Subsidiary.  The term “Incurrence” when
used as a noun shall have a correlative meaning.  The accretion of principal of a non-interest
bearing or other discount security shall not be deemed the Incurrence of
Indebtedness.
  “Indebtedness” means, means, with respect to any
Person, and without duplication:
  (i)            all indebtedness, obligations and
other liabilities (contingent or otherwise) of such Person for borrowed money
(including obligations in respect of overdrafts, foreign exchange contracts,
currency exchange agreements, interest rate protection agreements, and any
loans or advances from banks, whether or not evidenced by notes or similar
instruments) or evidenced by bonds, debentures, notes or similar instruments
(whether or not the recourse of the lender is to the whole of the assets of such
Person or to only a portion thereof), other than any account payable or other
accrued current liability or obligation incurred in the ordinary course of
business in connection with the obtaining of materials or services;
  (ii)           all reimbursement obligations and
other liabilities (contingent or otherwise) of such Person with respect to
letters of credit, bank guarantees or bankers’ acceptances;
  (iii)          all obligations and liabilities
(contingent or otherwise) in respect of leases of such Person required, in conformity
with GAAP, to be accounted for as capitalized lease obligations on the balance
sheet of such Person and all obligations and other liabilities (contingent or
otherwise) under any lease or related document (including a purchase agreement)
in connection with the lease of real property which provides that such Person
is contractually obligated to purchase or cause a third party to purchase the
leased property and thereby guarantee a minimum residual value of the leased
property to the lessor and the obligations of such Person under such lease or
related document to purchase or to cause a third party to purchase such leased
property;
  (iv)          all obligations of such Person
(contingent or otherwise) with respect to an interest rate or other swap, cap
or collar agreement or other similar instrument or

 7
 

    agreement or foreign
currency hedge, exchange, purchase or similar instrument or agreement;
  (v)           all direct or indirect guaranties or
similar agreements by such Person in respect of, and obligations or liabilities
(contingent or otherwise) of such Person to purchase or otherwise acquire or
otherwise assure a creditor against loss in respect of, indebtedness,
obligations or liabilities of another person of the kind described in clauses
(i) through (iv);
  (vi)          any indebtedness or other obligations
described in clauses (i) through (v) secured by any mortgage, pledge, lien or
other encumbrance existing on property which is owned or held by such Person,
regardless of whether the indebtedness or other obligation secured thereby
shall have been assumed by such Person; and
  (vi)          any and all deferrals, renewals,
extensions and refundings of, or amendments, modifications or supplements to,
any indebtedness, obligation or liability of the kind described in clauses (i)
through (vi).
  “Indenture” means this Indenture as amended or
supplemented from time to time.
  “Initial Notes” has the meaning specified in Section
2.01.
  “Initial Purchasers” means Lehman Brothers Inc., Cowen
and Company LLC, Needham & Company, LLC and Leerink Swann & Co., Inc.
(each, an “Initial Purchaser”).
  “interest” means, when used with reference to the
Notes, any interest payable under the terms of the Notes, including defaulted
interest, Special Interest, if any, and Additional Interest, if any, payable
under the terms of the Registration Rights Agreement.
  “Legal Holiday” has the meaning specified in Section
13.08.
  “Market Disruption Event” means the occurrence or
existence during the one-half hour period ending on the scheduled close of
trading on any Trading Day for the Common Stock of any material suspension or
limitation imposed on trading (by reason of movements in price exceeding limits
permitted by the stock exchange or otherwise) in the Common Stock or in any
options, contracts or future contracts relating to the Common Stock.
  “Maturity Date” means February 15, 2027.
  “Non-Payment Default” has the meaning specified in
Section 12.03.
  “Non-Stock Change of Control” means a transaction
described under clause (a) or clause (d) in the definition of Fundamental Change
pursuant to which 10% or more of the consideration for Common Stock (other than
cash payments for fractional shares, if applicable, and cash payments made in
respect of dissenters’ appraisal rights) in such transaction consists of cash
or securities (or other property) that are not shares of Common Stock,
depositary receipts or other certificates representing common equity interests
traded or scheduled to be traded immediately

 8
 

    following such transaction on a U.S. national
securities exchange or quoted on the Nasdaq Global Select Market or the Nasdaq
Global Market.
  “Notes” means any Notes issued, authenticated and
delivered under this Indenture, including the Initial Notes and any Global
Notes, and where applicable, the Additional Notes.
  “Noteholder” or “Holder” means the Person in whose
name a Note is registered on the Registrar’s books.
  “Officer” means the Chairman of the Board, the Chief
Executive Officer, the Chief Financial Officer, the President, any Vice
President, the Treasurer or the Secretary of the Company.
  “Officer’s Certificate” means a certificate signed by
any Officer.
  “Opinion of Counsel” means a written opinion, subject
to customary assumptions and exceptions, from legal counsel who is reasonably
acceptable to the Trustee.  The counsel
may be an employee of or counsel to the Company or the Trustee.
  “Paying Agent” has the meaning specified in Section
2.05.
  “Payment Blockage Notice” has the meaning specified in
Section 12.03.
  “Payment Blockage Period” has the meaning specified in
Section 12.03.
  “Payment Default” has the meaning specified in Section
12.03.
  “Person” means any individual, corporation,
partnership, limited liability company, joint venture, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
  “PORTAL Market” means The PORTAL Market operated by
the Nasdaq Stock Market or any successor thereto.
  “Preferred Stock”, as applied to the Capital Stock of
any Person, means Capital Stock of any class or classes (however designated)
that is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
  “Principal” of a Note means the principal of the Note
plus the premium, if any, payable on the Note that is due or overdue or is to
become due at the relevant time.
  “protected purchaser” has the meaning specified in
Section 2.09.
  “Public Acquirer Change of Control” means a Non-Stock
Change of Control in which the acquirer has a class of common stock traded on a
U.S. national securities exchange or listed on the Nasdaq Global Select Market
or the Nasdaq Global Market or that shall be so traded or quoted when issued or
exchanged in connection with such Non-Stock Change of Control (the

 9
 

    “Public Acquirer Common
Stock”).  If an acquirer does
not itself have a class of common stock satisfying the foregoing requirement,
it shall be deemed to have Public Acquirer Common Stock if a corporation that
directly or indirectly owns at least a majority of the acquirer has a class of
common stock satisfying the foregoing requirement, provided that such
majority-owning corporation fully and unconditionally guarantees the Notes, in
which case all references to Public Acquirer Common Stock shall refer to such
class of common stock.  “Majority-owned”
for these purposes means having “beneficial ownership” (as defined in Rule
13d-3 under the Exchange Act) of more than 50% of the total voting power of all
shares of the respective entity’s capital stock that are entitled to vote
generally in the election of directors.
  “Public Acquirer Common Stock” has the meaning
specified in the definition of Public Acquirer Change of Control.
  “Purchase Agreement” means the Purchase Agreement,
dated January 23, 2007, between the Company and Lehman Brothers Inc., as
representative of the Initial Purchasers, relating to the offering and sale of
the Notes.
  “Purchased Shares” has the meaning specified in
Section 10.05(f).
   “Record Date”
means, with respect to any interest payment date of the Notes, the February 1
and August 1 preceding the applicable February 15 and August 15 interest
payment date, respectively.  The “record
date,” with respect to the Conversion Rate adjustment as provided in Section
10.05, has the meaning specified in Section 10.05(g)(iii).
  “Reference Period” has the meaning specified in
Section 10.05(d).
  “Register” has the meaning specified in Section 2.05.
  “Registrar” has the meaning specified in Section 2.05.
  “Registration Rights Agreement” means the Registration
Rights Agreement, dated as of January 23, 2007, by and between the Company and
Lehman Brothers Inc., as representative of the Initial Purchasers, as amended
from time to time in accordance with its terms.
  “Representative” means Silicon Valley Bank with
respect to the Bank Indebtedness and with respect to other Senior Indebtedness
means the trustee, agent or representative (if any) for such issue of Senior
Indebtedness of the Company.
  “Repurchase Date” has the meaning specified in Section
3.05(a).
  “Repurchase Notice” has the meaning specified in
Section 3.04(c).
  “Restricted Securities” has the meaning specified in
Section 2.08(c).
  “Rule 144A” means Rule 144A as promulgated under the
Securities Act as it may be amended from time to time hereafter.
  “SEC” means the Securities and Exchange Commission.

 10
 

    “Securities Act” means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, as in effect from
time to time.
  “Senior Indebtedness” means the principal of, premium,
if any, interest in and accrued and unpaid interest (including all interest
accruing subsequent to the commencement of any bankruptcy or similar
proceeding, whether or not a claim for post-petition interest is allowable as a
claim in any such proceeding), and rent payable on or in connection with, and
all fees, costs, expenses and other amounts accrued or due on in connection
with Indebtedness, whether outstanding on the Closing Date or thereafter
Incurred (including all deferrals, renewals, extensions or refundings of, or
amendments, modifications or supplements to, the foregoing), unless in the case
of any particular Indebtedness the instrument creating or evidencing the same
or the assumption or Guarantee thereof expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes or expressly
provides that such Indebtedness is pari passu or
junior to the Notes.  Notwithstanding the
foregoing, the term Senior Indebtedness shall not include the Company’s 5 1¤2%
Convertible Subordinated Notes due 2009, or Indebtedness of the Company to any
Subsidiary of the Company.
  “Significant Subsidiary” means any Subsidiary that
would be a “Significant Subsidiary” of the Company within the meaning of Rule
1-02(w) under Regulation S-X promulgated by the SEC.
  “Spin-Off” has the meaning specified in Section
10.05(d).
  “Spin-off Valuation Period” has the meaning specified
in Section 10.05(d).
  “Stock Price” has the meaning specified in Section
10.04(b).
  “Stated Maturity” means, with respect to any security,
the date specified in such security as the fixed date on which the final
payment of principal of such security is due and payable, including pursuant to
any mandatory redemption provision (but excluding any provision providing for
the repurchase of such security at the option of the holder thereof upon the
happening of any contingency beyond the control of the issuer unless such
contingency has occurred).
  “Subsidiary” of any Person means any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any contingency)
to vote in the election of directors, managers or trustees thereof is at the
time owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
  “TIA” or “Trust Indenture Act” means the Trust
Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb), as amended, as in
effect on the date of this Indenture.
  “Trading Day” has the meaning specified in Section
10.05(g)(iv).
  “Trading Price” means, with respect to a Note on any
date of determination, the average of the secondary market bid quotations per
$1,000 principal amount of Notes obtained by the

 11
 

    Trustee for $5,000,000 principal amount of Notes at
approximately 3:30 p.m., New York City time, on such determination date from
two independent nationally recognized securities dealers selected by the
Company, which may include one or more of the Initial Purchasers; provided that
if two such bids cannot reasonably be obtained by the Trustee, but one such bid
can be reasonably obtained by the Trustee, then this one bid shall be used; and
provided  further that, if the Trustee cannot reasonably obtain at
least one bid for $5,000,000 principal amount of Notes from a nationally
recognized securities dealer, or, in the Company’s reasonable judgment, the bid
quotations are not indicative of the secondary market value of the Notes, then,
for the purpose of determining the Trading Price condition only, the Trading
Price per $1,000 principal amount of Notes shall be deemed to be less than 98%
of the product of (a) the Conversion Rate on such determination date and (b)
the Closing Sale Price of a share of Common Stock on such determination date.
  “Trigger Event” has the meaning specified in Section
10.05(d).
  “Trust Officer” means any officer within the Corporate
Trust Office of the Trustee with direct responsibility for the administration
of this Indenture.
  “Trustee” means the party named as such in this
Indenture until a successor replaces it and, thereafter, means the successor.
  “Uniform Commercial Code” means the New York Uniform
Commercial Code as in effect from time to time.
  “Wholly Owned Significant Subsidiary” means a Wholly
Owned Subsidiary that is also a Significant Subsidiary.
  “Wholly Owned Subsidiary” means a Subsidiary of the
Company, all the Capital Stock of which (other than directors’ qualifying
shares) is owned by the Company or another Wholly Owned Subsidiary.
  SECTION 1.02.  Incorporation
by Reference of Trust Indenture Act. 
This Indenture is subject to the mandatory provisions of the TIA, which
are incorporated by reference in and made a part of this Indenture.  The following TIA terms have the following
meanings:
  “Commission”
means the SEC.
  “indenture securities”
means the Notes.
  “indenture security holder”
means a Noteholder.
  “indenture to be qualified”
means this Indenture.
  “indenture trustee”
or “institutional trustee” means the
Trustee.
  “obligor” on the
indenture securities means the Company and any other obligor on the indenture
securities.

 12
 

    All other TIA terms used in this Indenture that are
defined by the TIA, defined by TIA reference to another statute or defined by
SEC rule have the meanings assigned to them by such definitions.
  SECTION 1.03.  Rules
of Construction.  Unless the context
otherwise requires:
  (1)           a term has the meaning assigned to
it;
  (2)           an accounting term not otherwise
defined has the meaning assigned to it in accordance with GAAP;
  (3)           “or” is not exclusive;
  (4)           “including” means including without
limitation;
  (5)           words in the singular include the
plural and words in the plural include the singular;
  (6)           unsecured Indebtedness shall not be
deemed to be subordinate or junior to Secured Indebtedness merely by virtue of
its nature as unsecured Indebtedness;
  (7)           the principal amount of any
noninterest bearing or other discount security at any date shall be the
principal amount thereof that would be shown on a balance sheet of the issuer
dated such date prepared in accordance with GAAP; and
  (8)           the principal amount of any Preferred
Stock shall be (i) the maximum liquidation value of such Preferred Stock or
(ii) the maximum mandatory redemption or mandatory repurchase price with
respect to such Preferred Stock, whichever is greater.
  ARTICLE 2
  THE NOTES
  SECTION 2.01.  Designation,
Amount and Issuance of Notes.  The
Notes shall be designated as “25¤8 % Convertible
Subordinated Notes due 2027.”  The Notes
initially will not exceed the aggregate principal amount of $125,000,000 (up to
$162,500,000 if the Initial Purchasers’ option to purchase additional Notes set
forth in the Purchase Agreement is exercised) (except to the extent provided
otherwise hereunder) (the “Initial Notes”).
  The Company may, without consent of the Noteholders,
increase the principal amount of the Notes by issuing additional Notes (“Additional Notes”) in the future on the same terms and
conditions, except for any differences in the issue price and interest accrued
prior to the issue date of the Additional Notes; provided that such differences
do not cause the Additional Notes to constitute a different class of securities
than the Initial Notes for U.S. federal income tax purposes; provided further,
that the Additional Notes have the same CUSIP or ISIN number as the Initial
Notes.  The Initial Notes and the
Additional Notes will rank equally and ratably and would be treated as a single
class of securities for all purposes under this Indenture.  No

 13
 

    Additional Notes may be issued if any Event of Default
has occurred and is continuing with respect to the Notes.
  Upon the execution of this Indenture, or from time to
time thereafter, Notes may be executed by the Company and delivered to the
Trustee for authentication, and the Trustee shall thereupon authenticate and
deliver Notes upon a written order of the Company, such order signed by an
Officer or by any Assistant Treasurer of the Company or any Assistant Secretary
of the Company, without any further action by the Company hereunder.
  SECTION 2.02.  Form
of the Notes.  The Notes and the
Trustee’s certificate of authentication to be borne by such Notes shall be
substantially in the form set forth in Exhibit A hereto.  The terms and provisions contained in the
form of Notes attached as Exhibit A hereto shall constitute, and are
hereby expressly made, a part of this Indenture and, to the extent applicable,
the Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
  Any of the Notes may have such letters, numbers or
other marks of identification and such notations, legends, endorsements or
changes as the officers executing the same may approve (execution thereof to be
conclusive evidence of such approval) and as are not inconsistent with the
provisions of this Indenture, or as may be required by the custodian for the
Global Notes, the Depositary or by the National Association of Securities
Dealers, Inc. in order for the Notes to be tradable on The PORTAL Market or as
may be required for the Notes to be tradable on any other market developed for
trading of securities pursuant to Rule 144A or as may be required to comply
with any applicable law or with any rule or regulation made pursuant thereto or
with any rule or regulation of any securities exchange or automated quotation
system on which the Notes may be listed, or to conform to usage, or to indicate
any special limitations or restrictions to which any particular Notes are
subject.
  So long as the Notes are eligible for book-entry
settlement with the Depositary, or unless otherwise required by law, or otherwise
contemplated by Section 2.08(b), all of the Notes will be represented by one or
more Notes in global form registered in the name of the Depositary or the
nominee of the Depositary (“Global Notes”).  The transfer and exchange of beneficial
interests in any such Global Notes shall be effected through the Depositary in
accordance with this Indenture and the applicable procedures of the
Depositary.  Except as provided in
Section 2.08(b), beneficial owners of a Global Note shall not be entitled to
have certificates registered in their names, will not receive or be entitled to
receive physical delivery of certificates in definitive form and will not be
considered holders of such Global Note.
  Any Global Notes shall represent such of the
outstanding Notes as shall be specified therein and shall provide that it shall
represent the aggregate amount of outstanding Notes from time to time endorsed
thereon and that the aggregate amount of outstanding Notes represented thereby
may from time to time be increased or reduced to reflect redemptions,
repurchases, conversions, transfers or exchanges permitted hereby.  Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the amount of outstanding Notes
represented thereby shall be made by the Trustee or the custodian for the
Global Note, at the direction of the Trustee, in such manner and upon
instructions given by the holder of such Notes in accordance

 14
 

    with this Indenture. 
Payment of principal of, interest on and premium, if any, on any Global
Notes shall be made to the Depositary in immediately available funds.
  SECTION 2.03.  Date
and Denomination of Notes; Payment at Maturity; Payment of Interest.  The Notes shall be issuable in fully
registered form without interest coupons in denominations of $1,000 principal
amount and integral multiples thereof. 
Each Note shall be dated the date of its authentication and shall bear
interest from the date specified on the face of the form of Notes attached as Exhibit
A hereto.  Interest on the Notes shall
be computed on the basis of a 360-day year comprised of twelve 30-day months.
  On the Maturity Date, each holder shall be entitled to
receive on such date $1,000 principal amount per Notes and accrued and unpaid
interest to, but not including, the Maturity Date.  With respect to Global Notes, principal and
interest will be paid to the Depositary in immediately available funds.  With respect to any certificated Notes,
principal and interest will be payable at the Company’s office or agency, which
initially will be the office or agency of the Trustee located at Wells Fargo
Bank, N.A., Corporate Trust Services, 608 2nd Avenue South, MAC N9303-120, Minneapolis,
MN  55479, Attention:
Isis Pharmaceuticals Account Manager.
  The Person in whose name any Note is registered on the
Register at 5:00 p.m., New York City time, on any Record Date with respect to
any interest payment date shall be entitled to receive the interest payable on
such interest payment date, except that the interest payable upon maturity,
redemption or repurchase following a Fundamental Change will be payable to the
Person to whom principal is payable upon maturity or pursuant to such
redemption or repurchase following a Fundamental Change (unless the redemption
date or the Fundamental Change Repurchase Date, as the case may be, is after a
Record Date and on or prior to the corresponding interest payment date, in
which case the semi-annual payment of interest becoming due on such interest
payment date shall be payable to the holder of such Notes registered as such on
the applicable Record Date). 
Notwithstanding the foregoing, any Notes or portion thereof surrendered
for conversion during the period from 5:00 p.m., New York City time, on the
Record Date for any interest payment date to 5:00 p.m., New York City time, on
the Business Day preceding the applicable interest payment date shall be
accompanied by payment, in immediately available funds or other funds
acceptable to the Company, of an amount equal to the interest otherwise payable
on such interest payment date on the principal amount being converted
(excluding any Additional Interest); provided that no such payment need
be made (1) if a holder converts its Notes in connection with a redemption and
the Company has specified a redemption date that is after a Record Date and on
or prior to the next interest payment date, (2) if a holder converts its Notes
in connection with a Fundamental Change and the Company has specified a
Fundamental Change Repurchase Date that is after a Record Date and on or prior
to the next interest payment date or (3) to the extent of any overdue interest
(including Additional Interest), if any exists at the time of conversion with
respect to such Notes.
  The Company shall pay interest (i) on any Global Notes
by wire transfer of immediately available funds to the account of the
Depositary or its nominee, (ii) on any Notes in certificated form having a
principal amount of less than $2,000,000, by check mailed to the address of the
Person entitled thereto as it appears in the Register, provided, however, that at maturity interest will be
payable at the office of the Company maintained by the Company for such
purposes, which shall initially be an office or agency of the Trustee and (iii)
on any Notes in certificated

 15

form having a principal amount of $2,000,000 or more,
by wire transfer in immediately available funds at the election of the Holder
of such Notes duly delivered to the Trustee at least five Business Days prior
to the relevant interest payment date, provided, however, that at
maturity interest will be payable at the office of the Company maintained by
the Company for such purposes, which shall initially be an office or agency of
the Trustee.  If a payment date is not a
Business Day, payment shall be made on the next succeeding Business Day, and no
additional interest shall accrue thereon.

Any interest on any Notes which is payable, but is not
punctually paid or duly provided for, on any February 15 or August 15
shall be subject to Section 2.13.

SECTION 2.04.  Execution
and Authentication.  An Officer shall
sign the Notes for the Company by manual or facsimile signature.

If an Officer whose signature is on a Note no longer
holds that office at the time the Trustee authenticates the Note, the Note
shall be valid nevertheless.

A Note shall not be valid until an authorized
signatory of the Trustee manually signs the certificate of authentication on
the Note.  The signature shall be
conclusive evidence that the Note has been authenticated under this Indenture.

The Trustee shall authenticate and make available for
delivery Notes as set forth in Exhibit A.

The Trustee may appoint an authenticating agent
reasonably acceptable to the Company to authenticate the Notes.  Any such appointment shall be evidenced by an
instrument signed by a Trust Officer, a copy of which shall be furnished to the
Company.  Unless limited by the terms of
such appointment, an authenticating agent may authenticate Notes whenever the
Trustee may do so.  Each reference in
this Indenture to authentication by the Trustee includes authentication by such
agent.  An authenticating agent has the
same rights as any Registrar, Paying Agent or agent for service of notices and
demands.

SECTION 2.05.  Registrar
and Paying Agent.  The Company shall
maintain an office or agency where Notes may be presented for registration of
transfer or for exchange (the “Registrar”)
and an office or agency where Notes may be presented for payment (the “Paying Agent”).  The Corporate Trust Office shall be
considered as one such office or agency of the Company for each of the
aforesaid purposes.  The Registrar shall
keep a register of the Notes (the “Register”)
and of their transfer and exchange.  The
Company may have one or more co-registrars and one or more additional paying agents.  The term “Paying Agent” includes any
additional paying agent, and the term “Registrar” includes any
co-registrars.  The Company initially
appoints the Trustee as (i) Registrar and Paying Agent in connection with the
Notes, (ii) the custodian with respect to the Global Notes and (iii) conversion
agent.

The Company shall enter into an appropriate agency
agreement with any Registrar or Paying Agent not a party to this Indenture,
which shall incorporate the terms of the TIA. 
The agreement shall implement the provisions of this Indenture that
relate to such agent.  The Company shall
notify the Trustee of the name and address of any such agent.  If the Company fails to maintain a Registrar
or Paying Agent, the Trustee shall act as such and shall be entitled to

 16
 

appropriate compensation therefor pursuant to Section
7.07.  The Company or any of its
domestically organized Wholly Owned Subsidiaries may act as Paying Agent or
Registrar.

The Company may remove any Registrar or Paying Agent
upon written notice to such Registrar or Paying Agent and to the Trustee; provided,
however, that no such removal shall become effective until (1)
acceptance of an appointment by a successor as evidenced by an appropriate
agreement entered into by the Company and such successor Registrar or Paying
Agent, as the case may be, and delivered to the Trustee or (2) notification to
the Trustee that the Trustee shall serve as Registrar or Paying Agent until the
appointment of a successor in accordance with clause (1) above.  The Registrar or Paying Agent may resign at
any time upon written notice; provided, however, that the Trustee
may resign as Paying Agent or Registrar only if the Trustee also resigns as
Trustee in accordance with Section 7.08.

SECTION 2.06.  Paying
Agent to Hold Money in Trust.  On or
prior to each due date of the Principal and interest on any Note, the Company
shall deposit with the Paying Agent (or if the Company or a Subsidiary is
acting as Paying Agent, segregate and hold in trust for the benefit of the
Persons entitled thereto) a sum sufficient to pay such Principal and interest
when so becoming due.  The Company shall
require each Paying Agent (other than the Trustee) to agree in writing that the
Paying Agent shall hold in trust for the benefit of Noteholders or the Trustee
all money held by the Paying Agent for the payment of Principal of or interest
on the Notes and shall notify the Trustee of any default by the Company in
making any such payment.  If the Company
or a Subsidiary of the Company acts as Paying Agent, it shall segregate the
money held by it as Paying Agent and hold it as a separate trust fund.  The Company at any time may require a Paying
Agent to pay all money held by it to the Trustee and to account for any funds
disbursed by the Paying Agent.  Upon
complying with this Section, the Paying Agent shall have no further liability
for the money delivered to the Trustee.

SECTION 2.07.  Noteholder
Lists.  The Trustee shall preserve in
as current a form as is reasonably practicable the most recent list available
to it of the names and addresses of Noteholders.  If the Trustee is not the Registrar, the
Company shall furnish, or cause the Registrar to furnish, to the Trustee, in
writing at least five Business Days before each interest payment date and at
such other times as the Trustee may request in writing, a list in such form and
as of such date as the Trustee may reasonably require of the names and
addresses of Noteholders.

SECTION 2.08.  Exchange
and Registration of Transfer of Notes; Restrictions on Transfer. (a) The
Company shall cause to be kept at the Corporate Trust Office the Register in
which, subject to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of Notes and of transfers of Notes.  The Register shall be in written form or in
any form capable of being converted into written form within a reasonably
prompt period of time.

Upon surrender for registration of transfer of any
Notes to the Registrar or any co-registrar, and satisfaction of the requirements
for such transfer set forth in this Section 2.08, the Company shall execute,
and the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Notes of any authorized
denominations 

 17
 

and of a like aggregate principal amount and bearing
such restrictive legends as may be required by this Indenture.

Notes may be exchanged for other Notes of any
authorized denominations and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at any such office or agency maintained
by the Company pursuant to Section 4.02. 
Whenever any Notes are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the Notes that the
holder making the exchange is entitled to receive bearing registration numbers
not contemporaneously outstanding.

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

All Notes presented or surrendered for registration of
transfer or for exchange, redemption, repurchase or conversion shall (if so
required by the Company or the Registrar) be duly endorsed, or be accompanied
by a written instrument or instruments of transfer in form satisfactory to the
Company, and the Notes shall be duly executed by the holder thereof or his
attorney duly authorized in writing.

No service charge shall be made to any holder for any
registration of, transfer or exchange of Notes, but the Company or the Trustee
may require payment by the holder of a sum sufficient to cover any tax,
assessment or other governmental charge that may be imposed in connection with
any registration of transfer or exchange of Notes.

Neither the Company nor the Trustee nor any Registrar
shall be required to exchange, issue or register a transfer of (a) any Notes
for a period of fifteen calendar days next preceding date of mailing of a
notice of redemption, (b) any Notes or portions thereof called for redemption
pursuant to Section 3.02, except for the unredeemed portion of any Notes being
redeemed in part, (c) any Notes or portions thereof surrendered for conversion
pursuant to Article 10, (d) any Notes or portions thereof tendered for
repurchase (and not withdrawn) pursuant to Section 3.04 or (e) any Notes or
portions thereof tendered for repurchase (and not withdrawn) pursuant to
Section 3.05.

(b)                                 The following provisions
shall apply only to Global Notes:

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

(ii)                                  Notwithstanding
any other provision in this Indenture, no Global Notes may be exchanged in
whole or in part for Notes registered, and no transfer of a Global Note in
whole or in part may be registered, in the name of any Person other than the
Depositary or a nominee thereof unless (A) the Depositary (x) has notified the
Company that it is unwilling or unable to continue as Depositary for such
Global Note or (y) has ceased to be a clearing agency registered under the
Exchange Act, and a successor depositary has not been appointed by the Company
within 90 calendar days, or (B) the

 18
 

Company, in
its sole discretion, notifies the Trustee in writing that it no longer wishes
to have all the Notes represented by Global Notes.  Any Global Notes exchanged pursuant to this
Section 2.08(b)(ii) shall be so exchanged in whole and not in part.

(iii)                               In
addition, certificated Notes will be issued in exchange for beneficial
interests in a Global Note upon request by or on behalf of the Depositary in
accordance with customary procedures following the request of a beneficial
owner seeking to enforce its rights under the Notes or this Indenture,
including its rights following the occurrence of an Event of Default.

(iv)                              Notes
issued in exchange for a Global Note or any portion thereof pursuant to clause
(ii) or (iii) above shall be issued in definitive, fully registered form,
without interest coupons, shall have an aggregate principal amount equal to
that of such Global Notes or portion thereof to be so exchanged, shall be
registered in such names and be in such authorized denominations as the
Depositary shall designate and shall bear any legends required hereunder.  Any Global Notes to be exchanged shall be
surrendered by the Depositary to the Trustee, as Registrar, provided
that pending completion of the exchange of a Global Note, the Trustee acting as
custodian for the Global Notes for the Depositary or its nominee with respect
to such Global Notes, shall reduce the principal amount thereof, by an amount
equal to the portion thereof to be so exchanged, by means of an appropriate
adjustment made on the records of the Trustee. 
Upon any such surrender or adjustment, the Trustee shall authenticate
and make available for delivery the Notes issuable on such exchange to or upon
the written order of the Depositary or an authorized representative thereof.

(v)                                 In
the event of the occurrence of any of the events specified in clause (ii) above
or upon any request described in clause (iii) above, the Company will promptly
make available to the Trustee a sufficient supply of certificated Notes in
definitive, fully registered form, without interest coupons.

(vi)                              Neither
any members of, or participants in, the Depositary (“Agent
Members”) nor any other Persons on whose behalf Agent Members may
act shall have any rights under this Indenture with respect to any Global Notes
registered in the name of the Depositary or any nominee thereof, and the
Depositary or such nominee, as the case may be, may be treated by the Company,
the Trustee and any agent of the Company or the Trustee as the absolute owner
and holder of such Global Notes for all purposes whatsoever.  Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or such nominee, as the case may be,
or impair, as between the Depositary, its Agent Members and any other Person on
whose behalf an Agent Member may act, the operation of customary practices of
such Persons governing the exercise of the rights of a holder of any Notes.

(vii)                           At such
time as all interests in a Global Note have been redeemed, repurchased,
converted, cancelled or exchanged for Notes in certificated form, such Global
Note shall, upon receipt thereof, be canceled by the Trustee in accordance with
standing procedures and instructions existing between the Depositary and the
custodian 

 19
 

for the Global
Note.  At any time prior to such
cancellation, if any interest in a Global Note is redeemed, repurchased,
converted, cancelled or exchanged for Notes in certificated form, the principal
amount of such Global Note shall, in accordance with the standing procedures
and instructions existing between the Depositary and the custodian for the
Global Note, be appropriately reduced, and an endorsement shall be made on such
Global Note, by the Trustee or the custodian for the Global Note, at the
direction of the Trustee, to reflect such reduction.

(c)                                  Every Note (and all
securities issued in exchange therefor or in substitution thereof) that bears
or is required under this Section 2.08(c) to bear the legend set forth in this
Section 2.08(c) (together with any Common Stock issued upon conversion of the
Notes and required to bear the legend set forth in Exhibit B, collectively, the
“Restricted Securities”) shall be
subject to the restrictions on transfer set forth in this Section 2.08(c)
(including those set forth in the legend below and the legend set forth in
Exhibit B) unless such restrictions on transfer shall be waived by written
consent of the Company following receipt of legal advice supporting the
permissibility of the waiver of such transfer restrictions, and the holder of
each such Restricted Security, by such holder’s acceptance thereof, agrees to
be bound by all such restrictions on transfer. 
As used in this Section 2.08(c), the term “transfer” means any sale, pledge, loan, transfer or other
disposition whatsoever of any Restricted Security or any interest therein.

Until the expiration of the holding period applicable
to sales of Restricted Securities under Rule 144(k) under the Securities Act
(or any successor provision), any certificate evidencing a Restricted Security
shall bear a legend in substantially the following form (or as set forth in
Exhibit B, in the case of Common Stock issued upon conversion of the Notes),
unless such Restricted Security has been sold pursuant to a registration
statement that has been declared effective under the Securities Act (and which
continues to be effective at the time of such transfer) or sold pursuant to
Rule 144 under the Securities Act or any similar provision then in force, or
unless otherwise agreed by the Company in writing as set forth above, with
written notice thereof to the Trustee:

THE SECURITY EVIDENCED BY THIS CERTIFICATE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT OF 1933”), OR ANY STATE SECURITIES LAWS, AND
MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE.  BY ACQUISITION HEREOF OR OF A BENEFICIAL
INTEREST HEREIN, THE HOLDER AGREES (1) THAT IT WILL NOT PRIOR TO THE DATE TWO
YEARS AFTER THE LAST DATE OF ORIGINAL ISSUANCE OF THE 25⁄8 % CONVERTIBLE
SUBORDINATED NOTES DUE 2027 OF ISIS PHARMACEUTICALS, INC. (THE “COMPANY”) RESELL OR OTHERWISE TRANSFER THE SECURITY
EVIDENCED HEREBY OR THE COMMON STOCK THAT MAY BE ISSUABLE UPON CONVERSION OF
SUCH SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A
PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT OF 1933, (C) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT OF 1933
AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER, OR (D)
PURSUANT TO THE EXEMPTION FROM

 20
 

REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT OF
1933 PROVIDED BY RULE 144, IF AVAILABLE, SUBJECT TO THE COMPANY’S AND THE
TRUSTEE’S RIGHT PRIOR TO ANY SUCH TRANSFER, TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO THE
COMPANY AND THE TRUSTEE; AND (2) THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THE SECURITY EVIDENCED HEREBY IS TRANSFERRED PURSUANT TO CLAUSE 1(B) ABOVE A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.

In connection with any transfer of the Notes prior to
the date two years after the last date of original issuance of the Notes (other
than a transfer pursuant to clause 1(C) above), the holder must complete and
deliver the transfer certificate contained in this Indenture to the Trustee (or
any successor Trustee, as applicable). 
If the proposed transfer is pursuant to clause 1(D) above, the holder
must, prior to such transfer, furnish to the Trustee (or any successor Trustee,
as applicable), such certifications, legal opinions or other information as the
Company may reasonably require to confirm that such transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act.  The legend set forth above will be removed
upon the earlier of the transfer of the security evidenced thereby pursuant to
clause 1(C) or 1(D) above or the expiration of two years from the last date of
original issuance of the security evidenced thereby.

Any Notes that are Restricted Securities and as to
which such restrictions on transfer shall have expired in accordance with their
terms or as to conditions for removal of the foregoing legend set forth therein
have been satisfied may, upon surrender of such Notes for exchange to the
Registrar in accordance with the provisions of this Section 2.08, be exchanged
for a new Note or Notes, of like tenor and aggregate principal amount, which
shall not bear the restrictive legend required by this Section 2.08(c).  If such Restricted Security surrendered for
exchange is represented by a Global Note bearing the legend set forth in this
Section 2.08(c), the Principal amount of the legended Global Notes shall be
reduced by the appropriate principal amount and the principal amount of a
Global Note without the legend set forth in this Section 2.08(c) shall be
increased by an equal principal amount. 
If a Global Note without the legend set forth in this Section 2.08(c) is
not then outstanding, the Company shall execute and the Trustee shall
authenticate and deliver an unlegended Global Note to the Depositary.

(d)                                 Any Restricted
Securities, prior to the expiration of the holding period applicable to sales
thereof under Rule 144(k) under the Securities Act (or any successor
provision), purchased or owned by the Company or any Affiliate thereof may not
be resold by the Company or such Affiliate unless registered under the
Securities Act or resold pursuant to an exemption from the registration
requirements of the Securities Act in a transaction which results in such Notes
or Common Stock, as the case may be, no longer being “restricted securities” (as defined under
Rule 144).

(e)                                  The Trustee shall
have no responsibility or obligation to any Agent Members or any other Person
with respect to the accuracy of the books or records, or the acts or omissions,
of the Depositary or its nominee or of any participant or member thereof, with
respect to any ownership interest in the Notes or with respect to the delivery
to any Agent Member or other Person (other than the Depositary) of any notice
(including any notice of redemption) or

 21
 

the payment of any amount, under or with respect to such Notes.  All notices and communications to be given to
the Noteholders and all payments to be made to Noteholders under the Notes
shall be given or made only to or upon the order of the registered Noteholders
(which shall be the Depositary or its nominee in the case of a Global
Note).  The rights of beneficial owners
in any Global Notes shall be exercised only through the Depositary subject to
the customary procedures of the Depositary. 
The Trustee may rely and shall be fully protected in relying upon
information furnished by the Depositary with respect to its Agent Members.

The Trustee shall have no obligation or duty to
monitor, determine or inquire as to compliance with any restrictions on
transfer imposed under this Indenture or under applicable law with respect to
any transfer of any interest in any Notes (including any transfers between or
among Agent Members) other than to require delivery of such certificates and
other documentation or evidence as are expressly required by, and to do so if and
when expressly required by, the terms of this Indenture, and to examine the
same to determine substantial compliance as to form with the express
requirements hereof.

SECTION 2.09.  Replacement
Notes.  If a mutilated Note is
surrendered to the Registrar or if the Noteholder of a Note claims that the
Note has been lost, destroyed or wrongfully taken, the Company shall issue and
the Trustee shall authenticate a replacement Note if the requirements of
Section 8-405 of the Uniform Commercial Code are met, such that the Noteholder
(i) satisfies the Company or the Trustee within a reasonable time after he has
notice of such loss, destruction or wrongful taking and the Registrar does not
register a transfer prior to receiving such notification, (ii) makes such request
to the Company or the Trustee prior to the Note being acquired by a protected
purchaser as defined in Section 8-303 of the Uniform Commercial Code (a “protected purchaser”) and (iii) satisfies
any other reasonable requirements of the Trustee.  If required by the Trustee or the Company,
such Noteholder shall furnish an indemnity bond sufficient in the judgment of
the Trustee to protect the Company, the Trustee, the Paying Agent and the
Registrar from any loss that any of them may suffer if a Note is replaced.  The Company and the Trustee may charge the
Noteholder for their expenses in replacing a Note.  In case any Note which has matured or is
about to mature or has been called for redemption or has been properly tendered
for repurchase on a Fundamental Change Repurchase Date (and not withdrawn) or
has been tendered for repurchase on a Repurchase Date (and not withdrawn), as
the case may be, or is to be converted into Common Stock, shall become
mutilated or be destroyed, lost or stolen, the Company may, instead of issuing
a substitute Note, pay or authorize the payment of or convert or authorize the
conversion of the same (without surrender thereof except in the case of a
mutilated Note), as the case may be, if the applicant for such payment or
conversion shall furnish to the Company, to the Trustee and, if applicable, to
such authenticating agent such security or indemnity as may be required by them
to save each of them harmless for any loss, liability, cost or expense caused
by or in connection with such substitution, and, in every case of destruction,
loss or theft, the applicant shall also furnish to the Company, the Trustee
and, if applicable, any Paying Agent or conversion agent evidence to their
satisfaction of the destruction, loss or theft of such Note and of the
ownership thereof.

Every replacement Note is an additional obligation of
the Company.

 22
 

The provisions of this Section 2.09 are exclusive and
shall preclude (to the extent lawful) all other rights and remedies with
respect to the replacement or payment of mutilated, lost, destroyed or
wrongfully taken Notes.

SECTION 2.10.  Outstanding
Notes.  Notes outstanding at any time
are all Notes authenticated by the Trustee except for those canceled by it,
those delivered to it for cancellation and those described in this Section as
not outstanding.  A Note does not cease
to be outstanding because the Company or an Affiliate of the Company holds the
Note.

If a Note is replaced pursuant to Section 2.09, it
ceases to be outstanding unless the Trustee and the Company receive proof
satisfactory to them that the replaced Note is held by a protected purchaser.

If the Paying Agent segregates and holds in trust, in
accordance with this Indenture, on a redemption date, Repurchase Date or
Maturity Date money sufficient to pay all principal and interest payable on
that date with respect to the Notes (or portions thereof) to be redeemed,
repurchased or maturing, as the case may be, and the Paying Agent is not
prohibited from paying such money to the Noteholders on that date pursuant to
the terms of this Indenture, then on and after that date such Notes (or
portions thereof) cease to be outstanding and interest on them ceases to
accrue.

SECTION 2.11.  Temporary
Notes.  Pending the preparation of
Notes in certificated form, the Company may execute and the Trustee or an
authenticating agent appointed by the Trustee shall, upon the written request
of the Company, authenticate and deliver temporary Notes (printed or
lithographed).  Temporary Notes shall be
issuable in any authorized denomination, and substantially in the form of the
Notes in certificated form, but with such omissions, insertions and variations
as may be appropriate for temporary Notes, all as may be determined by the
Company.  Every such temporary Note shall
be executed by the Company and authenticated by the Trustee or such
authenticating agent upon the same conditions and in substantially the same
manner, and with the same effect, as the Notes in certificated form.  Without unreasonable delay, the Company will
execute and deliver to the Trustee or such authenticating agent Notes in
certificated form and thereupon any or all temporary Notes may be surrendered
in exchange therefor, at each office or agency maintained by the Company
pursuant to Section 4.02 and the Trustee or such authenticating agent shall
authenticate and make available for delivery in exchange for such temporary
Notes an equal aggregate principal amount of Notes in certificated form.  Such exchange shall be made by the Company at
its own expense and without any charge therefor.  Until so exchanged, the temporary Notes shall
in all respects be entitled to the same benefits and subject to the same
limitations under this Indenture as Notes in certificated form authenticated
and delivered hereunder.

SECTION 2.12.  Cancellation.  The Company at any time may deliver Notes to
the Trustee for cancellation.  The
Registrar and the Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange or payment.  The Trustee and no one else shall cancel all
Notes surrendered for registration of transfer, exchange, payment or
cancellation and dispose of such canceled Notes in accordance with its
customary procedures or deliver canceled Notes to the Company.  The Company may not issue new Notes to
replace

 23
 

Notes it has redeemed, paid or delivered to the
Trustee for cancellation.  The Trustee
shall not authenticate Notes in place of canceled Notes other than pursuant to
the terms of this Indenture.

SECTION 2.13.  Defaulted
Interest.  If the Company defaults in
a payment of interest on the Notes, the Company shall pay the defaulted
interest (plus interest on such defaulted interest at the rate of 1% per annum
above the then applicable interest rate to the extent lawful) in any lawful
manner.  The Company may pay the
defaulted interest to the Persons who are Noteholders on a subsequent special
record date.  The Company shall fix or
cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly deliver or cause to
be delivered to each Noteholder a notice that states the special record date,
the payment date and the amount of defaulted interest to be paid.

SECTION 2.14.  CUSIP
and ISIN Numbers.  The Company in issuing
the Notes may use “CUSIP” and “ISIN” numbers (if then generally in use) and, if so, the
Trustee shall use “CUSIP” and “ISIN” numbers in notices of redemption as a convenience to
Noteholders; provided, however, that any such notice may state
that no representation is made as to the correctness of such numbers either as
printed on the Notes or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Notes, and any such redemption shall not be affected by any defect in or
omission of such numbers.  The Company
shall promptly notify the Trustee in writing of any changes to the CUSIP and
ISIN numbers.

ARTICLE 3

REDEMPTION
AND REPURCHASE OF NOTES

SECTION 3.01.  Optional Redemption of Notes.  At any time on or after February 15,
2012, the Notes may be redeemed at the option of the Company, in whole or in
part, upon notice as set forth in Section 3.02, in cash at the redemption price
below.  The redemption price for the
Notes, expressed as a percentage of principal amount, is as follows for the
periods set forth below:

	
  Period

  	
   

  	
  Redemption

  Price

  	
   

  
	
  February 15,
  2012 to February 14, 2013

  	
   

  	
  100.750

  	
  %

  
	
  February 15,
  2013 to February 14, 2014

  	
   

  	
  100.375

  	
  %

  
	
  February 15,
  2014 and thereafter

  	
   

  	
  100.000

  	
  %

  

 

In addition, the Company will pay interest on the
Notes being redeemed, which interest will include such interest accrued and
unpaid to, but excluding, the redemption date; provided,that
if the redemption date is after a Record Date and on or prior to the
corresponding interest payment date, the interest will be paid on the
redemption date to the holder of record on the Record Date.  The Company may not redeem any Notes if a
Default in the payment of interest on the Notes has occurred and is continuing.

SECTION 3.02.  Notice
of Optional Redemption; Selection of Notes to Be Redeemed.  In case the Company shall desire to exercise
the right to redeem all or, as the case may be, any part

 24
 

of the Notes pursuant to Section 3.01, it shall fix a
date for redemption and it or, at its written request received by the Trustee
not fewer than five Business Days prior (or such shorter period of time as may
be acceptable to the Trustee) to the date the notice of redemption is to be
delivered, the Trustee in the name of and at the expense of the Company, shall
deliver or cause to be delivered a notice of such redemption not fewer than 30
calendar days nor more than 60 calendar days prior to the redemption date to
each record holder of Notes so to be redeemed in whole or in part at its last
address as the same appears on the Register; provided that if the
Company makes such request of the Trustee, it shall, together with such
request, also give written notice of the redemption date to the Trustee, provided
that the text of the notice shall be prepared by the Company.  The notice, if delivered in the manner herein
provided, shall be conclusively presumed to have been duly given, whether or
not the holder receives such notice.  In
any case, failure to deliver such notice or any defect in the notice to the
holder of any Notes designated for redemption as a whole or in part shall not
affect the validity of the proceedings for the redemption of any other
Notes.  Concurrently with the delivery of
any such notice of redemption, the Company shall issue a press release
announcing such redemption, the form and content of which press release shall
be determined by the Company in its sole discretion.  The failure to issue any such press release
or any defect therein shall not affect the validity of the redemption notice or
any of the proceedings for the redemption of any Notes called for redemption.

Each such notice of redemption shall specify:  (i) the aggregate principal amount of Notes
to be redeemed, (ii) the CUSIP number or numbers of the Notes being redeemed,
(iii) the date fixed for redemption (which shall be a Business Day), (iv) the
redemption price at which Notes are to be redeemed, (v) the place or places of
payment and that payment will be made upon presentation and surrender of such
Notes, (iv) that interest accrued and unpaid to, but excluding, the date fixed
for redemption will be paid as specified in said notice, and that on and after
said date interest thereon or on the portion thereof to be redeemed will cease
to accrue, (vii) that the holder has a right to convert the Notes called for
redemption, (viii) the Conversion Rate on the date of such notice, (ix) the
time and date on which the right to convert such Notes or portions thereof will
expire, (x) the formula for determining the amount of cash and the number of
shares, if any, to be delivered to the holder upon conversion pursuant to
Section 10.12 and the date on which the Cash Settlement Averaging Period
begins, (xi) whether the Company has elected to settle its obligation upon
conversion by delivering shares of Common Stock, cash or a combination of cash
and shares of Common Stock, and, in the event that the Company has elected to
deliver all or a portion of its conversion obligation in cash, the date on
which the Conversion Period will begin and (xii) that the Company will pay cash
for fractional interests in shares of Common Stock, if any, as provided in this
Indenture.  If fewer than all the Notes
are to be redeemed, the notice of redemption shall identify the Notes to be
redeemed (including CUSIP numbers, if any). 
In case any Notes are to be redeemed in part only, the notice of
redemption shall state the portion of the principal amount thereof to be
redeemed and shall state that, on and after the redemption date, upon surrender
of such Notes, a new Notes or Notes in principal amount equal to the unredeemed
portion thereof will be issued.

Whenever any Notes are to be redeemed, the Company
will give the Trustee written notice of the redemption date, together with an
Officer’s Certificate as to the aggregate principal amount of Notes to be
redeemed not fewer than 35 calendar days (or such shorter period of time as may
be acceptable to the Trustee) prior to the redemption date.

 25
 

On or prior to the redemption date specified in the
notice of redemption given as provided in this Section 3.02, the Company will
deposit with the Paying Agent (or, if the Company is acting as its own Paying
Agent, set aside, segregate and hold in trust as provided in Section 2.06) an
amount of money in immediately available funds sufficient to redeem on the
redemption date all the Notes (or portions thereof) so called for redemption
(other than those theretofore surrendered for conversion into Common Stock) at
the appropriate redemption price, together with accrued and unpaid interest to,
but excluding, the redemption date; provided that if such payment is
made on the redemption date, it must be received by the Paying Agent, by 11:00
a.m., New York City time, on such date. 
If any Notes called for redemption are converted pursuant hereto prior
to such redemption date, any money deposited with the Paying Agent or so
segregated and held in trust for the redemption of such Notes shall be paid to
the Company or, if then held by the Company, shall be discharged from such
trust.

If less than all of the outstanding Notes are to be
redeemed, the Trustee shall select the Notes or portions thereof of the Global
Notes or the Notes in certificated form to be redeemed (in principal amounts of
$1,000 or multiples thereof) by lot, on a pro rata basis or by another method
the Trustee deems fair and appropriate. 
If any Notes selected for redemption are submitted for conversion in
part after such selection, the portion of such Notes submitted for conversion
shall be deemed (so far as may be possible) to be the portion to be selected
for redemption.  The Notes (or portions
thereof) so selected for redemption shall be deemed duly selected for
redemption for all purposes hereof, notwithstanding that any such Notes are
submitted for conversion in part before the delivery of the notice of
redemption.

Upon any redemption of less than all of the
outstanding Notes, the Company and the Trustee may (but need not), solely for
purposes of determining the pro rata allocation among such Notes that are
unconverted and outstanding at the time of redemption, treat as outstanding any
Notes surrendered for conversion during the period of fifteen calendar days
preceding the delivery of a notice of redemption and may (but need not) treat
as outstanding any Notes authenticated and delivered during such period in
exchange for the unconverted portion of any Notes converted in part during such
period.

SECTION 3.03.  Payment
of Notes Called for Redemption.  If
notice of redemption has been given as provided in Section 3.02, the Notes or
portion of Notes with respect to which such notice has been given shall, unless
converted pursuant to the terms hereof, become due and payable on the date
fixed for redemption and at the place or places stated in such notice at the
redemption price set forth in the notice of redemption, plus interest accrued
and unpaid to, but excluding, the redemption date (unless the redemption date
is after a Record Date and on or prior to the corresponding interest payment
date, in which event the interest will be paid on the interest payment date to
the holder of record on the Record Date), and, unless the Company shall default
in the payment of such Notes at the redemption price, plus interest, if any,
accrued and unpaid to, but excluding, such date, interest on the Notes or
portion of Notes so called for redemption, interest shall cease to accrue on
and after such date and, after 5:00 p.m., New York City time, on the Business
Day immediately preceding the redemption date (unless the Company shall default
in the payment of such Notes at the redemption price, together with interest
accrued to such date) such Notes shall cease to be convertible pursuant to
Article 10 and, except as provided in Section 2.06 and Section 8.02, to be
entitled to any benefit or security under this Indenture, and the holders
thereof shall have no right in respect of such Notes except the right to
receive the

 26
 

redemption price thereof plus accrued and unpaid
interest to, but excluding, the redemption date.  On presentation and surrender of such Notes
at a place of payment in said notice specified, the said Notes or the specified
portions thereof shall be paid and redeemed by the Company at the redemption
price, together with interest accrued and unpaid thereon to, but excluding, the
redemption date; provided that if the applicable redemption date is
after the applicable Record Date and on or before an interest payment date, the
interest payable on such interest payment date shall be paid on such interest
payment date to the holders of record of such Notes on the applicable Record
Date instead of the holders surrendering such Notes for redemption on such
date.

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

Notwithstanding the foregoing, the Trustee shall not
redeem any Notes or deliver any notice of redemption during the occurrence or
continuance of a Default in payment of interest on the Notes.  If any Notes called for redemption shall not
be so paid upon surrender thereof for redemption on the redemption date as
provided in this Section 3.03, such Notes shall remain convertible into Common
Stock until the redemption price and interest shall have been paid or duly
provided for.

SECTION 3.04.  Repurchase
at Option of Holders Upon a Fundamental Change. (a) If there shall occur a
Fundamental Change at any time prior to maturity of the Notes, then each holder
of Notes shall have the right, at such holder’s option, to require the Company
to repurchase all of such holder’s Notes, or any portion thereof that is a
multiple of $1,000 principal amount, on a date (the “Fundamental Change Repurchase Date”) specified by the Company,
that is not less than 15 calendar days nor more than 35 calendar days after the
date of the Company Repurchase Notice related to such Fundamental Change at a
cash repurchase price equal to 100% of the Principal amount of the Notes being
repurchased, plus accrued and unpaid interest to, but excluding, the
Fundamental Change Repurchase Date, subject to the satisfaction by the holder
of the requirements set forth in Section 3.04(c); provided that if such
Fundamental Change Repurchase Date falls after a Record Date and on or prior to
the corresponding interest payment date, then the interest payable on such interest
payment date shall be paid on such interest payment date to the holders of
record of the Notes on the applicable Record Date instead of the holders
surrendering the Notes for repurchase on such date.

(b)                                 Within 20 calendar
days after the occurrence of a Fundamental Change, the Company shall deliver or
cause to be delivered to all holders of record of the Notes on the date of the
Fundamental Change at their addresses shown in the Register (and to beneficial
owners of the Notes as required by applicable law) a Company Repurchase Notice
as set forth in Section 3.06 with respect to such Fundamental Change.  The Company shall also deliver a copy of the
Company Repurchase Notice to the Trustee and the Paying Agent at such time as
it is delivered to Noteholders. 
Concurrently with the delivery of such Company Repurchase Notice, the
Company shall issue a press release announcing such Fundamental Change referred
to in the Company Repurchase Notice, the form and content of which press
release shall be determined by the Company in its sole discretion.

 27
 

No failure of the Company to give the foregoing
notices and press release and no defect therein shall limit the repurchase
rights of Noteholders or affect the validity of the proceedings for the
repurchase of the Notes pursuant to this Section 3.04.

(c)                                  For Notes to be
repurchased at the option of the holder, the holder must deliver to the Paying
Agent, prior to 5:00 p.m., New York City time, on the Business Day immediately
preceding the Fundamental Change Repurchase Date, (i) a written notice of
repurchase (the “Repurchase Notice”) in the form
set forth on the reverse of the Notes duly completed (if the Notes are
certificated) or stating the following (if the Notes are represented by a
Global Note):  (A) the certificate number
of the Notes which the holder will deliver to be repurchased or compliance with
the appropriate Depositary procedures, (B) the portion of the Principal amount
of the Notes which the holder will deliver to be repurchased, which portion
must be in principal amounts of $1,000 or an integral multiple of $1,000 and
(C) that such Notes shall be repurchased by the Company pursuant to the terms
and conditions specified in the Notes and in this Indenture, together with (ii)
such Notes duly endorsed for transfer (if the Notes are certificated) or
book-entry transfer of such Notes (if such Notes are represented by a Global
Note).  The delivery of such Notes to the
Paying Agent with, or at any time after delivery of, the Repurchase Notice
(together with all necessary endorsements) at the office of the Paying Agent
shall be a condition to the receipt by the holder of the repurchase price
therefore; provided, however, that such repurchase price shall be
so paid pursuant to this Section 3.04 only if the Notes so delivered to the
Paying Agent shall conform in all respects to the description thereof in the
Repurchase Notice.  All questions as to
the validity, eligibility (including time of receipt) and acceptance of any
Notes for repurchase shall be determined by the Company, whose determination
shall be final and binding absent manifest error.

(d)                                 The Company shall
repurchase from the holder thereof, pursuant to this Section 3.04, a portion of
a Note, if the principal amount of such portion is $1,000 or a whole multiple
of $1,000.  Provisions of this Indenture
that apply to the repurchase of all of a Note also apply to the repurchase of
such portion of such Note.

(e)                                  The Paying Agent
shall promptly notify the Company of the receipt by it of any Repurchase Notice
or written notice of withdrawal thereof.

Any repurchase by the Company contemplated pursuant to
the provisions of this Section 3.04 shall be consummated by the delivery of the
consideration to be received by the holder promptly following the later of the
Fundamental Change Repurchase Date and the time of the book-entry transfer or
delivery of the Notes.

SECTION 3.05.  Repurchase
of Notes by the Company at the Option of Holders.  (a) Each holder of Notes shall have the
right, at such holder’s option, to require the Company to repurchase all of
such holder’s Notes, or any portion thereof that is a multiple of $1,000
principal amount, on February 15, 2014, February 15, 2017 and
February 15, 2022 (each, a “Repurchase
Date”), at a repurchase price of 100% of the Principal amount of the
Notes being repurchased, plus accrued and unpaid interest to, but excluding,
the Repurchase Date, provided that if such Repurchase Date falls after a
Record Date and on or prior to the corresponding interest payment date, then
the interest payable on such interest

 28
 

payment date shall be paid on such interest payment
date to the holders of record of the Notes on the applicable Record Date
instead of the holders surrendering the Notes for repurchase on such date.

(b)                                 On or before the twentieth
Business Day prior to each Repurchase Date, the Company shall deliver or cause
to be delivered to all holders of record on such date (and to beneficial owners
as required by applicable law) at their addresses shown in the Register a
Company Repurchase Notice as set forth in Section 3.06.  The Company shall also deliver a copy of the
Company Repurchase Notice to the Trustee and the Paying Agent at such time as
it is delivered to Noteholders.

No failure of the Company to give the foregoing
notices and no defect therein shall limit the repurchase rights of Noteholders
or affect the validity of the proceedings for the repurchase of the Notes
pursuant to this Section 3.05.

(c)                                  For Notes to be so
repurchased at the option of the holder, the holder must deliver to the Paying
Agent, at any time during the period beginning at 9:00 a.m., New York City
time, on the date that is 20 Business Days prior to the applicable Repurchase
Date and ending at 5:00 p.m., New York City time, on the Business Day
immediately preceding the applicable Repurchase Date, (i) a Repurchase Notice
in the form set forth on the reverse of the Notes duly completed (if the Notes
are certificated) or stating the following (if the Notes are represented by a
Global Note):  (A) the certificate number
of the Notes which the holder will deliver to be repurchased or compliance with
the appropriate Depositary procedures, (B) the portion of the Principal amount
of the Notes which the holder will deliver to be repurchased, which portion
must be in principal amounts of $1,000 or an integral multiple of $1,000, and
(C) that such Notes shall be repurchased by the Company pursuant to the terms
and conditions specified in the Notes and in this Indenture, together with (ii)
such Notes duly endorsed for transfer (if the Notes are certificated) or
book-entry transfer of such Notes (if such Notes are represented by a Global
Note).  The delivery of such Notes to the
Paying Agent with, or at any time after delivery of, the Repurchase Notice
(together with all necessary endorsements) at the office of the Paying Agent
shall be a condition to the receipt by the holder of the repurchase price
therefore; provided, however, that such repurchase price shall be
so paid pursuant to this Section 3.05 only if the Notes so delivered to the
Paying Agent shall conform in all respects to the description thereof in the
Repurchase Notice.  All questions as to
the validity, eligibility (including time of receipt) and acceptance of any
Notes for repurchase shall be determined by the Company, whose determination
shall be final and binding absent manifest error.

(d)                                 The Company shall
repurchase from the holder thereof, pursuant to this Section 3.05, a portion of
a Note, if the principal amount of such portion is $1,000 or a whole multiple of
$1,000.  Provisions of this Indenture
that apply to the repurchase of all of a Note also apply to the repurchase of
such portion of such Notes.

(e)                                  The Paying Agent
shall promptly notify the Company of the receipt by it of any Repurchase Notice
or written notice of withdrawal thereof.

Any repurchase by the Company contemplated pursuant to
the provisions of this Section 3.05 shall be consummated by the delivery of the
consideration to be received by the holder

 29
 

promptly following the later of the Repurchase Date
and the time of the book-entry transfer or delivery of the Notes.

SECTION 3.06.  Company
Repurchase Notice.  In connection
with any repurchase of Notes, the Company shall, in the case of a Fundamental
Change, within 20 calendar days after the occurrence of such Fundamental Change
or, no less than 20 Business Days prior to each Repurchase Date, give notice to
holders (with a copy to the Trustee) setting forth information specified in
this Section 3.06 (in either case, the “Company
Repurchase Notice”).

Each Company Repurchase Notice shall:

(1)                                  state
the repurchase price and the Fundamental Change Repurchase Date or the
Repurchase Date to which the Company Repurchase Notice relates;

(2)                                  state,
if applicable, the circumstances constituting the Fundamental Change;

(3)                                  state
that the repurchase price will be paid in cash;

(4)                                  state
that holders must exercise their right to elect repurchase prior to 5:00 p.m.,
New York City time, on the Business Day immediately preceding the Fundamental
Change Repurchase Date or Repurchase Date, as the case may be;

(5)                                  include
a form of Repurchase Notice;

(6)                                  state
the name and address of the Paying Agent;

(7)                                  state
that Notes must be surrendered to the Paying Agent to collect the repurchase
price;

(8)                                  state
that a holder may withdraw its Repurchase Notice at any time prior to 5:00
p.m., New York City time, on the Business Day immediately preceding the
Fundamental Change Repurchase Date or the Repurchase Date, as the case may be,
by delivering a valid written notice of withdrawal in accordance with Section
3.07;

(9)                                  state
whether the Notes are then convertible, the then applicable Conversion Rate,
including, in the case of the occurrence of a Fundamental Change, expected
changes in the Conversion Rate resulting from such Fundamental Change
transaction and expected changes in the cash, shares or other property
deliverable upon conversion of the Notes as a result of the occurrence of the
Fundamental Change;

(10)                            that
Notes as to which a Repurchase Notice has been given may be converted only if
the Repurchase Notice is withdrawn in accordance with the terms of this
Indenture;

(11)                            state
the amount of interest accrued and unpaid per $1,000 principal amount of Notes
to, but excluding, the Fundamental Change Repurchase Date and Repurchase Date,
as the case may be; and

 30

(12)                            state
the CUSIP number of the Notes.

A Company Repurchase
Notice may be given by the Company or, at the Company’s request, the Trustee
shall give such Company Repurchase Notice in the Company’s name and at the
Company’s expense; provided, that
the text of the Company Repurchase Notice shall be prepared by the Company.

The Company will, to the
extent applicable, comply with the provisions of Rule 13e-4 (or any successor
provision) and any other tender offer rules under the Exchange Act that may be
applicable at the time of the repurchase of the Notes, file the related
Schedule TO (or any successor schedule, form or report) or any other schedule
required under the Exchange Act and comply with all other federal and state
securities laws in connection with the repurchase of the Notes.

SECTION 3.07.  Effect of Repurchase Notice; Withdrawal.  Upon receipt by the Paying Agent of the
Repurchase Notice specified in Section 3.04 or Section 3.05, the holder of the
Notes in respect of which such Repurchase Notice was given shall (unless such
Repurchase Notice is validly withdrawn in accordance with the following
paragraph) thereafter be entitled to receive solely the repurchase price with
respect to such Notes.  Such repurchase
price shall be paid to such holder, subject to receipt of funds and/or the
Notes by the Paying Agent, promptly following the later of (x) the Fundamental
Change Repurchase Date or the Repurchase Date with respect to such Notes (provided
the holder has satisfied the conditions in Section 3.04 or Section 3.05) and
(y) the time of book-entry transfer or delivery of such Notes to the Paying
Agent by the holder thereof in the manner required by Section 3.04 or Section
3.05.  The Notes in respect of which a
Repurchase Notice has been given by the holder thereof may not be converted
pursuant to Article 10 hereof on or after the date of the delivery of such
Repurchase Notice unless such Repurchase Notice has first been validly
withdrawn.

A Repurchase Notice may
be withdrawn by means of a written notice of withdrawal delivered to the office
of the Paying Agent in accordance with the Repurchase Notice at any time prior
to 5:00 p.m., New York City time, on the Business Day immediately preceding the
Fundamental Change Repurchase Date or Repurchase Date, as the case may be,
specifying:

(a)                                  the
certificate number, if any, of the Notes in respect of which such notice of
withdrawal is being submitted, or the appropriate Depositary information, in
accordance with appropriate Depositary procedures, if the Notes in respect of
which such notice of withdrawal is being submitted is represented by a Global
Note,

(b)                                 the
Principal amount of the Notes with respect to which such notice of withdrawal
is being submitted, and

(c)                                  the
principal amount, if any, of such Notes which remains subject to the original
Repurchase Notice and which has been or will be delivered for repurchase by the
Company.

If a Repurchase Notice is
properly withdrawn, the Company shall not be obligated to repurchase the Notes
listed in such Repurchase Notice.

 31
 

SECTION 3.08.  Deposit of Repurchase Price.  Prior to 10:00 a.m., New York City Time, on
the Fundamental Change Repurchase Date or the Repurchase Date, the Company
shall deposit with the Paying Agent or, if the Company is acting as the Paying
Agent, shall segregate and hold in trust as provided in Section 6.04, an amount
of cash (in immediately available funds if deposited on the Fundamental Change
Repurchase Date or the Repurchase Date, as the case may be), sufficient to pay
the aggregate repurchase price of all the Notes or portions thereof that are to
be repurchased as of the Fundamental Change Repurchase Date or the Repurchase
Date, as the case may be.

If on the Business Day
immediately following the Fundamental Change Repurchase Date or the Repurchase
Date the Paying Agent holds cash sufficient to pay the repurchase price of the
Notes that holders have elected to require the Company to repurchase in
accordance with Section 3.04 or 3.05, as the case may be, then, as of the
Fundamental Change Repurchase Date or the Repurchase Date, as the case may be,
such Notes will cease to be outstanding, interest (including Additional
Interest, if any) shall cease to accrue and all other rights of the holders of
such Notes will terminate, other than the right to receive the repurchase price
upon delivery or book-entry transfer of the Notes.  This will be the case whether or not
book-entry transfer of the Notes has been made or the Notes have been delivered
to the Paying Agent.

SECTION 3.09.  Notes Repurchased in Part.  Upon presentation of any Notes repurchased
only in part, the Company shall execute and the Trustee shall authenticate and
make available for delivery to the holder thereof, at the expense of the
Company, a new Note or Notes, of any authorized denomination, in aggregate
principal amount equal to the unrepurchased portion of the Notes presented.

ARTICLE 4

COVENANTS

SECTION 4.01.  Payment of Notes.  The Company shall promptly pay the principal
of and interest on the Notes on the dates and in the manner provided in the
Notes and in this Indenture.  Principal
and interest shall be considered paid on the date due if on such date the
Trustee or the Paying Agent holds in accordance with this Indenture money
sufficient to pay all principal and interest then due and the Trustee or the
Paying Agent, as the case may be, is not prohibited from paying such money to
the Noteholders on that date pursuant to the terms of this Indenture.

The Company shall pay
interest on overdue principal at the rate specified therefor in the Notes, and
it shall pay interest on overdue installments of interest at the same rate to
the extent lawful.

SECTION 4.02.  Maintenance of Office or Agency.  The Company will maintain an office or
agency, where the Notes may be surrendered for registration of transfer or
exchange or for presentation for payment or for conversion, redemption or
repurchase and where notices and demands to or upon the Company in respect of
the Notes and this Indenture may be served. 
As of the date of this Indenture, such office is located at the office
of the Trustee located at Wells Fargo Bank, N.A., Corporate Trust Services, 608
2nd Avenue South, MAC N9303-120,

 32
 

Minneapolis, MN  55479, Attention: Isis Pharmaceuticals
Account Manager and, at any other time, at such other address as the Trustee
may designate from time to time by notice to the Company.  The Company will give prompt written notice
to the Trustee of the location, and any change in the location, of such office
or agency not designated or appointed by the Trustee.  If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office.

The Company may also from
time to time designate co-registrars and one or more offices or agencies where
the Notes may be presented or surrendered for any or all such purposes and may
from time to time rescind such designations. 
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.

So long as the Trustee is
the Registrar, the Trustee agrees to deliver, or cause to be delivered, the
notices set forth in Section 7.08.  If
co-registrars have been appointed in accordance with this Section, the Trustee
shall mail such notices only to the Company and the Noteholders it can identify
from its records.

SECTION 4.03.  Reports; 144A Information.  The Company shall deliver (which delivery may
be via electronic mail) to the Trustee within 15 days after it files them
with the SEC copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the SEC
may by rules and regulations prescribe) which the Company is required to file
with the SEC pursuant to Section 13 or 15(d) of the Exchange Act;
provided, however, the Company shall not be required to deliver to the Trustee
any materials for which the Company has sought and received confidential
treatment by the SEC.  The Company
covenants and agrees that it shall, during any period in which it is not
subject to Section 13 or 15(d) under the Exchange Act, make available to any
holder or beneficial holder of Notes or any Common Stock issued upon conversion
thereof which continue to be Restricted Securities and any prospective
purchaser of Notes or such Common Stock designated by such holder or beneficial
holder, the information required pursuant to Rule 144A(d)(4) under the
Securities Act upon the request of any holder or beneficial holder of the Notes
or such Common Stock, all to the extent required to enable such holder or
beneficial holder to sell its Notes or Common Stock without registration under
the Securities Act within the limitation of the exemption provided by Rule
144A.  The Company also shall comply with
the provisions of Section 314(a) of the TIA.

SECTION 4.04.  Existence.  Subject to Article 5, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect its existence and rights (charter and statutory); provided that
the Company shall not be required to preserve any such right if the Company
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Noteholders.

SECTION 4.05.  Payment of Taxes and Other Claims.  The Company will pay or discharge, or cause
to be paid or discharged, before the same may become delinquent, (i) all taxes,
assessments and governmental charges levied or imposed upon the Company or upon
the

 33
 

income, profits or
property of the Company, (ii) all claims for labor, materials and supplies
which, if unpaid, might by law become a lien or charge upon the property of the
Company and (iii) all stamp taxes and other duties, if any, which may be
imposed by the United States or any political subdivision thereof or therein in
connection with the issuance, transfer, exchange, conversion, redemption or
repurchase of any Notes or with respect to this Indenture; provided
that, in the case of clauses (i) and (ii), the Company shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim (A) if the failure to do so will not, in the aggregate, have a
material adverse impact on the Company, or (B) if the amount, applicability or
validity is being contested in good faith by appropriate proceedings.

SECTION 4.06.  Compliance Certificate.  The Company shall deliver to the Trustee
within 120 days after the end of each fiscal year of the Company an Officer’s
Certificate stating that a review of the Company’s activities during the
preceding fiscal year has been made under the supervision of the signing
Officer with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture and further
stating, as to such Officer signing such certificate, whether to the best of
such Officer’s knowledge the Company during such preceding fiscal year has
kept, observed, performed and fulfilled each and every such covenant contained
in this Indenture and that in the course of the performance by the signer of
his or her duties as an Officer of the Company such Officer would normally have
knowledge of any Default and whether or not the signer knows of any Default
that occurred during such period.  If
such Officer does know of any Default, the certificate shall describe the Default,
its status and what action the Company is taking or proposes to take with
respect thereto.

SECTION 4.07.  Further Instruments and Acts.  The Company shall execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.

SECTION 4.08.  Additional Interest Notice.  In the event that the Company is required to
pay Additional Interest to Noteholders pursuant to the Registration Rights
Agreement, the Company will provide written notice (“Additional Interest Notice”) to the Trustee of its obligation
to pay Additional Interest no later than fifteen calendar days prior to the
proposed payment date for Additional Interest, and the Additional Interest Notice
shall set forth the amount of Additional Interest to be paid by the Company on
such payment date.  The Trustee shall not
at any time be under any duty or responsibility to any holder of Notes to
determine the Additional Interest, or with respect to the nature, extent or
calculation of the amount of Additional Interest when made, or with respect to
the method employed in such calculation of the Additional Interest.

ARTICLE 5

SUCCESSOR COMPANY

SECTION 5.01.  When Company May Merge or Transfer Assets.  The Company shall not, in a single
transaction or a series of related transactions, consolidate with or merge with
or

 34
 

into, or sell, convey,
transfer or lease its property and assets substantially as an entirety to any
Person unless:

(a)                                  either
(i) the Company is the continuing corporation, or (ii) the resulting, surviving
or transferee Person (if other than the Company) is a corporation or limited
liability company organized and existing under the laws of the United States,
any state thereof or the District of Columbia and such Person assumes, by a
supplemental indenture in a form reasonably satisfactory to the Trustee, and a
supplemental agreement, all of the Company’s obligations under the Notes, this
Indenture and the Registration Rights Agreement;

(b)                                 immediately
after giving effect to the transaction described above, no Default or Event of
Default, has occurred and is continuing;

(c)                                  if
as a result of such transaction the Notes become convertible into common stock
or other securities issued by a third party, such third party fully and
unconditionally Guarantees all obligations of the Company or such successor
Person under the Notes, this Indenture and the Registration Rights Agreement;
and

(d)                                 the
Company has delivered to the Trustee the Officer’s Certificate, and if
requested, the Opinion of Counsel, pursuant to Section 5.03.

SECTION 5.02.  Successor to be Substituted.  In case of any such consolidation, merger,
sale, conveyance, transfer or lease in which the Company is not the continuing
corporation upon the assumption by the successor Person, by supplemental
indenture, executed and delivered to the Trustee and reasonably satisfactory in
form and substance to the Trustee, of the due and punctual payment of the
Principal of, and premium, if any, and interest on all of the Notes, and the
due and punctual performance and observance of all of the covenants and
conditions of this Indenture to be performed or satisfied by the Company, and
by supplemental agreement, executed and delivered to the Trustee and reasonably
satisfactory in form and substance to the Trustee, of all of the obligations of
the Company under the Registration Rights Agreement, such successor Person
shall succeed to and be substituted for the Company and may exercise every
right and power of the Company, with the same effect as if it had been named
herein as the party of this first part, and the Company shall be discharged
from its obligations under the Notes, this Indenture and the Registration
Rights Agreement.  Such successor Person
thereupon may cause to be signed, and may issue either in its own name or in
the name of the Company any or all of the Notes, issuable hereunder that
theretofor shall not have been signed by the Company and delivered to the
Trustee; and, upon the order of such successor Person instead of the Company
and subject to all the terms, conditions and limitations in this Indenture
prescribed, the Trustee shall authenticate and shall deliver, or cause to be
authenticated and delivered, any Notes that previously shall have been signed
and delivered by the officers of the Company to the Trustee for authentication,
and any Notes that such successor Person thereafter shall cause to be signed
and delivered to the Trustee for that purpose. 
All the Notes so issued shall in all respects have the same legal rank
and benefit under this Indenture as the Notes theretofore or thereafter issued
in accordance with the terms of this Indenture as though all of such Notes had
been issued at the date of the execution hereof.  In the event of any such consolidation,
merger, sale, conveyance, transfer or lease, upon compliance with this Article
5 the Person named as the “Company” in the first paragraph of this Indenture or
any successor that shall thereafter have become such in the

 35
 

manner prescribed in this
Article 5 may be dissolved, wound up and liquidated at any time thereafter and
such Person shall be discharged from its liabilities as obligor and maker of
the Notes and from its obligations under this Indenture.

SECTION 5.03.  Officer’s Certificate and Opinion of
Counsel to be Given Trustee.  Prior
to execution of any supplemental indenture pursuant to this Article 5, the
Trustee shall receive an Officer’s Certificate and, if requested, an Opinion of
Counsel, as conclusive evidence that any such consolidation, merger, sale,
conveyance, transfer or lease and any such assumption complies with the
provisions of this Article 5.

ARTICLE 6

DEFAULTS AND REMEDIES

SECTION 6.01.  Events of Default.  An “Event
of Default” occurs if:

(a)                                  the
Company fails to pay any of interest (including Additional Interest, if any) on
the Notes when due and payable and such failure continues for a period of 30
calendar days;

(b)                                 the
Company fails to pay Principal of the Notes when due at its Stated Maturity, or
the Company fails to pay the redemption price or repurchase price in respect of
any Notes when due, whether or not the payment is prohibited by Article 12 of
this Indenture;

(c)                                  the
Company fails to comply with Section 5.01;

(d)                                 the
Company fails to deliver Common Stock (including any Additional Shares), or
cash in lieu thereof, or a combination of the foregoing, as required pursuant
to Article 10 upon the conversion of any Notes and such failure continues for
15 days following the scheduled settlement date for such conversion;

(e)                                  the
Company fails to provide notice of the anticipated effective date or actual
effective date of a Fundamental Change on a timely basis as required in this
Indenture;

(f)                                    the
Company fails to comply with any of its agreements contained in the Notes or
this Indenture (other than those referred to in (a) through (e) above) and such
failure continues for 60 days after the notice specified below;

(g)                                 the
Company or any Wholly Owned Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:

(1)                                  commences a voluntary
case;

(2)                                  consents to the entry
of an order for relief against it in an involuntary case;

(3)                                  consents to the
appointment of a Custodian of it or for any substantial part of its property;
or

 36
 

(4)                                  makes a general assignment
for the benefit of its creditors;

(5)                                  or takes any
comparable action under any foreign laws relating to insolvency;

(h)                                 a
court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that:

(1)                                  is for relief against
the Company or any Wholly Owned Significant Subsidiary in an involuntary case;

(2)                                  appoints a Custodian
of the Company or any Wholly Owned Significant Subsidiary or for any
substantial part of its property; or

(3)                                  orders the winding up
or liquidation of the Company or any Wholly Owned Significant Subsidiary;

(4)                                  or any similar relief
is granted under any foreign laws and the order or decree remains unstayed and
in effect for 60 days.

The foregoing shall
constitute Events of Default whatever the reason for any such Event of Default
and whether it is voluntary or involuntary or is 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.

The term “Bankruptcy Law” means Title 11, United
States Code, or any similar Federal or state law for the relief of
debtors.  The term “Custodian” means any receiver, trustee,
assignee, liquidator, custodian or similar official under any Bankruptcy Law.

A Default under clause
(f) above is not an Event of Default until the Trustee or the Noteholders of at
least 25% in Principal amount of the outstanding Notes notify the Company of
the Default and the Company does not cure such Default within the time
specified after receipt of such notice. 
Such notice must specify the Default, demand that it be remedied and
state that such notice is a “Notice of Default.”

The Company shall
promptly deliver to the Trustee, written notice in the form of an Officer’s
Certificate of any event which with the giving of notice or the lapse of time
would become an Event of Default, its status and what action the Company is
taking or proposes to take with respect thereto.

SECTION 6.02.  Acceleration.

(a)                                  If
an Event of Default (other than an Event of Default specified in (x) Section
6.01(f) with respect to the Company’s obligations under Section 4.03 as
described below and (y) Section 6.01(g) or (h) with respect to the Company)
occurs and is continuing, the Trustee by notice to the Company, or the
Noteholders of at least 25% in Principal amount of the outstanding Notes by
notice to the Company, may declare the Principal of and accrued but unpaid
interest on all the Notes to be due and payable.  Upon such a declaration, such Principal

 37
 

and interest shall be due and
payable immediately.  If an Event of
Default specified in Section 6.01(g) or (h) with respect to the Company occurs,
the Principal of and accrued and unpaid interest (including Additional
Interest, if any) on all the Notes shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Noteholders. 
The Noteholders of a majority in Principal amount of the Notes by notice
to the Trustee may rescind an acceleration and its consequences if the
rescission (i) would not conflict with any judgment or decree; (ii) if all
existing Events of Default have been cured or waived except nonpayment of
Principal or interest that has become due solely because of acceleration; and
(iii) if the Company has paid the compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.  No such rescission shall affect any
subsequent Default or impair any right consequent thereto.

(b)                                 Notwithstanding
the foregoing, to the extent elected by the Company, the sole remedy for an
Event of Default relating to the failure by the Company to comply with Section
4.03 and for any failure to comply with the requirements of Section 314(a)(1)
of the Trust Indenture Act, as applicable, shall for the first 120 days after
the occurrence of such an Event of Default consist exclusively of the right to
receive special interest on the Notes at an annual rate equal to 0.25% of the
Principal amount of the Notes (“Special
Interest”).  The Special
Interest shall be paid semi-annually in arrears, with the first semi-annual
payment due on the first interest payment date following the date on which the
Special Interest began to accrue on any Notes. 
The Special Interest shall accrue on all outstanding Notes from and
including the date on which an Event of Default relating to a failure to comply
with Section 4.03 first occurs to but not including the 120th day thereafter
(or such earlier date on which the Event of Default shall have been cured or
waived).  On such 120th day (or earlier,
if the Event of Default relating to reporting obligations in Section 4.03 is
cured or waived prior to such 120th day), such Special Interest shall cease to
accrue and, if the Event of Default relating to reporting obligations in
Section 4.03 has not been cured or waived prior to such 120th day, the Notes
shall be subject to acceleration as provided in Section 6.02(a) (without giving
effect to clause (x) in the parenthetical of the first sentence thereof).  The provisions of this Section 6.02(b) shall
not affect the rights of Noteholders in the event of the occurrence of any
other Event of Default.  In the event the
Company does not elect to pay Special Interest upon an Event of Default
relating to reporting obligations in Section 4.03 in accordance with this
paragraph, the Notes shall be subject to acceleration as provided in Section
6.02(a) (without giving effect to clause (x) in the parenthetical of the first
sentence thereof).  In no event shall the
Special Interest, together with any Additional Interest payable pursuant to the
Registration Rights Agreement, accrue at an annual rate exceeding 0.50% of the
Principal amount of the Notes.

If the Company elects to
pay Special Interest as the sole remedy for an Event of Default relating to the
failure to comply with Section 4.03 and for any failure to comply with the
requirements of Section 314(a)(1) of the Trust Indenture Act, as applicable, in
accordance with the immediately preceding paragraph, the Company shall notify
all Noteholders and the Trustee and Paying Agent of such election on or before
the close of business on the date on which such Event of Default first occurs.

(c)                                  After
a declaration of acceleration, but before a judgment or decree for payment of
the money due has been obtained by the Trustee, the holders of a majority in

 38
 

aggregate Principal amount of
the Notes outstanding, by written notice to us and the trustee, may rescind and
annul such declaration if:

(1)                                  The
Company has paid (or deposited with the Trustee a sum sufficient to pay) (1)
all overdue interest (including Additional Interest, if any) on all Notes;
(2) the principal amount of any Notes that have become due otherwise than
by such declaration of acceleration; (3) to the extent that payment of such
interest is lawful, interest upon overdue interest (including Additional
Interest, if any); and (4) all sums paid or advanced by the Trustee under this
indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel; and

(2)                                  all
Events of Default, other than the non-payment of the principal amount and any
accrued and unpaid interest (including Additional Interest, if any) that have
become due solely by such declaration of acceleration, have been cured or
waived.

SECTION 6.03.  Other Remedies.  Subject to Section 6.02, if an Event of
Default occurs and is continuing, the Trustee may pursue any available remedy
to collect the payment of principal of or interest on the Notes or to enforce
the performance of any provision of the Notes or this Indenture.

The Trustee may maintain
a proceeding even if it does not possess any of the Notes or does not produce
any of them in the proceeding.  A delay
or omission by the Trustee or any Noteholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default.  No remedy is exclusive of any other
remedy.  All available remedies are
cumulative.

SECTION 6.04.  Waiver of Past Defaults.  Subject to Section 6.02, the Noteholders of a
majority in aggregate Principal amount of the Notes outstanding may, on behalf
of all Noteholders by notice to the Trustee may waive an existing Default or
Event of Default under this Indenture and its consequences except (i) a Default
in the payment of the Principal of or interest (including Additional Interest,
if any) on a Note when due, (ii) a Default arising from the failure to redeem
or repurchase any Note when required pursuant to the terms of this Indenture,
(iii) a Default arising from the failure of the Company to deliver Common Stock
(including any Additional Shares), or cash in lieu thereof, or a combination of
the foregoing, as applicable upon the conversion of any Notes pursuant to the
terms of this Indenture or (iv) a Default in respect of a provision that under
Section 9.02 cannot be amended without the consent of each Noteholder
affected.  When a Default is waived, it
is deemed cured, but no such waiver shall extend to any subsequent or other
Default or impair any consequent right.

SECTION 6.05.  Control by Majority.  The Noteholders of a majority in Principal
amount of the Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust
or power conferred on the Trustee. 
However, the Trustee may refuse to follow any direction that conflicts
with law or this Indenture or, subject to Section 7.01, that the Trustee
determines is unduly prejudicial to the rights of other Noteholders or would
involve the Trustee in personal liability; provided, however,
that the Trustee may take any other action deemed proper by the Trustee that is
not inconsistent with such direction. 
Prior to taking any action hereunder, the Trustee shall be entitled to

 39
 

indemnification
satisfactory to it in its sole discretion against all losses and expenses
caused by taking or not taking such action.

SECTION 6.06.  Limitation on Suits.  Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no Noteholder may
pursue any remedy with respect to this Indenture or the Notes unless:

(a)                                  the
Noteholder gives to the Trustee written notice stating that an Event of Default
is continuing;

(b)                                 the
Noteholders of at least 25% in Principal amount of the Notes make a written
request to the Trustee to pursue the remedy and offer reasonable security or
indemnity against any costs, liability or expense of the Trustee;

(c)                                  the
Trustee does not comply with the request within 60 days after receipt of the
request and the offer of security or indemnity; and

(d)                                 the
Noteholders of a majority in Principal amount of the Notes do not give the
Trustee a direction inconsistent with the request during such 60-day period.

A Noteholder may not use
this Indenture to prejudice the rights of another Noteholder or to obtain a
preference or priority over another Noteholder.

Notwithstanding any other
provision of this Indenture and any provision of any Notes, the right of any
holder of any Notes to receive payment of the Principal of (including the
redemption price or repurchase price upon redemption or repurchase pursuant to
Article 3) and premium, if any, and accrued interest on such Notes, on or after
the respective due dates expressed in such Notes or in the event of redemption
or repurchase, or to institute suit for the enforcement of any such payment on
or after such respective dates against the Company shall not be impaired or
affected without the consent of such holder.

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

SECTION 6.07.  Rights of Noteholders to Receive Payment.  Notwithstanding any other provision of this
Indenture, the right of any Noteholder to receive payment of Principal of and
interest on the Notes held by such Noteholder, on or after the respective due
dates expressed in the Notes, or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Noteholder.

SECTION 6.08.  Collection Suit by Trustee.  If an Event of Default specified in Section
6.01(a) or (b) occurs and is continuing, the Trustee may recover judgment in
its own name and as trustee of an express trust against the Company for the
whole amount then due and owing (together with interest on any unpaid interest
to the extent lawful) and the amounts provided for in Section 7.07.

 40
 

SECTION 6.09.  Trustee May File Proofs of Claim.  The Trustee may file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee and the Noteholders allowed in any judicial proceedings
relative to the Company, their creditors or their property and, unless
prohibited by law or applicable regulations, may vote on behalf of the
Noteholders in any election of a trustee in bankruptcy or other Person
performing similar functions, and any Custodian in any such judicial proceeding
is hereby authorized by each Noteholder to make payments to the Trustee and, in
the event that the Trustee shall consent to the making of such payments
directly to the Noteholders, to pay to the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and its counsel, and any other amounts due the Trustee under Section
7.07.

SECTION 6.10.  Priorities.  Subject to Article 12, if the Trustee
collects any money or property pursuant to this Article 6, it shall pay out the
money or property in the following order:

FIRST:  to the Trustee for amounts due under Section
7.07;

SECOND:  to Noteholders for amounts due and unpaid on
the Notes for Principal and interest, ratably without preference or priority of
any kind, according to the amounts due and payable on the Notes for Principal and
interest, respectively; and

THIRD:  to the Company.

The Trustee may fix a
record date and payment date for any payment to Noteholders pursuant to this
Section.  At least 15 days before such
record date, the Trustee shall deliver to each Noteholder and the Company a
notice that states the record date, the payment date and amount to be paid.

SECTION 6.11.  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 or omitted by it as Trustee, a court in its discretion may require
the filing by any party litigant in the suit of an undertaking to pay the costs
of the suit, and the court in its discretion may assess reasonable costs,
including reasonable attorneys’ fees, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made
by the party litigant.  This Section does
not apply to a suit by the Trustee, a suit by a Noteholder pursuant to Section
6.07 or a suit by Noteholders of more than 10% in Principal amount of the Notes
or to any suit instituted by any holder of Notes for the enforcement of the
payment of the Principal of, or premium, if any, or interest on any Notes on or
after the due date expressed in such Notes or to any suit for the enforcement
of the right to convert any Notes in accordance with the provisions of Article
10.

SECTION 6.12.  Waiver of Stay, Extension or Usury Laws.  The Company (to the extent it may lawfully do
so) shall not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury 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
such that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the

 41
 

execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law had been enacted.

ARTICLE 7

TRUSTEE

SECTION 7.01.  Duties of Trustee.  (a) If an Event of Default has occurred and is
continuing, the Trustee shall exercise the rights and powers vested in it by
this Indenture and use the same degree of care and skill in its exercise as a
prudent Person would exercise or use under the circumstances in the conduct of
such Person’s own affairs.

(b)                                 Except
during the continuance of an Event of Default:

(1)                                  the Trustee need only
perform such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture against the
Trustee; and

(2)                                  in the absence of bad
faith, gross negligence or willful misconduct on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture.  However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.

(c)                                  The
Trustee may not be relieved from liability for its own negligent action, its
own negligent failure to act or its own willful misconduct, except that:

(1)                                  this paragraph does
not limit the effect of paragraph (b) of this Section;

(2)                                  the Trustee shall not
be liable for any error of judgment made in good faith by a Trust Officer
unless it is proved that the Trustee was negligent in ascertaining the
pertinent facts; and

(3)                                  the Trustee shall not
be liable with respect to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section 6.05.

(d)                                 Every
provision of this Indenture that in any way relates to the Trustee is subject
to paragraphs (a), (b) and (c) of this Section.

(e)                                  The
Trustee shall not be liable for interest on any money received by it except as
the Trustee may agree in writing with the Company.

(f)                                    Money
held in trust by the Trustee need not be segregated from other funds except to
the extent required by law.

 42
 

(g)                                 No
provision of this Indenture shall require the Trustee to expend or risk its own
funds or otherwise incur 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 to believe that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.

(h)                                 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 and to the provisions of the TIA.

SECTION 7.02.  Rights of Trustee.  (a) The Trustee may rely on any document
believed by it to be genuine and to have been signed or presented by the proper
person.  The Trustee need not investigate
any fact or matter stated in the document.

(b)                                 Before
the Trustee acts or refrains from acting, it may require an Officer’s
Certificate or if requested, an Opinion of Counsel, or both.  The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on the Officer’s
Certificate or Opinion of Counsel.

(c)                                  The
Trustee may act through agents and shall not be responsible for the misconduct
or negligence of any agent appointed with due care.

(d)                                 The
Trustee shall not be liable for any action it takes or omits to take in good
faith which it believes to be authorized or within its rights or powers.

(e)                                  The
Trustee may consult with counsel, and the advice or opinion of counsel with
respect to legal matters relating to this Indenture and the Notes shall be full
and complete authorization and protection from liability in respect to any
action taken, omitted or suffered by it hereunder in good faith and in
accordance with the advice or opinion of such counsel.

(f)                                    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, consent, order, approval, bond, Note, note 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.

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

(h)                                 The
rights, privileges, protections, immunities and benefits given to the Trustee,
including, without limitation, its rights to be indemnified, are extended to,
and shall be enforceable by, the Trustee in each of its capacities hereunder,
and to each agent, custodian and other Person employed to act hereunder.

 43
 

(i)                                     The
Trustee may request that the Company deliver an Officer’s Certificate setting
forth the names of individuals and/or titles of officers authorized at such
time to take specified actions pursuant to this Indenture, which Officer’s
Certificate may be signed by any person authorized to sign an Officer’s
Certificate, including any person specified as so authorized in any such
certificate previously delivered and not superseded.

(j)                                     The
permissive rights of the Trustee enumerated herein shall not be construed as
duties.

SECTION 7.03.  Individual Rights of Trustee.  The Trustee in its individual or any other
capacity may become the owner or pledgee of Notes and may otherwise deal with
the Company or its Affiliates with the same rights it would have if it were not
Trustee.  Any conversion agent, Paying
Agent, Registrar or co-paying agent may do the same with like rights.  However, the Trustee must comply with
Sections 7.10 and 7.11.

SECTION 7.04.  Trustee’s Disclaimer.  The Trustee shall not be responsible for and
makes no representation as to the validity or adequacy of this Indenture or the
Notes, it shall not be accountable for the Company’s use of the proceeds from
the Notes, and it shall not be responsible for any statement of the Company in
this Indenture or in any document issued in connection with the sale of the Notes
or in the Notes other than the Trustee’s certificate of authentication.

SECTION 7.05.  Notice of Defaults.  (a) The Trustee shall not be deemed to have
notice of any Default, other than a payment default, unless a Trust Officer
shall have been advised in writing that a Default has occurred.  No duty imposed upon the Trustee in this
Indenture shall be applicable with respect to any Default of which the Trustee
is not deemed to have notice.

(b)                                 If
a Default occurs and is continuing and if it is known to the Trustee, the
Trustee shall deliver to each Noteholder notice of the Default within 90
calendar days after it is known to a Trust Officer or written notice of it is
received by the Trustee.  Except in the
case of a Default in payment of Principal, premium (if any) or interest on any
Note (including payments pursuant to the redemption provisions of such Note),
the Trustee may withhold notice if and so long as a committee of its Trust
Officers in good faith determines that withholding notice is in the interests
of the Noteholders.

SECTION 7.06.  Reports by Trustee to Noteholders.  As promptly as practicable after each
August 15, beginning with August 15, 2007, and in any event prior to
December 31 in each subsequent year, the Trustee shall, to the extent that any
of the events described in TIA § 313(a) occurred within the previous twelve
months, but not otherwise, deliver to each Noteholder a brief report dated as
of August 15 that complies with Section 313(a) of the TIA.  The Trustee shall also comply with Section
313(b) of the TIA.

A copy of each report at
the time of its delivery to Noteholders shall be filed with the SEC and each
stock exchange (if any) on which the Notes are listed.  The Company agrees to notify promptly the
Trustee, in writing, whenever the Notes become listed on any stock exchange and
of any delisting thereof.

 44
 

SECTION 7.07.  Compensation and Indemnity.  The Company shall pay to the Trustee from
time to time such compensation as the Company and the Trustee shall from time
to time agree in writing.  The Trustee’s
compensation shall not be limited by any law on compensation of a trustee of an
express trust.  The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred or made by it, including costs of collection, in addition to the
compensation for its services.  Such
expenses shall include the reasonable compensation and expenses, disbursements
and advances of the Trustee’s agents, counsel, accountants and experts.  The Company shall indemnify the Trustee, and
hold it harmless, against any and all loss, liability or expense (including
reasonable attorneys’ fees) incurred by or in connection with the offer and
sale of the Notes or the administration of this trust and the performance of
its duties hereunder.  The Trustee shall
notify the Company of any claim for which it may seek indemnity promptly upon
obtaining actual knowledge thereof; provided, however, that any
failure so to notify the Company shall not relieve the Company of its indemnity
obligations hereunder.  The Company shall
defend the claim and the indemnified party shall provide reasonable cooperation
at the Company’s expense in the defense. 
Such indemnified parties may have separate counsel and the Company, as
applicable, shall pay the fees and expenses of such counsel; provided, however,
that the Company shall not be required to pay such fees and expenses if it
assumes such indemnified parties’ defense and, in such indemnified parties’
reasonable judgment, there is no conflict of interest between the Company, as
applicable, and such parties in connection with such defense.  The Company need not reimburse any expense or
indemnify against any loss, liability or expense incurred by an indemnified
party through such party’s own willful misconduct and negligence.

To secure the Company’s
payment obligations in this Section if the Company fails to compensate or
indemnify the Trustee and to pay or reimburse the Trustee for expenses,
disbursements and advances under this Section 7.07, the Trustee shall have a
lien prior to the Notes on all money or property held or collected by the
Trustee other than money or property held in trust to pay principal of and
interest and any liquidated damages on particular Notes.

The Company’s payment
obligations pursuant to this Section shall survive the satisfaction or
discharge of this Indenture, any rejection or termination of this Indenture
under any Bankruptcy Law or the resignation or removal of the Trustee.  When the Trustee incurs expenses after the
occurrence of a Default specified in Section 6.01(g) or (h) with respect to the
Company, the expenses are intended to constitute expenses of administration
under the Bankruptcy Law.

SECTION 7.08.  Replacement of Trustee.  The Trustee may resign at any time by so notifying
the Company.  The Holders of a majority
in Principal amount of the Notes may remove the Trustee by so notifying the
Company and the Trustee and may appoint a successor Trustee.  The Company shall remove the Trustee if:

(a)                                  the
Trustee fails to comply with Section 7.10;

(b)                                 the
Trustee is adjudged bankrupt or insolvent;

(c)                                  a receiver or other
public officer takes charge of the Trustee or its property; or

 45

(d)                                 the
Trustee otherwise becomes incapable of acting.

If the Trustee resigns,
is removed by the Company or by the Holders of a majority in Principal amount
of the Notes and such Noteholders do not reasonably promptly appoint a
successor Trustee, or if a vacancy exists in the office of Trustee for any
reason (the Trustee in such event being referred to herein as the retiring
Trustee), the Company shall promptly appoint a successor Trustee.

A successor Trustee shall
deliver a written acceptance of its appointment to the retiring Trustee and to
the Company.  Thereupon the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture.  The successor Trustee shall
deliver a notice of its succession to Noteholders.  The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, subject to the
lien provided for in Section 7.07.

If a successor Trustee
does not take office within 60 days after the retiring Trustee resigns or is
removed, the retiring Trustee or the Holders of 10% in Principal amount of the
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.

If the Trustee fails to
comply with Section 7.10, any Noteholder may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.

Notwithstanding the
replacement of the Trustee pursuant to this Section, the Company’s obligations
under Section 7.07 shall continue for the benefit of the retiring Trustee.

SECTION 7.09.  Successor Trustee by Merger.  If the Trustee consolidates with, merges or
converts into, or transfers all or substantially all of its corporate trust
business or assets to, another corporation or banking association, the
resulting, surviving or transferee corporation without any further act shall be
the successor Trustee; provided that such corporation shall be eligible under
the provisions of Section 7.10.

In case at the time such
successor or successors by merger, conversion or consolidation to the Trustee
shall succeed to the trusts created by this Indenture any of the Notes shall
have been authenticated but not delivered, any such successor to the Trustee
may adopt the certificate of authentication of any predecessor trustee, and
deliver such Notes so authenticated; and in case at that time any of the Notes
shall not have been authenticated, any successor to the Trustee may
authenticate such Notes either in the name of any predecessor hereunder or in
the name of the successor to the Trustee; and in all such cases such
certificates shall have the full force that is provided in the Notes or in this
Indenture; provided that the right to adopt the certificate of authentication
of any Trustee or authenticate Notes in the name of any predecessor Trustee
shall apply only to its successor or successors by merger, conversion or
consolidation.

SECTION 7.10.  Eligibility; Disqualification.  The Trustee shall at all times satisfy the
requirements of TIA § 310(a).  The
Trustee shall have a combined capital and surplus of at least $100,000,000 as
set forth in its most recent published annual report of condition.  The Trustee shall comply with TIA § 310(b); provided,
however, that there shall be excluded from the operation of TIA §
310(b)(1) any indenture or indentures under which other securities or

 46
 

certificates of interest
or participation in other securities of the Company are outstanding if the
requirements for such exclusion set forth in TIA § 310(b)(1) are met.

SECTION 7.11.  Preferential Collection of Claims Against
Company.  The Trustee shall comply
with TIA § 311(a), excluding any creditor relationship listed in TIA          §
311(b).  A Trustee who has resigned or
been removed shall be subject to TIA § 311(a) to the extent indicated.

ARTICLE 8

DISCHARGE OF INDENTURE

SECTION 8.01.  Discharge of Liability on Notes.  (a) When (i) the Company delivers to the
Trustee all outstanding Notes (other than Notes replaced pursuant to Section
2.09) for cancellation or (ii) all outstanding Notes have become due and
payable, whether at maturity or as a result of the delivery of a notice of
redemption or upon a repurchase pursuant to Article 3 hereof, and the Company irrevocably
deposits with the Trustee money sufficient to pay at maturity or upon
redemption or repurchase all outstanding Notes, including interest thereon to
maturity or such redemption or repurchase date (other than Notes replaced
pursuant to Section 2.09), and any shares of Common Stock or other property due
in respect of converted Notes, and if in each such case the Company pays all
other sums payable hereunder by the Company, then this Indenture shall, subject
to Section 8.01(b), cease to be of further effect.  The Trustee shall acknowledge satisfaction
and discharge of this Indenture on demand of the Company accompanied by an
Officer’s Certificate and, if requested, an Opinion of Counsel, and at the cost
and expense of the Company.

(b)                                 Notwithstanding
clause (a) above, the Company’s obligations in Sections 2.05, 2.06, 2.07, 2.08,
2.09, 2.10, 7.07, 7.08 and in this Article 8 shall survive until the Notes have
been paid in full.  Thereafter, the
Company’s obligations in Sections 7.07, 8.03 and 8.04 shall survive.

SECTION 8.02.  Application of Trust Money.  The Trustee shall hold in trust money and any
shares of Common Stock or other property due in respect of converted Notes
deposited with it pursuant to this Article 8. 
It shall apply the deposited money through the Paying Agent and in
accordance with this Indenture to the payment of Principal of and interest on
the Notes or, in the case of any shares of Common Stock or other property due
in respect of converted Notes, in accordance with this Indenture in relation to
the conversion of Notes pursuant to the terms hereof.  Money and securities so held in trust are not
subject to Article 12.

SECTION 8.03.  Repayment to Company.  The Trustee and the Paying Agent shall
promptly turn over to the Company upon request any excess money or securities
held by them at any time.

Subject to any applicable
abandoned property law, the Trustee and the Paying Agent shall pay to the
Company upon written request any money held by them for the payment of
principal or interest and any shares of Common Stock or other property due in
respect of converted Notes

 47
 

that remains unclaimed
for two years, and, thereafter, Noteholders entitled to the money and/or
securities must look to the Company for payment as general creditors.

SECTION 8.04.  Reinstatement.  If the Trustee or Paying Agent is unable to
apply any money or to deliver any shares of Common Stock or other property due
in respect of converted Notes in accordance with this Article 8 by reason of
any legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company’s obligations under this Indenture and the Notes shall
be revived and reinstated as though no deposit had occurred pursuant to this
Article 8 until such time as the Trustee or Paying Agent is permitted to apply
all such money and any shares of Common Stock or other property due in respect
of converted Notes in accordance with this Article 8; provided, however,
that, if the Company has made any payment of interest on or principal of any
Notes because of the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Noteholders of such Notes to receive such
payment from the money held by the Trustee or Paying Agent.

ARTICLE 9

AMENDMENTS

SECTION 9.01.  Without Consent of Noteholders.  The Company and the Trustee may amend this
Indenture or the Notes without notice to or consent of any Noteholder:

(a)                                  to provide for
conversion rights of Noteholders and the Company’s repurchase obligations in
connection with a Fundamental Change in the event of any reclassification of
the Common Stock, merger or consolidation, or sale, conveyance, transfer or
lease of the Company’s property and assets substantially as an entirety;

(b)                                 to secure the Notes;

(c)                                  to provide for the
assumption of the Company’s obligations in the event of a merger or
consolidation, or sale, conveyance, transfer or lease of the Company’s property
and assets substantially as an entirety;

(d)                                 to surrender any right
or power conferred upon the Company;

(e)                                  to add to the
covenants o the Company for the benefit of the Noteholders;

(f)                                    to cure any
ambiguity or correct or supplement any inconsistent or otherwise defective
provision contained in this Indenture; provided that such modification or
amendment does not adversely affect the interests of the Noteholders in any
material respect; provided, further, that any amendment made solely to conform
the provisions of this Indenture to the description of the Notes contained in
the offering memorandum relating to the Notes will not be deemed to adversely
affect the interests of the Noteholders;

(g)                                 to make any provision
with respect to matters or questions arising under this Indenture that the
Company may deem necessary or desirable and that shall not be

 48
 

inconsistent with provisions of this
Indenture; provided that such change or modification does not, in the good
faith opinion of the Board of Directors, adversely affect the interests of the
Noteholders in any material respect;

(h)                                 to provide for
uncertificated Notes in addition to or in place of certificated Notes; provided,
however, that the uncertificated Notes are issued in registered form for
purposes of Section 163(f) of the Code or in a manner such that the
uncertificated Notes are described in Section 163(f)(2)(B) of the Code;

(i)                                     to increase the
conversion rate; provided, that the increase will not adversely affect the
interests of the Noteholders;

(j)                                     to make any change
in Article 12 that would limit or terminate the benefits available to any
holder of Senior Indebtedness (or Representatives therefor) under Article 12;

(k)                                  to comply with any
requirements of the SEC in connection with qualifying, or maintaining the
qualification of, this Indenture under the TIA;

(l)                                     to add Guarantees
with respect to the Notes;

(m)                               to make any changes or
modifications necessary in connection with the registration of the Notes under
the Securities Act as contemplated in the Registration Rights Agreement; provided
that such change or modification does not adversely affect the interests of the
Noteholders in any material respect; or

(n)                                 to provide for a
successor Trustee.

An amendment under this
Section may not make any change that adversely affects the rights under Article
12 of any holder of Senior Indebtedness then outstanding unless the holders of
such Senior Indebtedness (or any group or representative thereof authorized to
give a consent) consent to such change.

After an amendment under
this Section becomes effective, the Company shall deliver to Noteholders a
notice briefly describing such amendment. 
The failure to give such notice to all Noteholders, or any defect
therein, shall not impair or affect the validity of an amendment under this
Section.

SECTION 9.02.  With Consent of Noteholders.  The Company and the Trustee may amend this
Indenture or the Notes with the written consent of the Holders of at least a
majority in Principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for the Notes),
without notice to any other Noteholder. 
However, without the consent of each Holder of an outstanding Note
affected, an amendment may not:

(a)                                  reduce the principal
amount of Notes whose Noteholders must consent to an amendment;

 49
 

(b)                                 reduce the rate of or
extend the time for payment of interest (including Additional Interest, if any)
on any Note;

(c)                                  reduce the Principal
amount of or extend the Stated Maturity of any Note;

(d)                                 reduce the amount
payable upon redemption or repurchase of the Notes in accordance with Article 3;

(e)                                  make any Note payable
in currency other than that stated in the Note;

(f)                                    impair the right of
a holder to institute suit for payment of any Notes;

(g)                                 affect the right of a
holder to convert any Notes into shares of Common Stock (or, if we so elect,
cash or a combination of cash and shares of Common Stock) or reduce the amount
of cash, number of shares of Common Stock or any other property receivable upon
conversion pursuant to the terms of this Indenture, or reduce the Conversion
Rate, except as otherwise permitted pursuant to this Indenture;

(h)                                 change the redemption
provisions in a manner adverse to the Noteholders;

(i)                                     change the Company’s
obligation to repurchase any Notes at the option of the Noteholder in a manner
adverse to the Noteholders;

(j)                                     change the Company’s
obligation to repurchase any Notes upon a Fundamental Change in a manner
adverse to the Noteholders;

(k)                                  reduce the number of
Additional Shares to which a Noteholder would be entitled upon conversion in
connection with a Non-Stock Change of Control;

(l)                                     modify Article 12
of this Indenture in a manner that materially adversely affects the
Noteholders;

(m)                               reduce the percentage of
the Notes required for consent to any modification of the indenture that does
not require the consent of each affected Noteholder; or

(n)                                 make any change in
Section 6.04 or 6.07 or the second sentence of this Section 9.02.

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

An amendment under this
Section 9.02 may not make any change that adversely affects the rights under
Article 12 of any holder of Senior Indebtedness then outstanding unless the
holders of such Senior Indebtedness (or any group or representative thereof
authorized to give a consent) consent to such change.

 50
 

After an amendment under
this Section becomes effective, the Company shall deliver to Noteholders a
notice briefly describing such amendment. 
The failure to give such notice to all Noteholders, or any defect
therein, shall not impair or affect the validity of an amendment under this
Section.

SECTION 9.03.  Compliance with Trust Indenture Act.  Every amendment to this Indenture or the
Notes shall comply with the TIA as then in effect.

SECTION 9.04.  Revocation and Effect of Consents and
Waivers.  A consent to an amendment
or a waiver by a Noteholder of a Note shall bind the Noteholder and every
subsequent Noteholder of that Note or portion of the Note that evidences the
same debt as the consenting Noteholder’s Note, even if notation of the consent
or waiver is not made on the Note. 
However, any such Noteholder or subsequent Noteholder may revoke the
consent or waiver as to such Noteholder’s Note or portion of the Note if the
Trustee receives the notice of revocation before the date the amendment or
waiver becomes effective.  After an
amendment or waiver becomes effective, it shall bind every Noteholder.  An amendment or waiver becomes effective once
both (i) the requisite number of consents have been received by the Company or
the Trustee and (ii) such amendment or waiver has been executed by the Company
and the Trustee.

The Company may, but
shall not be obligated to, fix a record date for the purpose of determining the
Noteholders entitled to give their consent or take any other action described
above or required or permitted to be taken pursuant to this Indenture.  If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Noteholders at such record date (or their duly designated proxies), and only
those Persons, shall be entitled to give such consent or to revoke any consent
previously given or to take any such action, whether or not such Persons
continue to be Noteholders after such record date.  No such consent shall be valid or effective
for more than 120 days after such record date.

SECTION 9.05.  Notation on or Exchange of Notes.  If an amendment changes the terms of a Note,
the Trustee may require the Noteholder of the Note to deliver it to the
Trustee.  The Trustee may place an
appropriate notation on the Note regarding the changed terms and return it to
the Noteholder.  Alternatively, if the
Company or the Trustee so determines, the Company in exchange for the Note
shall issue and the Trustee shall authenticate a new Note that reflects the
changed terms.  Failure to make the
appropriate notation or to issue a new Note shall not affect the validity of
such amendment.

SECTION 9.06.  Trustee to Sign Amendments.  The Trustee shall sign any amendment
authorized pursuant to this Article 9 if the amendment does not adversely
affect the rights, duties, liabilities or immunities of the Trustee.  If it does, the Trustee may but need not sign
it.  In signing such amendment the
Trustee shall be entitled to receive, and (subject to Section 7.01) shall be
fully protected in relying upon, in addition to the documents required by
Section 13.04, an Officer’s Certificate and, if requested, an Opinion of
Counsel, stating that such amendment is authorized or permitted by this
Indenture and that such amendment is the legal, valid and binding obligation of
the Company enforceable against it in accordance with its terms, subject to
customary exceptions, and complies with the provisions hereof (including
Section 9.03).

 51
 

ARTICLE 10

CONVERSION OF NOTES

SECTION 10.01.  Right to Convert.  (a) Subject to and upon compliance with the
provisions of this Indenture, on or prior to the close of business on the
Trading Day immediately preceding the Maturity Date, any Noteholder whose Note
has not been previously redeemed or repurchased shall have the right, at such
Noteholder’s option, to convert the Principal amount of the Notes held by such
holder, or any portion of such principal amount which is an integral multiple
of $1,000, into at the Company’s option shares of Common Stock, cash or a
combination of cash and shares of Common Stock (as such shares shall then be
constituted) as described in Section 10.12, subject to Section 10.14, at the
Conversion Rate in effect at such time, by surrender of the Notes so to be
converted in whole or in part, together with any required funds, under the
circumstances described in this Section 10.01 and in the manner provided in
Section 10.02.  The Notes shall be
convertible only upon the occurrence of one of the following events:

(1)                                  prior
to February 15, 2025 on any date during any Fiscal Quarter beginning after
March 31, 2007 (and only during such Fiscal Quarter), if the Closing Sale
Price of a share of Common Stock was more than 120% of the then current
Conversion Price for at least 20 Trading Days in the 30 consecutive Trading-Day
period ending on the last Trading Day of the immediately preceding Fiscal
Quarter;

(2)                                  on
or after February 15, 2025;

(3)                                  with
respect to the Notes called for redemption pursuant to Section 3.01, until 5:00
p.m., New York City time, on the Business Day prior to the relevant redemption
date even if the Notes are not otherwise convertible at such time, after which
time the right to convert the Notes shall expire unless the Company defaults in
the payment of the redemption price;

(4)                                  if
the Company distributes to all or substantially all holders of Common Stock
rights or warrants (other than pursuant to a shareholder rights plan) entitling
them to purchase, for a period of 45 calendar days or less, Common Stock at
less than the average Closing Sale Price per share of the Common Stock for the
10 Trading Days preceding the declaration date for such distribution;

(5)                                  if
the Company distributes to all or substantially all holders of Common Stock,
cash or other assets, debt securities or rights to purchase the Company’s
securities (other than pursuant to a shareholder rights plan, share split of
Common Stock or a dividend or distribution on its Common Stock in shares of
Common Stock), which distribution has a per share value as determined by the
Board of Directors exceeding 5% of the Closing Sale Price per share of the
Common Stock on the Trading Day preceding the declaration for such
distribution;

(6)                                  if
a Fundamental Change occurs, at any time beginning on the effective date of the
Fundamental Change until 5:00 p.m., New York City time, on the date that

 52
 

is 15 calendar days after the
actual effective date, or, if applicable, on the Business Day preceding the
Fundamental Change Repurchase Date relating to such Fundamental Change; or

(7)                                  during
the five consecutive Business-Day period following any five consecutive
Trading-Day period in which the Trading Price per $1,000 principal amount of
the Notes was less than 98% of the product of (x) the Closing Sale Price of a
share of Common Stock and (y) the applicable Conversion Rate for each day of
such five consecutive Trading Day period.

(b)                                 (1)
The Company shall notify the Trustee in writing on or prior to the fifth
Business Day following the first day of each Fiscal Quarter (commencing prior
to February 15, 2025, beginning with the Fiscal Quarter ending
June 30, 2007) whether the condition to conversion set forth in Section
10.01(a)(1) above shall have been satisfied with respect to such Fiscal
Quarter.

(2)                                  The
Trustee shall have no obligation to determine the Trading Price of the Notes
and whether the Notes are convertible pursuant to clause (7) of Section
10.01(a) unless the Company has requested such determination; and the Company
shall have no obligation to make such request unless a Noteholder makes a
request for a determination and provides the Company with reasonable evidence
that the Trading Price per $1,000 principal amount of Notes is reasonably
likely to be less than 98% of the product of the Closing Sale Price of the
Common Stock and the Conversion Rate then in effect per $1,000 principal amount
of Notes.  At such time, the Company
shall instruct the Trustee to determine the Trading Price of the Notes
beginning on the next Trading Day and on each successive Trading Day for 10
consecutive Trading Days to determine whether the Trading Prices for the Notes
for each Trading Day in any five consecutive Trading Day period within such
10-Trading Day period is less than 98% of the product of the Closing Sale Price
of the Common Stock and the then current Conversion Rate, and to notify the
Company accordingly.

The Trustee shall be
entitled at its sole discretion to consult with the Company and to request the
assistance of the Company in connection with the Trustee’s duties and
obligations pursuant to Section 10.01(b)(2) hereof (including the calculation
or determination of the Trading Price), and the Company agrees, if requested by
the Trustee, to cooperate with, and provide assistance to, the Trustee in
carrying out its duties under this Section 10.01.  Upon any determination or calculation made by
the Trustee in carrying out its duties under this Section 10.01, the Trustee
shall notify the Company in writing of such determination, and the Company
shall promptly confirm such determination in writing to the Trustee.

(c)                                  In
the case of a distribution contemplated by clauses (4) or (5) of Section
10.01(a), the Company shall notify Noteholders at least 20 calendar days prior
to the ex-dividend date (the first date on which the Common Stock trades on the
relevant market from which the Closing Sale Price was obtained without the
right to receive such right, warrant, dividend or distribution) for such
distribution (the “Distribution Notice”).  Once the Company has given the Distribution
Notice, Noteholders may surrender their Notes for conversion at any time until
the earlier of (i) 5:00 p.m., New York City time, on the Business Day
immediately preceding the ex-dividend date or (ii) the Company’s announcement
that such distribution will not take place. 
In the event of a distribution contemplated by clauses (4) or (5) of
Section 10.01(a), Noteholders

 53
 

may not convert the Notes if
the Noteholders may otherwise participate in such distribution without
converting their Notes.  The Company will
provide written notice to the Trustee and Noteholders and any conversion agent
as soon as reasonably practicable of any anticipated or actual event or
transaction that will cause or causes the Notes to become convertible pursuant
to clauses (4) or (5) of Section 10.01(a).

(d)                                 In
addition, if the Company consolidates with or merges with or into another
Person or is a party to a binding share exchange or conveys, transfers, sells,
leases or otherwise disposes of all or substantially all of its properties and
assets in each case, pursuant to which the Common Stock would be converted into
cash, securities and/or other property, then the Noteholders shall have the
right to convert their Notes at any time from and after the date that is 15
calendar days prior to the anticipated effective date of the transaction until,
but excluding, the date that is 15 calendar days after the actual effective
date of such transaction unless the transaction also constitutes a Fundamental
Change.

The Board of Directors
shall determine the anticipated effective date of the transaction, and such
determination shall be conclusive and binding on the Noteholders and shall be
publicly announced by the Company and posted on its website not later than 20
calendar days prior to the anticipated effective date.

(e)                                  Whenever
the Notes shall become convertible pursuant to this Section 10.01, the Company
or, at the Company’s request, the Trustee in the name and at the expense of the
Company, shall notify the Noteholders of the event triggering such
convertibility in the manner provided in Section 13.02, and the Company shall
also publicly announce such information and publish it on the Company’s
website.  Any notice so given shall be
conclusively presumed to have been duly given, whether or not the Noteholder
receives such notice.  The Company shall
notify Noteholders at least 20 calendar days prior to the anticipated effective
date of any Fundamental Change.

(f)                                    Notes
in respect of which a Noteholder has delivered a Repurchase Notice exercising
such Noteholder’s right to require the Company to repurchase such Notes
pursuant to Section 3.04 or 3.05 may be converted only if such Repurchase
Notice is withdrawn in accordance with Section 3.07 prior to 5:00 p.m., New
York City time, on the Business Day immediately preceding the Repurchase Date
or the Fundamental Change Repurchase Date, as applicable.  If a Noteholder fails to withdraw a
Repurchase Notice, such Noteholders’ conversion rights with respect to the
Notes so subject to repurchase will expire at 5:00 p.m., New York City time, on
the Business Day preceding the Repurchase Date or the Fundamental Change
Repurchase Date, unless the Company defaults in payment of the repurchase
price.

(g)                                 A
Noteholder is not entitled to any rights of a holder of Common Stock until such
holder has converted his Notes to Common Stock, and only to the extent such
Notes are deemed to have been converted to Common Stock under this Article 10.

SECTION 10.02.  Exercise of Conversion Right; Issuance of
Common Stock on Conversion; No Adjustment for Interest or Dividends.  In order to exercise the conversion right
with respect to any Notes in certificated form, the Company must receive at the
office or agency of the Company maintained for that purpose or, at the option
of such Noteholder, the Corporate

 54
 

Trust Office, such Notes
with the original or facsimile of the form entitled “Conversion Notice” on the reverse thereof, duly completed and
manually signed, together with such Notes duly endorsed for transfer, together
with any other required transfer documents, accompanied by the funds, if any,
required by this Section 10.02.  Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock which shall be
issuable on such conversion shall be issued, and shall be accompanied by
transfer or similar taxes, if required pursuant to Section 10.07.

In order to exercise the
conversion right with respect to any interest in a Global Note, the Noteholder
must (i) complete, or cause to be completed, the appropriate instruction form
for conversion pursuant to the Depositary’s book-entry conversion program, (ii)
deliver, or cause to be delivered, by book-entry delivery an interest in such
Global Note, (iii) furnish appropriate endorsements and transfer documents if
required by the Company or the Trustee or conversion agent and (iv) pay the
funds, if any, required by this Section 10.02 and any transfer or similar taxes
if required pursuant to Section 10.07.

The certificate or
certificates for the number of full shares of Common Stock into which the Notes
are converted (and cash in lieu of fractional shares) and cash, if applicable,
will be delivered to such Noteholder after satisfaction of the requirements for
conversion set forth above, in accordance with Section 10.12.  In case any Notes of a denomination greater than
$1,000 shall be surrendered for partial conversion, and subject to Section
2.03, the Company shall execute and the Trustee shall authenticate and deliver
to the Noteholder so surrendered, without charge to the Noteholder, a new Note
or Notes in authorized denominations in an aggregate principal amount equal to
the unconverted portion of the surrendered Notes.

Each conversion shall be
deemed to have been effected as to any such Notes (or portion thereof) on the
date on which the requirements set forth above in this Section 10.02 have been
satisfied as to such Notes (or portion thereof) (the “Conversion Date”) and such Notes will be
deemed to have been converted immediately prior to 5:00 p.m., New York City
time, on the Conversion Date.  The Person
in whose name any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become, on said date,
the holder of record of the shares represented thereby; provided that
any such surrender on any date when the stock transfer books of the Company
shall be closed shall constitute the Person in whose name the certificates are
to be issued as the record holder thereof for all purposes on the next
succeeding day on which such stock transfer books are open, but such conversion
shall be at the Conversion Rate in effect on the Conversion Date.

Any Notes or portion
thereof surrendered for conversion during the period from 5:00 p.m., New York
City time, on the Record Date for any interest payment date to 5:00 p.m., New
York City time, on the Business Day preceding the applicable interest payment
date shall be accompanied by payment, in immediately available funds or other
funds acceptable to the Company, of an amount equal to the interest (excluding
any Additional Interest) otherwise payable on such interest payment date on the
principal amount being converted; provided that no such payment need be
made (1) if a Noteholder converts its Notes in connection with a redemption and
the Company has specified a redemption date that is after a Record Date and on
or prior to the corresponding interest payment date, (2) if a Noteholder
converts its Notes in connection with a Fundamental Change and the Company has
specified a Fundamental Change

 55
 

Repurchase Date that is
after a Record Date and on or prior to the corresponding interest payment date
or (3) to the extent of any overdue interest, if any overdue interest exists at
the time of conversion with respect to such Notes.  Except as provided above in this Section
10.02 and Section 10.05, no payment or other adjustment shall be made for
interest accrued on any Notes converted or for dividends on any shares issued
upon the conversion of such Notes as provided in this Article 10.

Upon the conversion of an
interest in a Global Note, the Trustee (or other conversion agent appointed by
the Company), or the custodian for the Global Note at the direction of the
Trustee (or other conversion agent appointed by the Company), shall make a
notation on such Global Note as to the reduction in the principal amount
represented thereby.  The Company shall
notify the Trustee in writing of any conversions of Notes effected through any
conversion agent other than the Trustee.

Upon the conversion of
any Notes, the accrued but unpaid interest attributable to the period from the
issue date of the Notes to the Conversion Date, with respect to the converted
Notes, shall not be cancelled, extinguished or forfeited, but rather shall be
deemed to be paid in full to the Noteholder thereof through delivery of the
cash (including a cash payment in lieu of fractional shares, if any) and shares
of Common Stock, if any, in exchange for the Notes being converted pursuant to
the provisions hereof.

SECTION 10.03.  Cash Payments in Lieu of Fractional Shares.  No fractional shares of Common Stock or scrip
certificates representing fractional shares shall be issued upon conversion of
Notes.  If more than one Note shall be
surrendered for conversion at one time by the same Noteholder, the number of
full shares that shall be issuable upon conversion shall be computed on the
basis of the aggregate Principal amount of the Notes (or specified portions
thereof to the extent permitted hereby) so surrendered.  If any fractional share of stock would be
issuable upon the conversion of any Note or Notes, the Company shall make an
adjustment and payment therefor in cash to the Noteholder at a price equal to
the Closing Sale Price on the last Trading Day immediately preceding the
Conversion Date.

SECTION 10.04.  Conversion Rate.

(a)                                  Each
$1,000 principal amount of the Notes shall be convertible into cash and the
number of shares of Common Stock, if any, based upon the Conversion Rate which
is specified in the form of Notes attached as Exhibit A hereto, subject to
adjustment as provided in this Section 10.04 and Section 10.05.

(b)                                 Subject
to Section 10.13, if and only to the extent a Noteholder elects to convert
Notes at any time following the date on which a Non-Stock Change of Control
becomes effective (the “Effective Date”)
but before 5:00 p.m., New York City time, on the Business Day immediately
preceding the related Fundamental Change Purchase Date, the Company shall
increase the Conversion Rate applicable to such converted Notes by a number of
additional shares of Common Stock (the “Additional
Shares”) as set forth below. 
The number of Additional Shares of Common Stock shall be determined by
reference to the table below, based on the Effective Date and the price (the “Stock Price”) paid per share for the Common Stock in the
Non-Stock Change of Control.  If holders
of Common Stock receive only cash in the Non-Stock 

 56
 

Change of Control, the Stock
Price shall be the cash amount paid per share. 
Otherwise, the Stock Price shall be the average of the Closing Sale
Prices of the Common Stock on the five Trading Days prior to but not including
the Effective Date of such Non-Stock Change of Control.

The numbers of Additional
Shares of Common Stock set forth in the table below shall be adjusted as of any
date on which the Conversion Rate is adjusted in the same manner in which the
Conversion Rate is adjusted.  The Stock
Prices set forth in the table below shall be adjusted, as of any date on which
the Conversion Rate is adjusted, to equal the Stock Price applicable
immediately prior to such adjustment multiplied by a fraction, of which

(1)                                  the
numerator shall be the Conversion Rate immediately prior to the adjustment and

(2)                                  the
denominator shall be the Conversion Rate as so adjusted.

The following table sets
forth the Stock Price and number of Additional Shares by which the Conversion
Rate shall be adjusted:

	
   

  	
   

  	
  Stock Price

  	
   

  
	
  Effective Date

  	
   

  	
  $11.25

  	
   

  	
  $14.63

  	
   

  	
  $17.50

  	
   

  	
  $20.00

  	
   

  	
  $22.50

  	
   

  	
  $25.00

  	
   

  	
  $27.50

  	
   

  	
  $30.00

  	
   

  	
  $32.50

  	
   

  	
  $35.00

  	
   

  
	
  January 23, 2007

  	
   

  	
  20.5127

  	
   

  	
  13.0547

  	
   

  	
  9.5132

  	
   

  	
  7.4761

  	
   

  	
  6.0233

  	
   

  	
  4.9498

  	
   

  	
  4.1326

  	
   

  	
  3.4953

  	
   

  	
  2.9936

  	
   

  	
  2.5831

  	
   

  
	
  February 15,
  2008

  	
   

  	
  20.1768

  	
   

  	
  12.3913

  	
   

  	
  8.7956

  	
   

  	
  6.7783

  	
   

  	
  5.3703

  	
   

  	
  4.3510

  	
   

  	
  3.5894

  	
   

  	
  3.0049

  	
   

  	
  2.5500

  	
   

  	
  2.1854

  	
   

  
	
  February 15,
  2009

  	
   

  	
  19.4806

  	
   

  	
  11.3692

  	
   

  	
  7.7668

  	
   

  	
  5.8165

  	
   

  	
  4.4981

  	
   

  	
  3.5720

  	
   

  	
  2.8992

  	
   

  	
  2.3952

  	
   

  	
  2.0081

  	
   

  	
  1.7084

  	
   

  
	
  February 15,
  2010

  	
   

  	
  18.3509

  	
   

  	
  9.8224

  	
   

  	
  6.2720

  	
   

  	
  4.4661

  	
   

  	
  3.3134

  	
   

  	
  2.5468

  	
   

  	
  2.0169

  	
   

  	
  1.6369

  	
   

  	
  1.3549

  	
   

  	
  1.1417

  	
   

  
	
  February 15,
  2011

  	
   

  	
  16.5402

  	
   

  	
  7.3061

  	
   

  	
  3.9699

  	
   

  	
  2.5152

  	
   

  	
  1.7108

  	
   

  	
  1.2417

  	
   

  	
  0.9527

  	
   

  	
  0.7627

  	
   

  	
  0.6300

  	
   

  	
  0.5322

  	
   

  
	
  February 15, 2012

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  

 

If the Stock Price and
Effective Date are not set forth on the table above and the Stock Price is:

(i)                                     between
two Stock Prices on the table or the Effective Date is between two date on the
table, the number of Additional Shares of Common Stock shall be determined by
the Trustee by straight-line interpolation between the number of Additional
Shares set forth for the higher and lower Stock Price and the two Effective
Dates, as applicable, based on a 360-day year;

(ii)                                  in
excess of $35.00 per share (subject to adjustment), no Additional Shares shall
be issued upon conversion; or

(iii)                               less
than $11.25 per share (subject to adjustment), no Additional Shares shall be
issued upon conversion.

Notwithstanding the
foregoing, in no event will the Conversion Rate as adjusted pursuant to this
Section 10.04 exceed 88.8888 per $1,000 principal amount of the Notes, subject
to adjustments in the same manner as adjustments to the number of Additional
Shares of Common Stock as set forth in this Section 10.04(b).

The Company shall provide
written notice to all Noteholders and to the Trustee at least 20 calendar days
prior to the anticipated Effective Date of a Non-Stock Change of Control.  The

 57
 

Company must also provide
written notice to all Noteholders and to the Trustee upon the effectiveness of
such Non-Stock Change of Control.

SECTION 10.05.  Adjustment of Conversion Rate.  The Conversion Rate shall be adjusted from
time to time by the Company as follows:

(a)                                  In
case the Company shall, at any time or from time to time while any of the Notes
are outstanding, pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to all holders of its outstanding shares
of Common Stock, then the Conversion Rate in effect at the opening of business
on the date following the Record Date fixed for the determination of
stockholders entitled to receive such dividend or other distribution shall be
increased by multiplying such Conversion Rate by a fraction:

(1)                                  the numerator of
which shall be the sum of the number of shares of Common Stock outstanding at
the close of business on the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution plus the total number
of shares of Common Stock constituting such dividend or other distribution; and

(2)                                  the denominator of
which shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination,

such increase to become
effective immediately after the opening of business on the day following the
date fixed for such determination.  For
the purpose of this paragraph (a), the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the
Company.  The Company will not pay any
dividend or make any distribution on shares of Common Stock held in the
treasury of the Company.  If any dividend
or distribution of the type described in this Section 10.05(a) is declared but
not so paid or made, the Conversion Rate shall again be adjusted to the
Conversion Rate that would then be in effect if such dividend or distribution
had not been declared.

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

(c)                                  In
case the Company shall issue rights or warrants (other than any rights or
warrants referred to in Section 10.05(d)) to all holders of its outstanding
shares of Common Stock entitling them to subscribe or purchase, for a period of
up to 45 calendar days, shares of Common Stock at a price per share less than
the then Current Market Price, the Conversion Rate shall be increased so that
the same shall equal the rate determined by multiplying the Conversion

 58
 

Rate in effect immediately
prior to the date fixed for determination of stockholders entitled to receive
such rights or warrants by a fraction,

(1)                                  the numerator of
which shall be the number of shares of Common Stock outstanding on the date
fixed for determination of stockholders entitled to receive such rights or
warrants plus the total number of Additional Shares of Common Stock offered for
subscription or purchase, and

(2)                                  the denominator of
which shall be the sum of the number of shares of Common Stock outstanding at
the close of business on the date fixed for determination of stockholders
entitled to receive such rights or warrants plus the number of shares that the
aggregate offering price of the total number of shares so offered would
purchase at the Current Market Price on such date.

Such adjustment shall be
successively made whenever any such rights or warrants are issued, and shall
become effective immediately after the opening of business on the day following
the date fixed for determination of stockholders entitled to receive such
rights or warrants; provided, that no adjustment to the Conversion Rate
shall be made if the Noteholder will otherwise participate in such distribution
without conversion as a result of holding the Notes.  To the extent that shares of Common Stock are
not delivered after the expiration of such rights or warrants, the Conversion
Rate shall be readjusted to the Conversion Rate that 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.  If such rights or warrants
are not so issued, the Conversion Rate shall again be adjusted to be the
Conversion Rate that 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 Noteholders 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 by the Company for such
rights or warrants and any amount payable on exercise or conversion thereof,
the value of such consideration, if other than cash, to be determined by the
Board of Directors.

(d)                                 In
case the Company shall, by dividend or otherwise, distribute to all holders of
its outstanding shares of Common Stock shares of any class of Capital Stock of
the Company or evidences of its Indebtedness or assets (including securities,
but excluding (i) any rights or warrants referred to in Section 10.05(c), (ii)
any dividends or distributions in connection with a reclassification,
consolidation, merger, combination or sale or conveyance to which Section 10.06
applies, (iii) any dividends or distributions paid exclusively in cash or (iv)
any dividends or distributions referred to in Section 10.05(a)) (any of the
foregoing hereinafter in this Section 10.05(d)) called the “Distributed Assets”), then, in each such case, the
Conversion Rate shall be increased so that the same shall be equal to the rate
determined by multiplying the Conversion Rate in effect on the record date with
respect to such distribution by a fraction,

(1)                                  the numerator of
which shall be the Current Market Price on such record date; and

 59
 

(2)                                  the denominator of
which shall be the Current Market Price on such record date less the Fair
Market Value (as determined by the Board of Directors, whose determination
shall be conclusive, and described in a resolution of the Board of Directors)
on the record date of the portion of the Distributed Assets so distributed
applicable to one share of Common Stock,

such adjustment to become
effective immediately prior to the opening of business on the day following
such record date; provided that if the then Fair Market Value (as so
determined) of the portion of the Distributed Assets so distributed applicable
to one share of Common Stock is equal to or greater than the Current Market
Price on the record date or the Current Market Price exceed such Fair Market
Value by less than $1.00, in lieu of the foregoing adjustment, adequate provision
shall be made so that each Noteholder shall have the right to receive upon
conversion the amount of Distributed Assets such Noteholder would have received
had such Noteholder converted each Notes solely into Common Stock immediately
prior to the record date; and provided, further, that no
adjustment to the Conversion Rate shall be made if the Noteholder will
otherwise participate in such distribution without conversion as a result of
holding the Notes.  If such dividend or
distribution is not so paid or made, the Conversion Rate shall again be
adjusted to be the Conversion Rate that 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 10.05(d) by reference to the actual or when issued trading market for
any Distributed Assets comprising all or part of such distribution, it must in
doing so consider the prices in such market over the same period (the “Reference Period”) used in computing the
Current Market Price pursuant to Section 10.05(h)(i) to the extent possible,
unless the Board of Directors determines in good faith that determining the
Fair Market Value during the Reference Period would not be in the best interest
of the Noteholders.  Notwithstanding the
foregoing, in the event any such distribution consists of shares of Capital
Stock of, or similar equity interests in, one or more of the Company’s
Subsidiaries (a “Spin-Off”), the
Conversion Rate shall be increased so that the same shall be equal to the rate
determined by multiplying the Conversion Rate in effect immediately prior to
the close of business on the record date with respect to such distribution by a
fraction:

(3)                                  the numerator of
which shall be the Current Market Price of the Common Stock, plus the Fair
Market Value of the portion of the Distributed Assets so distributed applicable
to one share of Common Stock (determined on the basis of the number of shares
of Common Stock outstanding on the record date), determined as set forth above,
and

(4)                                  the denominator of
which shall be the Current Market Price on such record date, and

such increase to become
effective immediately prior to the opening of business on the day following the
last Trading Day of the Spin-Off Valuation Period (as defined below).  In the event that such dividend or
distribution is not so paid or made, the Conversion Rate shall again be
adjusted to be the Conversion Rate that would then be in effect if such
dividend or distribution had not been declared. 
In the case of a Spin-Off, the Fair Market Value of the securities to be

 60

distributed shall equal the average of the Closing
Sale Prices of such securities on the principal securities market on which such
securities are traded for the five consecutive Trading Days commencing on and
including the sixth day of trading of those securities after the effectiveness
of the Spin-Off (the “Spin-Off Valuation
Period”), and the Current Market Price shall be measured for the
same period.  In the event, however, that
an underwritten initial public offering of the securities in the Spin-Off occurs
simultaneously with the Spin-Off, Fair Market Value of the securities
distributed in the Spin-Off shall mean the initial public offering price of
such securities and the Current Market Price shall mean the Closing Sale Price
for the Common Stock on the same Trading Day.

Rights or warrants distributed by the Company to all
holders of Common Stock entitling the holders thereof to subscribe for or
purchase shares of the Company’s Capital Stock (either initially or under
certain circumstances), which rights or warrants, until the occurrence of a
specified event or events (“Trigger Event”):  (i) are deemed to be transferred with such
shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in
respect of future issuances of Common Stock, shall be deemed not to have been
distributed for purposes of this Section 10.05 (and no adjustment to the
Conversion Rate under this Section 10.05 will be required) until the occurrence
of the earliest Trigger Event, whereupon such rights and warrants shall be
deemed to have been distributed and an appropriate adjustment (if any is
required) to the Conversion Rate shall be made under this Section
10.05(d).  If any such right or warrant,
including any such existing rights or warrants distributed prior to the date of
this Indenture, are subject to events, upon the occurrence of which such rights
or warrants become exercisable to purchase different securities, evidences of
indebtedness or other assets, then the date of the occurrence of any and each
such event shall be deemed to be the date of distribution and record date with
respect to new rights or warrants with such rights (and a termination or
expiration of the existing rights or warrants without exercise by any of the
holders thereof).  In addition, in the event
of any distribution (or deemed distribution) of rights or warrants, or any
Trigger Event or other event (of the type described in the preceding sentence)
with respect thereto that was counted for purposes of calculating a
distribution amount for which an adjustment to the Conversion Rate under this
Section 10.05 was made, (1) in the case of any such rights or warrants that
shall all have been redeemed or repurchased without exercise by any holders
thereof, the Conversion Rate 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 that
shall have expired or been terminated without exercise by any holders thereof,
the Conversion Rate shall be readjusted as if such rights and warrants had not
been issued.

No adjustment of the Conversion Rate shall be made
pursuant to this Section 10.05(d) in respect of rights or warrants distributed
or deemed distributed on any Trigger Event to the extent that such rights or
warrants are actually distributed or reserved by the Company for distribution
to Noteholders upon conversion by such Noteholders to Common Stock.

For purposes of this Section 10.05(d) and Sections
10.05(a) and (b), any dividend or distribution to which this Section 10.05(d)
is applicable that also includes shares of Common

 61
 

Stock, or rights or warrants to subscribe for or
purchase shares of Common Stock (or both), shall be deemed instead to be (1) a
dividend or distribution of the evidences of indebtedness, assets or shares of
capital stock other than such shares of Common Stock or rights or warrants (and
any Conversion Rate adjustment required by this Section 10.05(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 Rate adjustment required by Sections 10.05(a)
or 10.05(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,” “the date fixed for the
determination of stockholders entitled to receive such rights or warrants” and “the
date fixed for such determination” within the meaning of Section 10.05(a) and
10.05(b) and (B) any shares of Common Stock included in such dividend or
distribution shall not be deemed “outstanding at the close of business on the
date fixed for such determination” within the meaning of Section 10.05(a).

(e)                                  In case the Company
shall, by dividend or otherwise, distribute to all holders of its Common Stock
exclusively cash (including any quarterly cash dividend, but excluding (x) any
dividend or distribution in connection with the liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary and (y) any dividend
or distribution in connection with a reclassification, consolidation, merger,
binding share exchange or sale to which Section 10.06 applies) then the
Conversion Rate shall be increased so that the same shall equal the rate
determined by multiplying the Conversion Rate in effect on the applicable
record date by a fraction,

(1)                                  the
numerator of which shall be the Current Market Price on such record date; and

(2)                                  the
denominator of which shall be the Current Market Price on such record date less
the amount per share of such dividend or distribution,

such adjustment to be effective immediately prior to
the opening of business on the day following the record date; provided
that if the portion of the cash so distributed applicable to one share of
Common Stock is equal to or greater than the Current Market Price on the record
date, in lieu of the foregoing adjustment, adequate provision shall be made so
that each Noteholder shall have the right to receive upon conversion the amount
of cash such Noteholder would have received had such Noteholder converted each
Notes solely into Common Stock immediately prior to the record date.  If such dividend or distribution is not so
paid or made, the Conversion Rate shall again be adjusted to be the Conversion
Rate that would then be in effect if such dividend or distribution had not been
declared.

(f)                                    In case a tender or
exchange offer made by the Company or any Subsidiary for all or any portion of
the Common Stock shall expire and such tender or exchange offer (as amended
upon the expiration thereof) shall require the payment to stockholders of
consideration per share of Common Stock having a Fair Market Value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a resolution of the Board of Directors) that as of the last
time (the “Expiration Time”) tenders or
exchanges may be made pursuant to such tender or exchange offer (as it may be
amended) exceeds the Closing

 62
 

Sale Price of a share of Common Stock on the Trading Day next succeeding
the Expiration Time, the Conversion Rate shall be increased so that the same
shall equal the rate determined by multiplying the Conversion Rate in effect
immediately prior to the Expiration Time by a fraction,

(1)                                  the
numerator of which shall be the sum of (x) the Fair Market Value (determined as
aforesaid) of the aggregate consideration payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the tender or exchange
offer) of all shares validly tendered or exchanged 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 Closing Sale Price of a
share of Common Stock on the Trading Day next succeeding the Expiration Time,
and

(2)                                  the
denominator of which shall be the number of shares of Common Stock outstanding
(including any Purchased Shares) at the Expiration Time multiplied by the
Closing Sale Price of a share of Common Stock on the Trading Day next
succeeding the Expiration Time,

such adjustment to become effective immediately prior
to the opening of business on the day following the Expiration Time.  If the Company is obligated to purchase
shares pursuant to any such tender or exchange offer, but the Company is
permanently prevented by applicable law from effecting any such purchases or
all such purchases are rescinded, the Conversion Rate shall again be adjusted
to be the Conversion Rate that would then be in effect if such tender or
exchange offer had not been made.

(g)                                 For purposes of this
Section 10.05, the following terms shall have the meaning indicated:

(i)                                     “Current Market Price” on any date means the average of the
daily Closing Sale Prices per share of Common Stock for the ten consecutive
Trading Days immediately prior to such date (the “day in question”); provided that if:

(1)                                  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 Rate pursuant to Section 10.05 (a), (b), (c), (d), (e) or (f) occurs
during such ten consecutive Trading Days, the Closing Sale Price for each
Trading Day prior to the “ex” date for such other event shall be adjusted by
dividing such Closing Sale Price by the same fraction by which the Conversion
Rate is so required to be multiplied as a result of such other event;

(2)                                  the
“ex” date for any event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the Conversion Rate pursuant to
Section 10.05(a), (b), (c), (d), (e) or (f) occurs on or after the “ex” date
for the issuance or distribution requiring such computation and prior to the
day in question, the Closing Sale Price for each Trading Day on and after the “ex”
date for such other event shall be adjusted by multiplying such Closing Sale
Price by the fraction by

 63
 

which the
Conversion Rate is so required to be multiplied as a result of such other
event; and

(3)                                  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 Closing Sale 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 10.05(d), (e) or (f)) 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.

Notwithstanding the foregoing, whenever successive
adjustments to the Conversion Rate are called for pursuant to this Section
10.05, such adjustments shall be made to the Current Market Price as may be
necessary or appropriate to effectuate the intent of this Section 10.05 and to
avoid unjust or inequitable results as determined in good faith by the Board of
Directors.

“Ex” date, when used:

(1)                                  with
respect to any issuance or distribution, means the first date on which the
shares of Common Stock trade regular way on the relevant exchange or in the
relevant market from which the Closing Sale Price was obtained without the
right to receive such issuance or distribution;

(2)                                  with
respect to any subdivision or combination of shares of Common Stock, means the
first date on which the shares of Common Stock trade regular way on such
exchange or in such market after the time at which such subdivision or
combination becomes effective; and

(3)                                  with
respect to any tender or exchange offer, means the first date on which the
shares of Common Stock trade regular way on such exchange or in such market
after the Expiration Time of such offer.

(ii)                                  “Fair Market
Value” shall mean the amount which a willing buyer would pay a
willing seller in an arm’s-length transaction.

(iii)                               “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).

(iv)                              “Trading Day”
means a day during which (i) trading in the Common Stock generally occurs, (ii)
there is no Market Disruption Event and (iii) a Closing Sale Price for the
Common Stock is provided on the Nasdaq Global Market or the Nasdaq Global

 64
 

Select Market or, if the Common Stock is not listed on the Nasdaq
Global Market or the Nasdaq Global Select Market, on the principal other U.S.
national or regional securities exchange on which the Common Stock is then
listed or, if the Common Stock is not listed on a U.S. national or regional
securities exchange, on the principal other market on which the Common Stock is
then traded.

(h)                                 The Company may make
such increases in the Conversion Rate, in addition to those required by Section
10.05(a)-(f), as the Board of Directors considers to be advisable to avoid or
diminish any income tax to holders of Common Stock or rights to purchase Common
Stock resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any event treated as such for income tax purposes.

To the extent permitted by applicable law and subject
to the stockholder approval requirements of the U.S. securities exchange on
which the Common Stock is traded, the Company from time to time may increase
the Conversion Rate by any amount for any period of time if the period is at
least 20 Business Days, the increase is irrevocable during the period and the
Board of Directors shall have made a determination that such increase would be
in the best interests of the Company, which determination shall be
conclusive.  Whenever the Conversion Rate
is increased pursuant to the preceding sentence, the Company shall mail to
Noteholders of record of the Notes a notice of the increase, which notice will
be given at least 15 days prior to the effectiveness of any such increase, and
such notice shall state the increased Conversion Rate and the period during
which it will be in effect.

(i)                                     No adjustment in
the Conversion Rate shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in such rate; provided
that any adjustments that by reason of this Section 10.05(i) are not required
to be made shall be carried forward and the Company shall make such carry
forward adjustments, regardless of whether the aggregate adjustment is less
than 1%, (x) annually on the anniversary of the Closing Date and otherwise
(y)(1) five Business Days prior to the maturity of the Notes (whether at Stated
Maturity or otherwise) or (2) prior to the redemption date or Repurchase Date
or Fundamental Change Repurchase Date, unless such adjustment has already been
made.  All calculations under this
Article 10 shall be made by the Company and shall be made to the nearest cent
or to the nearest one-ten thousandth (1/10,000) of a share, as the case may
be.  No adjustment need be made for
rights to purchase Common Stock pursuant to a Company plan for reinvestment of
dividends or interest or for any issuance of Common Stock or convertible or
exchangeable securities or rights to purchase Common Stock or convertible or
exchangeable securities.  Interest will
not accrue on any cash into which the Notes are convertible.

(j)                                     Whenever the
Conversion Rate is adjusted as herein provided, the Company will either issue a
press release through Business Wire containing the relevant information, file a
Current Report on Form 8-K within the time periods prescribed therein
disclosing the relevant information or make this information available on the
Company’s website or through another public medium as the Company may use at
that time.  In addition, the Company
shall promptly file with the Trustee and any conversion agent other than the
Trustee an Officer’s Certificate setting forth the Conversion Rate after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.  Unless and until a
responsible Officer of the Trustee shall have received such Officer’s
Certificate, the Trustee shall not be deemed to

 65
 

have knowledge of any adjustment of the Conversion Rate and may assume
that the last Conversion Rate of which it has actual knowledge is still in
effect.  Promptly after delivery of such
certificate, the Company shall prepare a notice of such adjustment of the
Conversion Rate setting forth the adjusted Conversion Rate and the date on
which each adjustment becomes effective and shall deliver such notice of such
adjustment of the Conversion Rate to each Noteholder at his last address
appearing on the Register, within 20 calendar days after execution thereof.  Failure to deliver such notice shall not
affect the legality or validity of any such adjustment.

(k)                                  In any case in which
this Section 10.05 provides that an adjustment shall become effective
immediately after (1) a record date for an event, (2) the date fixed for the
determination of stockholders entitled to receive a dividend or distribution
pursuant to Section 10.05(a), (3) a date fixed for the determination of
stockholders entitled to receive rights or warrants pursuant to Section
10.05(b), or (4) the Expiration Time for any tender or exchange offer pursuant
to Section 10.05(f) (each a “Determination Date”),
the Company may elect to defer until the occurrence of the applicable
Adjustment Event (as hereinafter defined) (x) issuing to any Noteholder converted
after such Determination Date and before the occurrence of such Adjustment
Event, the Additional Shares of Common Stock, if any, or other securities
issuable upon such conversion by reason of the adjustment required by such
Adjustment Event over and above the Common Stock, if any, issuable upon such
conversion before giving effect to such adjustment and (y) paying to such
Noteholder any amount in cash in lieu of any fractional share pursuant to
Section 10.03.  For purposes of this
Section 10.05(j), the term “Adjustment Event”
shall mean:

(i)                                     in
any case referred to in clause (1) hereof, the occurrence of such event,

(ii)                                  in
any case referred to in clause (2) hereof, the date any such dividend or
distribution is paid or made,

(iii)                               in
any case referred to in clause (3) hereof, the date of expiration of such
rights or warrants, and

(iv)                              in
any case referred to in clause (4) hereof, the date a sale or exchange of
Common Stock pursuant to such tender or exchange offer is consummated and
becomes irrevocable.

(l)                                     For purposes of
this Section 10.05, the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Company but
shall include shares issuable in respect of scrip certificates issued in lieu
of fractions of shares of Common Stock. 
The Company will not pay any dividend or make any distribution on shares
of Common Stock held in the treasury of the Company.

(m)                               No adjustment to the
Conversion Rate shall be made pursuant to this Section 10.05 if the Noteholders
may participate in the transaction that would otherwise give rise to adjustment
pursuant to this Section 10.05.

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SECTION 10.06.  Effect
of Reclassification, Consolidation, Merger or Sale.  If any of the following events occur, namely:

(a)                                  any reclassification
or change of the outstanding 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),

(b)                                 any consolidation or
merger of the Company with or into another Person, or

(c)                                  any sale, lease,
transfer, conveyance or other disposition of all or substantially all of the
Company’s assets and those of its Subsidiaries taken as a whole to any other
Person or Persons, as a result of which holders of Common Stock shall be
entitled to receive stock, other securities or other property or assets
(including cash or any combination thereof) with respect to or in exchange for
such Common Stock,

in each case, the Company or the successor or
purchasing corporation, as the case may be, shall execute with the Trustee a
supplemental indenture (which shall comply with the Trust Indenture Act as in
force at the date of execution of such supplemental indenture, if such
supplemental indenture is then required to so comply) providing that such Notes
shall, without the consent of any Noteholders, be convertible into the kind and
amount of shares of stock and other securities or property or assets (including
cash or any combination thereof) (the “Applicable
Consideration”) that such Noteholder would have been entitled to
receive upon such reclassification, change, consolidation, merger, sale, lease,
transfer, conveyance or other disposition had such Notes been converted into
Common Stock immediately prior to such reclassification, change, consolidation,
merger, sale, lease, transfer, conveyance or other disposition; provided
that in the event holders of Common Stock have the opportunity to elect the
form of consideration to be received in the event of such reclassification,
change, consolidation, merger, sale, lease, transfer, conveyance or other
disposition, then from and after the effective date of such transaction, the
Notes shall be convertible into the consideration that a majority of the
holders of Common Stock who made such an election received in such transaction
and the term “Applicable Consideration” shall be construed accordingly.  Such supplemental indenture shall provide for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 10. 
If, in the case of any such reclassification, change, consolidation,
merger, sale, lease, transfer, conveyance or other disposition, the stock or
other securities and assets receivable thereupon by a holder 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, sale, lease, transfer,
conveyance or other disposition, then such supplemental indenture shall also be
executed by such other corporation and shall contain such additional provisions
to protect the interests of the Noteholders as the Board of Directors shall
reasonably consider necessary by reason of the foregoing, including to the
extent practicable the provisions providing for the conversion rights set forth
in this Article 10.

The Company shall cause notice of the execution of
such supplemental indenture to be delivered to each Noteholder, at the address
of such Noteholder as it appears on the register of

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the Notes maintained by the Registrar, within 20 days
after execution thereof.  Failure to
deliver such notice shall not affect the legality or validity of such
supplemental indenture.

The above provisions of this Section 10.06 shall
similarly apply to successive reclassifications, changes, consolidations,
mergers, sales, leases, transfers, conveyances or other dispositions.

If this Section 10.06 applies to any event or
occurrence, Section 10.05 shall not apply. 
Notwithstanding this Section 10.06, if a Public Acquirer Change of
Control occurs and the Company elects to adjust its Conversion Obligation and
the Conversion Rate pursuant to Section 10.13, the provisions of Section 10.13
shall apply to the conversion instead of this Section 10.06.

In the event that the Company has made an irrevocable
election to make a cash payment of Principal upon conversion pursuant to
Section 10.14 hereof, such election shall remain binding notwithstanding the
form of Applicable Consideration paid to holders of Common Stock.

Any Additional Shares that a Noteholder is entitled to
receive upon conversion pursuant to Section 10.04(b), if applicable, shall not
be payable in shares of Common Stock, but shall represent a right to receive the
aggregate amount of cash, securities or other property into which the
Additional Shares would convert as a result of such recapitalization, change,
consolidation, merger, sale, lease, transfer, conveyance or other disposition.

SECTION 10.07.  Taxes
on Shares Issued.  The issue of stock
certificates on conversions of Notes shall be made without charge to the
converting Noteholder for any documentary, stamp or similar issue or transfer
tax in respect of the issue thereof.  The
Company shall not, however, be required to pay any such tax which may be
payable in respect of any transfer involved in the issue and delivery of stock
in any name other than that of the holder of any Notes converted, and the
Company shall not be required to issue or deliver any such stock certificate
unless and until the Person or Persons requesting the issue thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.

SECTION 10.08.  Reservation
of Shares, Shares to be Fully Paid; Compliance with Governmental Requirements;
Listing of Common Stock.  The Company
shall provide, free from preemptive rights, out of its authorized but unissued
shares or shares held in treasury, sufficient shares of Common Stock to provide
for the conversion of the Notes, including any Additional Shares, from time to
time as such Notes are presented for conversion.

Before taking any action which would cause an
adjustment increasing the Conversion Rate to an amount that would cause the
Conversion Price to be reduced 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 Rate.

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

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The Company covenants that, if any shares of Common
Stock to be provided for the purpose of conversion of 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, to the extent then
permitted by the rules and interpretations of the Commission (or any successor
thereto), endeavor to secure such registration or approval, as the case may be.

The Company further covenants that, if at any time the
Common Stock shall be listed on The New York Stock Exchange, the Nasdaq Global
Market or any other national securities exchange or automated quotation system,
the Company will, if permitted by the rules of such exchange or automated
quotation system, list and keep listed, so long as the Common Stock shall be so
listed on such exchange or automated quotation system, all Common Stock
issuable upon conversion of the Notes; provided that if the rules of
such exchange or automated quotation system permit the Company to defer the
listing of such Common Stock until the first conversion of the Notes into Common
Stock in accordance with the provisions of this Indenture, the Company
covenants to list such Common Stock issuable upon conversion of the Notes in
accordance with the requirements of such exchange or automated quotation system
at such time.

SECTION 10.09.  Responsibility
of Trustee.  The Trustee and any
other conversion agent shall not at any time be under any duty or
responsibility to any Noteholder to determine the Conversion Rate or whether
any facts exist which may require any adjustment of the Conversion Rate, or
with respect to the nature or extent or calculation of any such adjustment when
made, or with respect to the method employed, or herein or in any supplemental
indenture provided to be employed, in making the same.  The Trustee and any other conversion agent
shall not be accountable with respect to the validity or value (or the kind or
amount) of any shares of Common Stock, or of any capital stock, other
securities or other assets or property, which may at any time be issued or
delivered upon the conversion of any Notes; and the Trustee and any other
conversion agent make no representations with respect thereto.  Neither the Trustee nor any conversion agent
shall be responsible for any failure of the Company to issue, transfer or
deliver any shares of Common Stock or stock certificates or other securities or
property or cash upon the surrender of any Notes for the purpose of conversion
or to comply with any of the duties, responsibilities or covenants of the
Company contained in this Article 10. 
Without limiting the generality of the foregoing, neither the Trustee
nor any conversion agent shall be under any responsibility to determine the
correctness of any provisions contained in any supplemental indenture entered
into pursuant to Section 10.06 relating either to the kind or amount of shares
of capital stock or other securities or other assets or property (including
cash) receivable by Noteholders upon the conversion of their Notes after any
event referred to in such Section 10.06 or to any adjustment to be made with
respect thereto, but, subject to the provisions of Section 9.01, may accept as
conclusive evidence of the correctness of any such provisions, and shall be
protected in relying upon, the Officer’s Certificate (which the Company shall
be obligated to file with the Trustee prior to the execution of any such
supplemental indenture) with respect thereto.

SECTION 10.10.  Notice
to Holders Prior to Certain Actions. 
In case:

(a)                                  the Company shall
declare a dividend (or any other distribution) on its Common Stock that would
require an adjustment in the Conversion Rate pursuant to Section 10.05; or

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

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

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

the Company shall cause to be filed with the Trustee
and to be delivered to each Noteholder at its address appearing on the Register
provided for in Section 2.05 of this Indenture, a notice stating (x) the date
on which a record is to be taken for the purpose of such dividend, distribution
or rights or warrants, or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such dividend,
distribution or rights are to be determined, or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up is expected to become effective or occur, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up. 
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of such dividend, distribution, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up.

SECTION 10.11.  Stockholder
Rights Plans.  If the rights provided
for in any existing or future rights plan adopted by the Company have separated
from the shares of Common Stock in accordance with the provisions of the
applicable stockholder rights agreement so that the Noteholders would not be
entitled to receive any rights in respect of Common Stock issuable upon
conversion of the Notes, the Conversion Rate will be adjusted as provided in
Section 10.05(d).  If such rights have
not separated, any shares of Common Stock delivered upon the conversion of
Notes shall be accompanied by such rights.

SECTION
10.12.  Settlement Upon Conversion.  (a)                    Except to the extent the Company
has irrevocably elected to make cash payment of Principal upon conversion
pursuant to Section 10.14, the Company may elect to deliver either shares of
Common Stock, cash or a combination of cash and shares of Common Stock in
satisfaction of its obligations upon conversion of the Notes (including with
respect to Additional Shares).

(b)                                 Except
to the extent the Company has irrevocably elected to make cash payment of
Principal upon conversion pursuant to Section 10.14, the Company shall inform
the Noteholders of its method of settlement upon conversion by giving notice of
such method to the Trustee:

(i) if the Company
has called the Notes for redemption, in its redemption notice;

 70
 

(ii) if a
Fundamental Change has occurred, in the Company Repurchase Notice;

(iii) in respect
of Notes to be converted during the period beginning 25 Trading Days preceding
the Maturity Date and ending one Trading Day preceding the Maturity Date, 26
Trading Days preceding the Maturity Date; and

(iv) in all other
cases, no later than two Trading Days following the Conversion Date;

provided that, if
the Company has not irrevocably elected to make a cash payment of Principal
upon conversion pursuant to Section 10.14 or otherwise given notice of its
intention to deliver cash or a combination of cash and shares of Common Stock
upon settlement, the Company will deliver only Common Stock in satisfaction of
its obligations upon conversion of the Notes.

(c)                                  If
the Company chooses to satisfy all or any portion of the conversion obligation
in cash, the Company will notify the converting Holder through the Trustee of
the dollar amount to be satisfied in cash, which must be expressed either as a
percentage of the conversion obligation or as the lesser of (x) a fixed dollar
amount and (y) the Conversion Value.  The
Company will treat all Noteholders converting on the same Trading Day in the
same manner with respect to settlement of conversion of the Notes; provided
that, the Company will not have any obligation to satisfy its conversion
obligations arising on different Trading Days in the same manner except to the
extent it has made an irrevocable election to make cash payment of Principal
upon conversion pursuant to Section 10.14.

(d)                                 If
the Company timely elects to satisfy all or any portion of the Conversion
Obligation in cash, the Conversion Notice may be retracted by the converting
Holder at any time during the Conversion Retraction Period; provided that, no
Noteholder may retract its Conversion Notice if (i) the Company irrevocably
elected to make a cash payment of Principal upon conversion, (ii) the
Noteholder is converting its Note in connection with a redemption or a
Fundamental Change, (iii) the Noteholder is converting its Note during the
period beginning 25 Trading Days preceding the Maturity Date and ending one
Trading Day preceding the Maturity Date or (iv) the Company does not elect to satisfy
any portion of its conversion obligation in cash.

(e)                                  If
the Conversion Notice has not been retracted, then (i) settlement in shares of
Common Stock only will occur as soon as practicable after the Company notifies
Noteholders that is has chosen this method of settlement, but in no event later
than three Trading Days thereafter (ii) settlement in cash and/or shares of
Common Stock will occur on the second Trading Day following the final day of
the Conversion Period.

(f)                                    If
the Company elects to satisfy the entire conversion obligation in shares of
Common Stock, the Company will deliver to Holders surrendering Notes for
conversion a number of shares of Common Stock equal to (A) the Principal to be
converted divided by $1,000 multiplied by (B) the then-effective Conversion
Rate.

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(g)                                 If
the Company elects to satisfy the entire conversion obligation in cash, the
Company will deliver to Holders surrendering Notes for conversion, for each
$1,000 Principal amount of Notes converted, cash in an amount equal to the
Conversion Value.

(h)                                 If
the Company elects to satisfy the conversion obligation in a combination of
cash and shares of Common Stock, the Company will deliver to Holders
surrendering Notes for conversion, for each $1,000 Principal amount of Notes
converted:

(i)                                     (x)
the fixed dollar amount per $1,000 principal amount of the Notes of the
conversion obligation to be satisfied in cash specified in the notice regarding
the Company’s chosen method of settlement or, if lower, the Conversion Value in
cash, or (y) the percentage of the conversion obligation to be satisfied in
cash specified in the notice regarding the Company’s chosen method of
settlement multiplied by the Conversion Value, as the case may be (the “Cash Amount”); and

(ii)                                  a
number of shares of Common Stock for each of the 20 Trading Days in the
Conversion Period equal to 1/20th of (i) the Conversion Rate then in effect
minus (ii) the quotient of (x) the Cash Amount divided by (y) the Closing Sale
Price of Common Stock for that Trading Day (plus cash in lieu of fractional
shares if applicable).

For purposes of
this Section 10.12,

“Conversion Value,” for every $1,000 principal amount of the
Notes being converted, means an amount equal to the sum of the Daily Conversion
Values for each of the 20 Trading Days in the Conversion Period.

“Daily Conversion Value”
for any Trading Day equals 1/20th of the product of (a) the Conversion Rate in
effect on that day and (b) the Closing Sale Price of the Common Stock on that
day.

SECTION 10.13.  Conversion After a Public Acquirer Change
of Control.

(a)                                  In the event of a
Public Acquirer Change of Control, the Company may, in lieu of adjusting the
Conversion Rate pursuant to Section 10.04(b), elect to adjust its conversion
obligation and the Conversion Rate such that from and after the Effective Date
of such Public Acquirer Change of Control, Noteholders shall be entitled to
convert their Notes, in accordance with Section 10.02 hereof, into shares of
Public Acquirer Common Stock and the Conversion Rate in effect immediately
before the Public Acquirer Change of Control shall be adjusted by multiplying
it by a fraction:

(1)                                  the
numerator of which shall be (A) in the case of a Public Acquirer Change of
Control, pursuant to which the Common Stock is converted solely into cash, the
value of such cash payable per share of Common Stock or (B) in the case of any
other Public Acquirer Change of Control, the average of the Closing Sale Prices
of the

 72
 

Common Stock
for the five consecutive Trading Days prior to but excluding the Effective Date
of such Public Acquirer Change of Control; and

(2)                                  the
denominator of which shall be the average of the Closing Sale Prices of the
Public Acquirer Common Stock for the five consecutive Trading Days commencing
on the Trading Day next succeeding the Effective Date of such Public Acquirer
Change of Control.

(b)                                 The Company shall
notify Noteholders of its election by providing notice as set forth in Section
10.04(b).

(c)                                  If the Company elects
to make the adjustment to the Conversion Rate described in Section 10.13(a) in
the event of a Public Acquirer Change of Control, Noteholders will not be
entitled to receive any Additional Shares pursuant to Section 10.04(b).  In addition, following such an election, the
provisions herein shall continue to apply except that references to “Common
Stock” shall be deemed to refer to Public Acquirer Common Stock.

SECTION 10.14.  Irrevocable
Election of Cash Payment Upon Conversion.

At any time on or prior to the 26th Trading Day
preceding the Maturity Date, the Company may irrevocably elect to satisfy in
cash its conversion obligation with respect to, the lower of (i) the
Conversion Value or (ii) the Principal amount of the Notes to be converted
after the date of such election, with any remaining amount to be satisfied in
shares of the Common Stock or cash as the Company may subsequently elect.  Such irrevocable election with respect to the
Principal amount of the Notes would be in the Company’s sole discretion without
the consent of the Noteholders.  If the
Company makes such election, the Company will notify the Trustee and the
Noteholders at their addresses shown in the Register of the Registrar.

ARTICLE
11

RESERVED

ARTICLE
12

SUBORDINATION

SECTION 12.01.  Agreement
to Subordinate.  The Company
covenants and agrees, and each Noteholder by accepting a Note likewise
covenants and agrees, that the payment of Principal and interest (including
Special Interest and Additional Interest, if any) with respect to the Notes
shall be subordinated in right of payment, to the extent and in the manner
provided in this Article 12, to the prior payment in full in cash or Cash
Equivalents of all Senior Indebtedness and that the subordination is for the
benefit of and enforceable by the holders of such Senior Indebtedness.

SECTION 12.02.  Liquidation,
Dissolution, Bankruptcy.  Upon any
payment or distribution of the assets of the Company to creditors upon a
liquidation, winding up or

 73
 

dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its properties:

(a)                                  holders
of Senior Indebtedness shall be entitled to receive payment in full in cash or
Cash Equivalents of such Senior Indebtedness before the Noteholders shall be
entitled to receive any payment from the Company of amounts due with respect to
the Notes; and

(b)                                 until
the Senior Indebtedness is paid in full in cash or Cash Equivalents, any
payment or distribution to which Noteholders would be entitled but for this
Article 12 shall be made to holders of such Senior Indebtedness as their
interests may appear.

SECTION 12.03.  Payments
to Noteholders.  No payment shall be
made with respect to the Principal of, premium, if any, or interest, on the
Notes, (including but not limited to, Additional Interest, if any, and the
redemption price with respect to the Notes called or submitted for redemption
in accordance with this Indenture), if:

(a)                                  a
default in the payment of Principal, premium, if any, interest, rent or other
obligations in respect of Senior Indebtedness occurs and is continuing beyond
any applicable period of grace or upon the acceleration of the maturity thereof
(a “Payment Default”); or

(b)                                 a
default, other than a Payment Default, on any Designated Senior Indebtedness
occurs and is continuing that then permits holders of such Designated Senior
Indebtedness to accelerate its maturity and the Trustee receives a notice of
the default (a ‘Payment Blockage Notice”) from a holder of Designated Senior
Indebtedness, a Representative of Designated Senior Indebtedness or the Company
(a “Non-Payment Default”).

If the Trustee receives any Payment Blockage Notice
pursuant to clause (b) above, no subsequent Payment Blockage Notice shall be
effective for purposes of this Section 12.03 unless and until (A) at least 365
days shall have elapsed since the initial effectiveness of the immediately
prior Payment Blockage Notice and (b) all scheduled payments of Principal,
premium, if any, and interest, if any, on the Notes that have come due have
been paid in full in cash or Cash Equivalents. 
No Non-Payment Default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice.

The Company may and shall resume payments on and
distributions in respect of the Notes upon:

(1) in the case of a Payment Default, the date upon
which any such Payment Default is cured or waived or ceases to exist, or

(2) in the case of a Non-Payment Default, the earlier
of (a) the date upon which such default is cured or waived or ceases to exist
or (b) 179 days after the applicable Payment Blockage Notice is received by the
Trustee (the “Payment Blockage Period”), unless
this Article 12 otherwise prohibits the payment or distribution at the time of
such payment or distribution.

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Regardless of anything to the contrary herein, nothing
shall prevent (a) any payment by the Trustee to the Noteholders of amounts
deposited with it pursuant to Article 8 
or (b) any payment by the Trustee or the paying Agent as permitted by
Section 12.09.

SECTION 12.04.  Acceleration
of Securities.  If payment of the
Notes is accelerated because of an Event of Default and a demand for payment is
made on the Company, pursuant to the directions of the Representative and the
Company, the Trustee shall promptly notify the holders of the Senior
Indebtedness (or the Representative of such holders) of such demand.  If any Senior Indebtedness is outstanding,
the Company may not make payments of amounts due with respect to the Notes
until five Business Days after such holders or the Representative of the
holders of the Designated Senior Indebtedness receive notice of such demand
and, thereafter, may make payments of amounts due with respect to the Notes.

SECTION 12.05.  When
Distribution Must Be Paid Over.  In
the event the Company shall make any payment or distribution to the Trustee
with respect to the Notes at a time when such payment or distribution of the
Company’s assets of any kind, whether in cash, property or securities, including,
without limitation, by way of set-off or otherwise is prohibited by Section
12.02 or 12.03, such payment shall be held by the Trustee, in trust for the
benefit of, and shall be paid forthwith over and delivered to, pursuant to the
directions of the Representative and the Company, the holders of Senior
Indebtedness (pro rata as to each of such holders on the basis of the
respective amounts of Senior Indebtedness held by them) or their
Representative, as their respective interests may appear, for application to
the payment of all Senior Indebtedness remaining unpaid to the extent necessary
to pay all Senior Indebtedness in full in cash or payment satisfactory to the
holders of Senior Indebtedness of all Senior Indebtedness remaining unpaid in
accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.  If a payment or distribution is made to
Noteholders that because of this Article 12 should not have been made to them,
the Noteholders who receive the payment or distribution shall hold such payment
or distribution in trust for holders of the Senior Indebtedness and pay it over
to them as their respective interests may appear.

SECTION 12.06.  Subrogation.  After all Senior Indebtedness is paid in full
and until the Notes are paid in full, Noteholders shall be subrogated to the
rights of holders of such Senior Indebtedness to receive distributions
applicable to Senior Indebtedness.  A
distribution made under this Article 12 to holders of Senior Indebtedness which
otherwise would have been made to Noteholders is not, as between the Company
and Noteholders, a payment by the Company on such Senior Indebtedness.

SECTION 12.07.  Relative
Rights.  This Article 12 defines the
relative rights of Noteholders and holders of Senior Indebtedness.  Nothing in this Indenture shall:

(a)                                  impair,
as between the Company and Noteholders, the obligation of the Company which is
absolute and unconditional, to make payments with respect to the Notes;

(b)                                 affect
the relative rights of Noteholders and creditors of the Company other than
holders of Senior Indebtedness; or

 75

  (c)                                  prevent
the Trustee or any Noteholder from exercising its available remedies upon a
Default by the Company under its obligations with respect to the Notes, subject
to the rights of holders of Senior Indebtedness to receive distributions
otherwise payable to Noteholders.
  SECTION 12.08.  Subordination May Not Be Impaired.  No right of any holder of Senior Indebtedness
to enforce the subordination of the obligations of the Company hereunder shall
be impaired by any act or failure to act by the Company or by its failure to
comply with this Indenture.
  SECTION 12.09.  Rights of Trustee and Paying Agent.  Notwithstanding Section 12.03, the Trustee or
the Paying Agent may continue to make payments on the Notes and shall not be
charged with knowledge of the existence of facts that would prohibit the making
of any such payments unless, not less than three Business Days prior to the
date of such payment, a Trust Officer of the Trustee receives written notice
satisfactory to it that payments may not be made under this Article 12.  The Company, the Registrar or co-registrar,
the Paying Agent, a Representative or a holder of Senior Indebtedness may give
the notice; provided, however, that if an issue of Senior
Indebtedness has a Representative, only the Representative may give the notice.
  The Trustee in its
individual or any other capacity may hold Senior Indebtedness with the same
rights it would have if it were not Trustee. 
The Registrar and co-registrar and the Paying Agent may do the same with
like rights.  The Trustee shall be
entitled to all the rights set forth in this Article 12 with respect to any
Senior Indebtedness which may at any time be held by it, to the same extent as
any other holder of Senior Indebtedness; and nothing in Article 7 shall deprive
the Trustee of any of its rights as such holder.  Nothing in this Article 12 shall apply to
claims of, or payments to, the Trustee under or pursuant to Section 7.07.
  SECTION 12.10.  Distribution or Notice to Representative.  Whenever a distribution is to be made or a
notice given to holders of Senior Indebtedness, the distribution may be made
and the notice given to their Representative (if any).
  SECTION 12.11.  Article 12 Not to Prevent Events of
Default or Limit Right to Accelerate. 
The failure of the Company to make a payment on any of its obligations,
including with respect to the Notes, by reason of any provision in this Article
12 shall not be construed as preventing the occurrence of a Default by the
Company under such obligations, including with respect to the Notes.  Nothing in this Article 12 shall have any
effect on the right of the Noteholders or the Trustee to make a demand for
payment on the Company pursuant to the terms of the Notes.
  SECTION 12.12.  Trustee Entitled to Rely.  Upon any payment or distribution pursuant to
this Article 12, the Trustee and the Noteholders shall be entitled to rely (i)
upon any order or decree of a court of competent jurisdiction in which any
proceedings of the nature referred to in Section 12.02 are pending, (ii) upon a
certificate of the liquidating trustee or agent or other Person making such
payment or distribution to the Trustee or to the Noteholders or (iii) upon the
Representatives for the holders of Senior Indebtedness for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of such Senior

 76
 

    Indebtedness and other
Indebtedness, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
12.  In the event that the Trustee
determines, in good faith, that evidence is required with respect to the right
of any Person as a holder of Senior Indebtedness to participate in any payment
or distribution pursuant to this Article 12, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of such Senior Indebtedness held by such Person, the extent to which
such Person is entitled to participate in such payment or distribution and other
facts pertinent to the rights of such Person under this Article 12, and, if
such evidence is not furnished, the Trustee may defer any payment to such
Person pending judicial determination as to the right of such Person to receive
such payment.  The provisions of Sections
7.01 and 7.02 shall be applicable to all actions or omissions of actions by the
Trustee pursuant to this Article 12.
  SECTION 12.13.  Trustee to Effectuate Subordination.  Each Noteholder by accepting a Note
authorizes and directs the Trustee on his or her behalf to take such action as
may be necessary or appropriate to acknowledge or effectuate the subordination
between the Noteholders and the holders of Senior Indebtedness as provided in
this Article 12 and appoints the Trustee as attorney-in-fact for any and all
such purposes.
  SECTION 12.14.  Trustee Not Fiduciary for Holders of
Senior Indebtedness.  The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness and shall not be liable to any such holders if it shall mistakenly
pay over or distribute to Noteholders or the Company or any other Person, money
or assets to which any holders of Senior Indebtedness shall be entitled by
virtue of this Article 12 or otherwise.
  SECTION 12.15.  Reliance by Holders of Senior Indebtedness
on Subordination Provisions.  Each
Noteholder by accepting a Note acknowledges and agrees that the foregoing
subordination provisions are, and are intended to be, an inducement and a
consideration to each holder of any Senior Indebtedness, whether such Senior
Indebtedness was created or acquired before or after the issuance of the Notes,
to acquire and continue to hold, or to continue to hold, such Senior
Indebtedness and such holder of Senior Indebtedness (including, without limitation,
Designated Senior Indebtedness) shall be deemed conclusively to have relied on
such subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Senior Indebtedness.
  SECTION 12.16.  Obligation of Company Unconditional.  Nothing contained in this Article 12 or
elsewhere in this Indenture or in any Note is intended to or shall impair, as
between the Company, its creditors other than holders of Senior Indebtedness
and the Noteholders, the obligation of the Company, which is absolute and
unconditional, to pay to the Noteholders all amounts due with respect to the
Notes as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Noteholders and creditors of the Company, other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent the Trustee or the
Holder of any Note from exercising all remedies otherwise permitted by
applicable law upon Default under this Indenture, subject to the rights, if
any, under this Article 12 of the holders of Senior Indebtedness in respect of
cash, property or securities of the Company received upon the exercise of any
such remedy.  Upon any distribution of
assets of the Company referred to in this Article 12, the Trustee, subject to
the

 77
 

    provisions of Sections
7.01 and 7.02, and the Noteholders shall be entitled to rely upon any order or
decree by any court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, or a
certificate of the liquidating trustee or agent or other person making any
distribution to the Trustee or the Noteholders, for the purpose of ascertaining
the persons entitled to participate in such distribution, the holders of the
Senior Indebtedness and other Indebtedness of the Company, the amount thereof
or payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article 12.  Nothing contained in this Article 12 or
elsewhere in this Indenture or in any Note is intended to or shall affect the
obligation of the Company to make, or prevent the Company from making, at any
time except during the pendency of any dissolution, winding up, liquidation or
reorganization proceeding, and except during the continuance of any default
specified in Section 12.03 (not cured or waived), payments at any time of all
amounts due with respect to the Notes.
  SECTION 12.17.  Not to Prevent Events of Default.  The failure to make any payment due with
respect to the Notes by reason of any provision of this Article 12 shall not be
construed as preventing the occurrence of an Event of Default under Section
6.01.
  ARTICLE 13
  MISCELLANEOUS
  SECTION 13.01.  Trust Indenture Act Controls.  If any provision of this Indenture limits,
qualifies or conflicts with another provision which is required to be included
in this Indenture by the TIA, the required provision shall control.
  SECTION 13.02.  Notices.  Any notice or communication shall be in writing
and delivered in person, or mailed by first-class mail addressed as follows:
  if to the Company:
  Isis Pharmaceuticals, Inc.

1896 Rutherford Road

Carlsbad, CA 92008

Attention:  Lynne Parshall, Senior Vice
President and Chief Financial Officer
  if to the Trustee:
  Wells Fargo Bank, N.A.

Corporate Trust Services

608 2nd Avenue South

MAC N9303-120

Minneaplois, MN  55479

Attention:  Isis Pharmaceuticals Account
Manager
  The Company or the
Trustee by notice to the other may designate additional or different addresses
for subsequent notices or communications.

 78
 

    Any notice or
communication delivered to a Noteholder shall be delivered to the Noteholder at
the Noteholder’s address as it appears on the Register of the Registrar and
shall be sufficiently given if so delivered within the time prescribed.
  Failure to deliver a
notice or communication to a Noteholder or any defect in it shall not affect
its sufficiency with respect to other Noteholders.  If a notice or communication is delivered in
the manner provided above, it is duly given, whether or not the addressee
receives it.
  SECTION 13.03.  Communication by Noteholders with Other
Noteholders.  Noteholders may
communicate pursuant to TIA § 312(b) with other Noteholders with respect to
their rights under this Indenture or the Notes. 
The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA § 312(c).
  SECTION 13.04.  Certificate and Opinion as to Conditions
Precedent.  Upon any request or
application by the Company to the Trustee to take or refrain from taking any
action under this Indenture, the Company shall furnish to the Trustee upon
request:
  (a)                                  an
Officer’s Certificate in form and substance reasonably satisfactory to the
Trustee stating that, in the opinion of the signers, all conditions precedent,
if any, provided for in this Indenture relating to the proposed action have
been complied with; and/or
  (b)                                 an
Opinion of Counsel in form and substance reasonably satisfactory to the Trustee
stating that, in the opinion of such counsel, all such conditions precedent
have been complied with.
  Each signer of an Officer’s
Certificate or an Opinion of Counsel may (if so stated) rely, effectively, upon
an Opinion of Counsel as to matters and an Officer’s Certificate as to factual
matters if such register reasonably and in good faith believes in the accuracy
of the document relied upon.
  SECTION 13.05.  Statements Required in Certificate or
Opinion.  Each Officer’s Certificate
or Opinion of Counsel requested by the Trustee with respect to compliance with
a covenant or condition provided for in this Indenture shall include:
  (a)                                  a
statement that the individual making such certificate or opinion has read such
covenant or condition;
  (b)                                 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;
  (c)                                  a
statement that, in the opinion of such individual, he or she has made such
examination or investigation as is necessary to enable him to express an informed
opinion as to whether or not such covenant or condition has been complied with;
and
  (d)                                 a
statement as to whether or not, in the opinion of such individual, such
covenant or condition has been complied with.

 79
 

    SECTION 13.06.  When Notes Disregarded.  In determining whether the Noteholders of the
required principal amount of Notes have concurred in any direction, waiver or
consent, Notes owned by the Company or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
the Company shall be disregarded and deemed not to be outstanding, except that,
for the purpose of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Notes which a Trust Officer
of the Trustee knows are so owned shall be so disregarded.  Subject to the foregoing, only Notes
outstanding at the time shall be considered in any such determination.
  SECTION 13.07.  Rules by Trustee, Paying Agent and
Registrar.  The Trustee may make reasonable
rules for action by or a meeting of Noteholders.  The Registrar and the Paying Agent may make
reasonable rules for their functions.
  SECTION 13.08.  Legal Holidays.  A “Legal
Holiday” is a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the City of New York, in the State
of New York or in the city in which the Trustee administers its Corporate Trust
Office.  If a payment date is a Legal
Holiday, payment shall be made on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.  If a regular record date is a Legal Holiday,
the record date shall not be affected.
  SECTION 13.09.  GOVERNING LAW.  THIS INDENTURE AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
  SECTION 13.10.  No Recourse Against Others.  A director, officer, employee or stockholder,
as such, of the Company shall not have any liability for any obligations of the
Company under the Notes or this Indenture or for any claim based on, in respect
of or by reason of such obligations or their creation.  By accepting a Note, each Noteholder shall
waive and release all such liability. 
The waiver and release shall be part of the consideration for the issue
of the Notes.
  SECTION 13.11.  Successors.  All agreements of the Company in this
Indenture and the Notes shall bind its successors.  All agreements of the Trustee in this
Indenture shall bind its successors.
  SECTION 13.12.  Multiple Originals.  The parties may sign any number of copies of
this Indenture.  Each signed copy shall
be an original, but all of them together represent the same agreement.  One signed copy is enough to prove this
Indenture.
  SECTION 13.13.  Table of Contents; Headings.  The table of contents, cross-reference sheet
and headings of the Articles and Sections of this Indenture have been inserted
for convenience of reference only, are not intended to be considered a part
hereof and shall not modify or restrict any of the terms or provisions hereof.
  SECTION 13.14.  Severability.  In case any provision in this Indenture or in
the Notes shall be invalid, illegal or unenforceable, then (to the extent
permitted by law) the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

 80
 

    SECTION 13.15.  Indenture, Notes and Guarantee Solely
Corporate Obligations.  No recourse
for the payment of the Principal of or, premium, if any, or interest on any
Notes, or under any Guarantee, or for any claim based upon any Notes or
Guarantee 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 Notes or Guarantee, or because of the creation
of any indebtedness represented thereby, shall be had against any incorporator,
stockholder, member, manager, employee, agent, officer, director or subsidiary,
as such, past, present or future, of the Company or any of the Company’s
subsidiaries or of any successor thereto, either directly or through the
Company or any of the Company’s subsidiaries or any successor thereto, whether
by virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise; it being expressly understood that all
such liability is hereby expressly waived and released as a condition of, and
as a consideration for, the execution of this Indenture and the issue of the
Notes.

 81
 

    IN WITNESS WHEREOF, the
parties have caused this Indenture to be duly executed as of the date first
written above.
  	  
  	   
  	  ISIS PHARMACEUTICALS, INC., as Issuer
  
	   
  	   
  	   
  
	   
  	   
  	  by
  	  /s/ B. Lynne Parshall
  	   
  
	   
  	   
  	  Name:
  	  B. Lynne Parshall
  
	   
  	   
  	  Title:
  	  Executive Vice President and Chief

  Financial Officer
  
	   
  	   
  	   
  
	   
  	   
  	  WELLS FARGO BANK, N.A., as Trustee,
  
	   
  	   
  	   
  
	   
  	   
  	  by
  	  /s/ Lynn M. Steiner
  	   
  
	   
  	   
  	  Name: 
  	  Lynn M. Steiner
  
	   
  	   
  	  Title: 
  	  Vice President
  
						

   

 82

EXHIBIT A

[FORM OF FACE OF NOTE]

[Global Notes Legend]

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

TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.

[Restricted Notes Legend]

THE SECURITY EVIDENCED BY THIS CERTIFICATE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT OF 1933”), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. 
BY ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER
AGREES (1) THAT IT WILL NOT PRIOR TO THE DATE TWO YEARS AFTER THE LAST DATE OF
ORIGINAL ISSUANCE OF THE 2 5⁄8 % CONVERTIBLE SUBORDINATED NOTES DUE 2027 OF
ISIS PHARMACEUTICALS, INC. (THE “COMPANY”) RESELL OR OTHERWISE TRANSFER THE
SECURITY EVIDENCED HEREBY OR THE COMMON STOCK THAT MAY BE ISSUABLE UPON
CONVERSION OF SUCH SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY
THEREOF, (B) TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT OF 1933, (C)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT OF 1933 AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF
SUCH TRANSFER, OR (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT OF 1933 PROVIDED BY RULE 144, IF AVAILABLE, SUBJECT TO
THE COMPANY’S AND THE TRUSTEE’S

 1
 

RIGHT PRIOR TO ANY SUCH TRANSFER, TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION
SATISFACTORY TO THE COMPANY AND THE TRUSTEE; AND (2) THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED PURSUANT TO
CLAUSE 1(B) ABOVE A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.

 2

 

	
  No.            

  	
   

  	
  $             

  

 

2 5¤8
% Convertible Subordinated Note due 2027

CUSIP No.:  464337AD6

Isis Pharmaceuticals, Inc., a Delaware corporation,
promises to pay to [Cede & Co., or registered assigns](1)           ,
principal sum of           
, Dollars [, as revised by the Schedule of Increases or Decreases in Global
Note attached hereto,](2) on February 15, 2027.

Interest Payment Dates:  February 15 and August 15.

Record Dates: 
February 1 and August 1.

Reference is made to the further provisions of this
Note set forth on the reverse hereof, including, without limitation, provisions
giving the holder of this Note the right to convert this Note into cash and, if
applicable, Common Stock, on the terms and subject to the limitations referred
to on the reverse hereof and as more fully specified in the Indenture.  Such further provisions shall for all
purposes have the same effect as though fully set forth at this place.

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

IN WITNESS WHEREOF, Isis Pharmaceuticals, Inc. has
caused this instrument to be duly executed.

	
  

  	
   

  	
  ISIS PHARMACEUTICALS, INC.,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  

 

Dated:

TRUSTEE’S CERTIFICATE OF

AUTHENTICATION

WELLS FARGO BANK, N.A.,

as Trustee, certifies that this is one of the Notes
referred 

to in the Indenture.

(1)  Use the Schedule of Increases and Decreases language if
Note is in Global form.

(2)  Use the Schedule of Increases and Decreases language if
Note is in Global form.

 1
 

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized Signatory

  

 

 2
 

[FORM OF REVERSE SIDE OF
NOTE]

2 5¤8
% Convertible Subordinated Note due 2027

1.                                       Interest

(a)                                  ISIS
PHARMACEUTICALS, INC., a Delaware corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being
herein called the “Company”), promises to pay interest on the principal amount
of this Note at the rate per annum shown above. 
The Company will pay interest semiannually on February 15 and
August 15 of each year commencing on August 15, 2007.  Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from January 23, 2007.  Interest
will be computed on the basis of a 360-day year of twelve 30-day months.  If a payment date is not a Business Day,
payment will be made on the next succeeding Business Day, and no additional
interest will accrue in respect of such payment by virtue of the payment being
made on such later date.

(b)                                 Additional
Interest.  The holder of this Note is
entitled to the benefits of a Registration Rights Agreement, dated as of
January 23, 2007, by and between the Company and Lehman Brothers Inc., as
representative of the Initial Purchasers (the “Registration Rights Agreement”).  Capitalized terms used in this paragraph (b)
but not defined herein have the meanings assigned to them in the Registration
Rights Agreement.  In the event of a
Registration Default under the Registration Rights Agreement, the Company shall
pay Additional Interest on Notes that constitute Transfer Restricted Securities
from and including the day following the Registration Default to but excluding
the day on which the Registration Default has been cured, accruing at a rate,
(x) with respect to the first 90-day period during which a Registration Default
shall have occurred and be continuing, equal to 0.25% per annum of the
principal amount of the Notes, and (y) with respect to the period commencing on
the 91st day following the day the Registration Default
shall have occurred and be continuing, equal to 0.50% per annum of the
principal amount of the Notes; provided that in no event shall
Additional Interest accrue at an aggregate rate per year exceeding 0.50% of the
principal amount of the Notes and provided further that Additional Interest
with respect to such Transferred Restricted Securities shall not accrue under
more than one of clauses (i), (ii), (iii) and (iv) of Section 3(a) of the
Registration Rights Agreement at any one time. 
No Additional Interest shall be payable on any Notes that have been converted
into shares of Common Stock or such Common Stock.

(c)                                  To
the extent elected by the Company, the sole remedy for an Event of Default
relating to the failure by the Company to comply with Section 4.03 of the
Indenture, for the first 120 days after the occurrence of such an Event of
Default shall consist exclusively of the right to receive special interest on
the Notes at an annual rate equal to 0.25% of the Principal amount of the Notes
(“Special Interest”).  In no event shall
the Special Interest, together with any Additional Interest payable pursuant to
the Registration Rights Agreement, accrue at an aggregate annual rate exceeding
0.50% of the Principal amount of the Notes.

(d)                                 Except
as otherwise specifically set forth, all references herein to “interest”
include deferred interest, Special Interest and Additional Interest, if any.

 3
 

2.                                       Method
of Payment

The Company will pay interest on the Notes (except
defaulted interest) to the Persons who are registered Noteholders at the close
of business on the February 1 and August 1 next preceding the interest payment
date even if Notes are canceled after the record date and on or before the
interest payment date, except as otherwise provided in the Indenture.  Holders must surrender Notes to a Paying
Agent to collect Principal payments.  The
Company will pay Principal and interest in money of the United States of
America that at the time of payment is legal tender for payment of public and
private debts.  The Company shall pay
interest (i) on any Global Notes by wire transfer of immediately available funds
to the account of the Depositary or its nominee, (ii) on any Notes in
certificated form having a principal amount of less than $2,000,000, by check
mailed to the address of the Person entitled thereto as it appears in the
Register, provided,however,that
at maturity interest will be payable at the office of the Company maintained by
the Company for such purposes, which shall initially be an office or agency of
the Trustee (as defined below) and (iii) on any Notes in certificated form
having a Principal amount of $2,000,000 or more, by wire transfer in
immediately available funds at the election of the holder of such Notes duly
delivered to the Trustee at least five Business Days prior to the relevant
interest payment date, provided, however, that at maturity
interest will be payable at the office of the Company maintained by the Company
for such purposes, which shall initially be an office or agency of the Trustee.

3.                                       Paying
Agent and Registrar

Initially, Wells Fargo Bank, N.A., a national banking
association (the “Trustee”), will act as Paying Agent, Registrar and conversion
agent.  The Company may appoint and
change any Paying Agent, Registrar or co-registrar or conversion agent without
notice.  The Company or any of its
domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent,
Registrar or co-registrar, or conversion agent.

4.                                       Indenture

The Company issued the Notes under an Indenture dated
as of January 23, 2007 (the “Indenture”), among the Company and the
Trustee.  The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb) as in effect on
the date of the Indenture (the “TIA”). 
Terms defined in the Indenture and not defined herein have the meanings
ascribed thereto in the Indenture (except as specifically provided in Section
1(b) hereof).  The Notes are subject to
all such terms, and Noteholders are referred to the Indenture and the TIA for a
statement of those terms.

The Notes are subordinated unsecured obligations of
the Company.  This Note is one of the
Notes referred to in the Indenture issued in an aggregate principal amount of
$125,000,000 (up to $162,500,000 if the option of the Initial Purchasers to
purchase additional Notes is exercised in full).  The Indenture also imposes limitations on the
ability of the Company to consolidate or merge with or into any other Person or
convey, transfer or lease all or substantially all of the property of the
Company.

 4
 

5.                                       Optional
Redemption

The Notes will not be redeemable at the option of the
Company prior to February 15, 2012. 
At any time on or after February 15, 2012, the Notes will be
redeemable at the option of the Company, in whole or in part, on not less than
30 calendar days’ nor more than 60 calendar days’ prior notice, at the
redemption prices set forth in the Indenture, plus accrued and unpaid interest
to the redemption date (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).

6.                                       Sinking
Fund

The Notes are not subject to any sinking fund.

7.                                       Notice
of Redemption

Notice of redemption will be delivered at least 30
calendar days but not more than 60 calendar days before the redemption date to
each holder of Notes to be redeemed at his or her registered address.  Notes in denominations larger than $1,000 may
be redeemed in part but only in whole multiples of $1,000.  If money sufficient to pay the redemption
price of and accrued interest on all Notes (or portions thereof) to be redeemed
on the redemption date is deposited with the Paying Agent on or before the
redemption date and certain other conditions are satisfied, on and after such
date interest ceases to accrue on such Notes (or such portions thereof) called
for redemption.

8.                                       Repurchase
of Notes at the Option of Noteholders

If a Fundamental Change occurs at any time prior to
the Maturity Date of the Notes, this Note will be subject to a repurchase, at
the option of the holder, on a Fundamental Change Repurchase Date, specified by
the Company, that is not less than 15 calendar days nor more than 35 calendar
days after notice thereof, at a repurchase price equal to 100% of the Principal
amount hereof, together with accrued and unpaid interest on this Note to, but
excluding, the Fundamental Change Repurchase Date; provided that if such
Fundamental Change Repurchase Date falls after a record date and on or prior
the corresponding interest payment date, the accrued and unpaid interest shall
be payable to the holder of record of this Note on the preceding February 1 or
August 1, as the case may be.  The Notes
submitted for repurchase must be $1,000 in principal amount or whole multiples
thereof.  The Company shall deliver to
all holders of record of the Notes (and to beneficial owners as required by
applicable law) a notice of the occurrence of a Fundamental Change and of the
repurchase right arising as a result within 20 calendar days after the
occurrence of such Fundamental Change. 
For Notes to be so repurchased at the option of the holder, the holder
must deliver to the Paying Agent in accordance with the terms of the Indenture,
the Repurchase Notice containing the information specified by the Indenture,
together with such Notes, duly endorsed for transfer, or (if the Notes are
Global Notes) book-entry transfer of the Notes, prior to 5:00 p.m., New York
City time, on the Business Day immediately preceding the Fundamental Change
Repurchase Date.  The repurchase price
must be paid in cash.

Subject to the terms and conditions of the Indenture,
each holder shall have the right, at such holder’s option, to require the
Company to repurchase all or any portion of the Notes held

 5
 

by such holder, on February 15, 2014,
February 15, 2017 and February 15, 2022 at a repurchase price equal
to 100% of the Principal amount of this Note, together with any accrued and
unpaid interest on this Note to, but excluding, the Repurchase Date, as
provided in the Indenture.  To exercise
such right, a holder shall deliver to the Paying Agent the Repurchase Notice
containing the information specified by the Indenture, together with the Notes,
duly endorsed for transfer, or (if the Notes are Global Notes) book-entry
transfer of the Notes, at any time during the period from 9:00 a.m., New York
City time, on the date that is 20 Business Days prior to the applicable
Repurchase Date to 5:00 p.m., New York City time, on the Business Day
immediately preceding the applicable Repurchase Date.  The repurchase price must be paid in cash.

Holders have the right to withdraw any Repurchase
Notice by delivering to the Paying Agent a written notice of withdrawal at any
time prior to 5:00 p.m., New York City time, on the Business Day immediately
preceding the Fundamental Change Repurchase Date or the Repurchase Date, as
applicable, all as provided in the Indenture.

If cash sufficient to pay the repurchase price of and
accrued and unpaid interest, if any, on all Notes or portions thereof to be
repurchased as of the Fundamental Change Repurchase Date or Repurchase Date, as
the case may be, is deposited with the Paying Agent, on the Fundamental Change
Repurchase Date or on the Repurchase Date, as the case may be, then such Notes
will cease to be outstanding and interest will cease to accrue on such Notes
immediately thereafter, and the holder thereof shall have no other rights as
such other than the right to receive the repurchase price upon surrender of
such Notes.

9.                                       Conversion

Upon the occurrence of certain events specified in the
Indenture and in compliance with the provisions of the Indenture, on or prior
to the close of business on the Trading Day immediately preceding the Maturity
Date of this Note, the holder hereof has the right, at its option, to convert
each $1,000 principal amount of this Note into cash and, if applicable, Common
Stock based on a Conversion Rate of 68.3761 shares of Common Stock per $1,000
principal amount of Notes (a conversion price of approximately $14.63 per
share), as the same may be adjusted pursuant to the terms of the Indenture, as
such shares shall be constituted at the date of conversion, upon surrender of
this Note (if in certificated form) with the form entitled “Conversion Notice”
on the reverse hereof duly completed and manually signed, to the Company at the
office or agency of the Company maintained for that purpose in accordance with
the terms of the Indenture, or at the option of such holder, the Corporate
Trust Office, together with any funds required pursuant to the terms of the
Indenture, and, unless any shares issuable on conversion are to be issued in
the same name as this Note, duly endorsed by, or accompanied by instruments of
transfer in form satisfactory to the Company duly executed by, the holder or by
such holder’s duly authorized attorney. 
The Company will notify the holder thereof of any event triggering the
right to convert the Notes as specified above in accordance with the
Indenture.  In order to exercise the
conversion right with respect to any interest in a Global Note, the holder must
complete the appropriate instruction form pursuant to the Depositary’s
book-entry conversion program, deliver by book-entry delivery an interest in
such Global Note, furnish appropriate endorsements and transfer documents if
required by the Company or the Trustee or conversion agent, and pay the funds,
if any, required pursuant to the terms of the Indenture.  As specified in the Indenture, upon
conversion, the Company may pay cash, shares of Common

 6
 

Stock or any combination thereof, based on the
Conversion Value (as defined in the Indenture) calculated using the Daily
Conversion Values during the Conversion Period (as defined in the
Indenture).  At any time on or prior to
the 26th Trading Day preceding the Maturity Date, the
Company may irrevocably elect to satisfy in cash its conversion obligations
with respect to the Principal amount converted.

If and only to the extent holders elect to convert the
Notes in connection with a Non-Stock Change of Control (as defined in the
Indenture), the Company will increase the Conversion Rate applicable to such
converting Notes; provided that in the case of a Non-Stock Change of
Control constituting a Public Acquirer Change of Control (as defined in the
Indenture), the Company may, in lieu of increasing the Conversion Rate, elect to
adjust the conversion obligation and the Conversion Rate such that from and
after the effective date of such Public Acquirer Change of Control, Noteholders
will be entitled to convert their Notes (subject to the satisfaction of certain
conditions) into a number of shares of Public Acquirer’s Common Stock (as
defined in the Indenture) determined as set forth in the Indenture.

No adjustment in respect of interest on any Notes
converted or dividends on any shares issued upon conversion of such Notes will
be made upon any conversion except as set forth in the next sentence, but
holders who convert their Notes will receive on the next interest payment day
any Additional Interest accrued through the Conversion Date.  If this Note (or portion hereof) is surrendered
for conversion during the period from the 5:00 p.m., New York City time, on any
applicable Record Date for the payment of interest to 5:00 p.m., New York City
time, on the Business Day preceding the corresponding interest payment date,
this Note (or portion hereof being converted) must be accompanied by payment,
in immediately available funds or other funds acceptable to the Company, of an
amount equal to the interest (excluding any Additional Interest) otherwise
payable on such interest payment date on the principal amount being converted; provided
that no such payment shall be required (1) if the holder surrenders this Note
for conversion in connection with a redemption and the Company has specified a
redemption date that is after a Record Date and on or prior to the
corresponding interest payment date, (2) if the holder surrenders this Note in
connection with a Fundamental Change and the Company has specified a
Fundamental Change Repurchase Date that is after a Record Date and on or prior
to the corresponding interest payment date or (3) to the extent of any overdue
interest, if any, existing at the time of conversion with respect to this Note.

No fractional shares will be issued upon any
conversion of Notes, but an adjustment and payment in cash will be made, as
provided in the Indenture, in respect of any fraction of a share which would
otherwise be issuable upon the surrender of any Notes for conversion.

A Note in respect of which a holder is exercising its
right to require repurchase may be converted only if such holder validly
withdraws its election to exercise such right to require repurchase in
accordance with the terms of the Indenture.

10.                                 Denominations,
Transfer, Exchange

The Notes are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000.  A Noteholder may transfer or exchange Notes
in accordance with the Indenture.  Upon
any transfer or exchange, the Registrar and the Trustee may require a

 7
 

Noteholder, among other things, to furnish appropriate
endorsements or transfer documents and to pay any taxes required by law or
permitted by the Indenture.  The
Registrar need not issue, register the transfer of, or exchange any Notes
during the period of 15 days before the mailing of the notice of redemption, or
register the transfer of or exchange any Notes so selected for redemption, in
whole or in part, except the unredeemed portion of any Notes being redeemed in
part.

11.                                 Persons
Deemed Owners

The registered holder of this Note may be treated as
the owner of it for all purposes.

12.                                 Unclaimed
Money

Subject to any applicable abandoned property law, the
Trustee and the Paying Agent shall pay to the Company upon written request any
money held by them for the payment of Principal or interest and any shares of
Common Stock or other property due in respect of converted Notes that remains
unclaimed for two years, and, thereafter, Noteholders entitled to the money
and/or securities must look to the Company for payment as general creditors.

13.                                 Amendment,
Waiver

Subject to certain exceptions set forth in the Indenture, (a) the
Indenture or the Notes may be amended without prior notice to any Noteholder
but with the written consent of the holders of at least a majority in aggregate
principal amount of the outstanding Notes and (b) any Default or noncompliance
with any provision may be waived with the written consent of the holders of at
least a majority in principal amount of the outstanding Notes.  Subject to certain exceptions set forth in
the Indenture, without the consent of any holder of Notes, the Company and the
Trustee may amend the Indenture or the Notes (i) to provide for conversion
rights of Noteholders and the Company’s repurchase obligations in connection
with a Fundamental Change in the event of any reclassification of the Common
Stock, merger or consolidation, or sale, conveyance, transfer or lease of the
Company’s property and assets substantially as an entirety; (ii) to secure the
Notes; (iii) to provide for the assumption of the Company’s obligations in the
event of a merger or consolidation, or sale, conveyance, transfer or lease of
the Company’s property and assets substantially as an entirety; (iv) to
surrender any right or power conferred upon the Company; (v) to add to the
covenants o the Company for the benefit of the Noteholders; (vi) to cure any
ambiguity or correct or supplement any inconsistent or otherwise defective
provision contained in this Indenture; provided that such modification or
amendment does not adversely affect the interests of the Noteholders in any
material respect; (vii) to make any provision with respect to matters or
questions arising under the Indenture that the Company may deem necessary or
desirable and that shall not be inconsistent with provisions of this Indenture;
provided that such change or modification does not, in the good faith opinion
of the Board of Directors, adversely affect the interests of the Noteholders in
any material respect; (viii) to provide for uncertificated Notes in addition to
or in place of certificated Notes; provided, however, that the
uncertificated Notes are issued in registered form for purposes of Section
163(f) of the Code or in a manner such that the uncertificated Notes are
described in Section 163(f)(2)(B) of the Code; (ix) to increase the conversion
rate; provided, that the increase will not adversely affect the interests of
the Noteholders; (x) to make any change in Article 12 that would limit or
terminate the benefits

 8
 

available to
any holder of Senior Indebtedness (or Representatives therefor) under Article
12; (xi) to comply with any requirements of the SEC in connection with
qualifying, or maintaining the qualification of, this Indenture under the TIA;
(xii) to add Guarantees with respect to the Notes; (xiii) to make any changes
or modifications necessary in connection with the registration of the Notes
under the Securities Act as contemplated in the Registration Rights Agreement; provided
that such change or modification does not adversely affect the interests of the
Noteholders in any material respect; or (xiv) to provide for a successor
Trustee.

14.                                 Defaults
and Remedies

If an Event of Default occurs (other than (x) an Event
of Default relating to Section 4.03 of the Indenture as described below and (y)
an Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Company) and is continuing, the Trustee or the holders of
at least 25% in Principal amount of the outstanding Notes may declare the
Principal of and accrued but unpaid interest on all the Notes to be due and
payable.  If an Event of Default relating
to certain events of bankruptcy, insolvency or reorganization of the Company
occurs, the principal of and interest on all the Notes will become immediately
due and payable without any declaration or other act on the part of the Trustee
or any Noteholders.  Under certain
circumstances, the holders of a majority in Principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its consequences.

If an Event of Default occurs and is continuing, the
Trustee will be under no obligation to exercise any of the rights or powers
under the Indenture at the request or direction of any of the Noteholders
unless such Noteholders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. 
Subject to certain exceptions, no Noteholder may pursue any remedy with
respect to the Indenture or the Notes unless (i) such Noteholder has previously
given the Trustee notice that an Event of Default is continuing, (ii) holders
of at least 25% in Principal amount of the outstanding Notes have requested the
Trustee in writing to pursue the remedy, (iii) such Noteholders have offered
the Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
holders of a majority in Principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period.  Subject to certain restrictions,
the holders of a majority in Principal amount of the outstanding Notes are
given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust
or power conferred on the Trustee.  The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the
rights of any other Noteholder or that would involve the Trustee in personal
liability.  Prior to taking any action
under the Indenture, the Trustee will be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses
caused by taking or not taking such action.

Notwithstanding anything herein to the contrary, to the extent elected
by the Company, the sole remedy for an Event of Default relating to the failure
by the Company to comply with Section 4.03 of the Indenture, for the first 120
days after the occurrence of such an Event of Default shall consist exclusively
of the right to receive Special Interest on the Notes at an annual rate equal
to 0.25% of the Principal amount of the Notes. 
Thereafter, or in the event the

 9
 

Company does
not elect to pay Special Interest upon an Event of Default relating to
reporting obligations in Section 4.03 of the Indenture, the Notes shall be
subject to acceleration as provided in the first paragraph of this Section 14
without giving effect to clause (x) in the parenthetical of the first sentence.

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

15.                                 Subordination.

The Notes are subordinated to all Senior Indebtedness
of the Company. Each holder of this Note, whether upon original issue or upon
registration of transfer, assignment or exchange thereof, by accepting the
same, agrees to the subordination provisions set forth in Article 12 of the
Indenture and authorizes the Trustee on its behalf to take such action as may
be necessary or appropriate to effectuate the subordination so provided and
appoints the Trustee his attorney-in-fact for any and all such purposes.

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

16.                                 Trustee
Dealings with the Company

Subject to certain limitations imposed by the TIA, the
Trustee under the Indenture, in its individual or any other capacity, may
become the owner or pledgee of Notes and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise deal
with the Company or its Affiliates with the same rights it would have if it
were not Trustee.

17.                                 No
Recourse Against Others

A director, officer, employee or stockholder, as such,
of the Company shall not have any liability for any obligations of the Company
under the Notes or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. 
By accepting a Note, each Noteholder waives and releases all such
liability.  The waiver and release are
part of the consideration for the issue of the Notes.

18.                                 Authentication

This Note shall not be valid until an authorized
signatory of the Trustee (or an authenticating agent) manually signs the
certificate of authentication on the other side of this Note.

 10
 

19.                                 Abbreviations

Customary abbreviations may be used in the name of a
Noteholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with rights of
survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A
(=Uniform Gift to Minors Act).

20.                                 GOVERNING
LAW

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

21.                                 CUSIP
and ISIN Numbers

Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP and ISIN numbers to be printed on the Notes and has directed the Trustee
to use CUSIP and ISIN numbers in notices of redemption as a convenience to
Noteholders.  No representation is made
as to the accuracy of such numbers either as printed on the Notes or as contained
in any notice of redemption and reliance may be placed only on the other
identification numbers placed thereon.

The Company will furnish to any
holder of Notes upon written request and without charge to the holder a copy of
the Indenture which has in it the text of this Note.

 11
 

CONVERSION NOTICE

TO:                            ISIS
PHARMACEUTICALS, INC.; WELLS FARGO BANK, N.A., as Trustee

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

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature(s)

  
	
   

  	
   

  
	
   

  	
  Signature(s) must be guaranteed by an “eligible
  guarantor institution” meeting the requirements of the Registrar, which
  requirements include membership or participation in the Security Transfer
  Agent Medallion Program (“STAMP”) or such other “signature guarantee program”
  as may be determined by the Registrar in addition to, or in substitution for,
  STAMP, all in accordance with the Securities Exchange Act of 1934, as
  amended.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature Guarantee

  

 

 12
 

Fill in the registration of shares of Common Stock, if
any, if to be issued, and Notes if to be delivered, and the person to whom
cash, if any, and payment for fractional shares is to be made, if to be made,
other than to and in the name of the registered holder:

Please print name and address

 

(Name)

 

(Street Address)

 

(City, State and Zip
Code)

Principal amount to be
converted

(if less than all):

$

Social Security or Other Taxpayer 

Identification Number:

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

 13
 

REPURCHASE NOTICE

TO:                            ISIS
PHARMACEUTICALS, INC., WELLS FARGO BANK N.A., as Trustee

The undersigned registered owner of this Note hereby
irrevocably acknowledges receipt of a notice from Isis Pharmaceuticals, Inc.
(the “Company”) regarding the right of holders to elect to require the Company
to repurchase the Notes and requests and instructs the Company to repay the
entire principal amount of this Note, or the portion thereof (which is $1,000
or an integral multiple thereof) below designated, in accordance with the terms
of the Indenture at the price of 100% of such entire principal amount or
portion thereof, together with accrued and unpaid interest to, but excluding,
the Repurchase Date or the Fundamental Change Repurchase Date, as the case may
be, to the registered holder hereof. 
Capitalized terms used herein but not defined shall have the meanings
ascribed to such terms in the Indenture. 
The Notes shall be repurchased by the Company as of the Repurchase Date
or the Fundamental Change Repurchase Date, as the case may be, pursuant to the
terms and conditions specified in the Indenture.

	
  Dated:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature(s):  

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

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

Notes Certificate Number (if applicable):

Principal amount to be repurchased (if less than all,
must be $1,000 or whole multiples thereof):

Social Security or Other Taxpayer Identification
Number:

 14
 

ASSIGNMENT

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

In connection with any transfer of the Notes prior to
the expiration of the holding period applicable to sales thereof under Rule
144(k) under the Securities Act (or any successor provision) (other than any
transfer pursuant to a registration statement that has been declared effective
under the Securities Act), the undersigned confirms that such Notes are being
transferred:

o                                    To Isis
Pharmaceuticals, Inc. or a subsidiary thereof; or

o                                    To a “qualified
institutional buyer” in compliance with Rule 144A under the Securities Act of
1933, as amended; or

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

o                                    Pursuant to a
Registration Statement which has been declared effective under the Securities
Act of 1933, as amended, and which continues to be effective at the time of
transfer;

and unless the Notes has been transferred to Isis
Pharmaceuticals, Inc. or a subsidiary thereof, the undersigned confirms that
such Notes are not being transferred to an “affiliate” of the Company as
defined in Rule 144 under the Securities Act of 1933, as amended.

Unless one of the boxes is checked,
the Trustee will refuse to register any of the Notes evidenced by this
certificate in the name of any person other than the registered holder thereof.

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature(s)

  
	
   

  	
   

  
	
   

  	
  Signature(s) must be guaranteed by an “eligible
  guarantor institution” meeting the requirements of the Registrar, which
  requirements include membership or participation in the Security Transfer
  Agent Medallion Program (“STAMP”) or such other “signature guarantee program”
  as may be determined by the Registrar in addition to, or in

  

 

 15
 

 

	
  

  	
  substitution for, STAMP, all in accordance with the
  Securities Exchange Act of 1934, as amended.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature Guarantee

  

 

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

 16
 

SCHEDULE
OF INCREASES AND DECREASES IN GLOBAL NOTE(3)

The following increases or decreases in this Global
Note have been made: 

	
  Date

  	
   

  	
  Amount of decrease in

  Principal Amount of this

  Global Note

  	
   

  	
  Amount of increase in

  Principal Amount of this

  Global Note

  	
   

  	
  Principal Amount of Note

  following such decrease

  or increase

  	
   

  	
  Signature of authorized

  signatory of Trustee or

  Securities Custodian

  	
   

  
	
    

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
    

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
    

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

(3)  For Global Notes only

 17

EXHIBIT B

FORM
OF RESTRICTIVE LEGEND FOR

COMMON STOCK ISSUED UPON CONVERSION(4)

THE SECURITY EVIDENCED BY THIS CERTIFICATE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT OF 1933”), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE BY ACQUISITION HEREOF.  THE HOLDER AGREES THAT (1) IT WILL NOT,
WITHIN TWO YEARS AFTER THE LAST DATE OF ORIGINAL ISSUANCE OF THE SECURITY UPON
THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED, RESELL OR
OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY EXCEPT (A) TO ISIS
PHARMACEUTICALS, INC. (THE “COMPANY”) OR ANY SUBSIDIARY THEREOF, (B) TO A
PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT OF 1933, (C) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT OF 1933
AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER, OR (D)
PURSUANT TO THE EXEMPTION FROM REGISTRATION REQUIREMENTS UNDER THE SECURITIES
ACT OF 1933 PROVIDED BY RULE 144, IF AVAILABLE, SUBJECT TO THE COMPANY’S RIGHT
PRIOR TO ANY SUCH TRANSFER, TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO THE COMPANY; AND (2)
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS
TRANSFERRED PURSUANT TO CLAUSE 2(B) ABOVE A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND.

(4)  This legend
should be included only if the Security is a Transfer Restricted Security.

 1Exhibit
4.2
  Execution Version
  REGISTRATION RIGHTS
AGREEMENT
  BY AND BETWEEN
  ISIS PHARMACEUTICALS,
INC.,
  AS ISSUER
  AND
  LEHMAN BROTHERS INC.,
  AS
REPRESENTATIVE OF THE INITIAL PURCHASERS
  DATED AS OF JANUARY 23,
2007
  

TABLE OF CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
   

  	
  Definitions

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Shelf Registration

  	
   

  	
  4

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  Additional Interest

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  Registration Procedures

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  Registration Expenses

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  Indemnification and Contribution

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
  Rule 144A

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
   

  	
  Participation in Underwritten Registrations

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
   

  	
  Selection of Underwriters

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
   

  	
  Miscellaneous

  	
   

  	
  18

  

 

REGISTRATION
RIGHTS AGREEMENT,
dated as of January 23, 2007, by and among Isis Pharmaceuticals,
Inc. (together with any successor entity, herein referred to as the “Issuer”), and Lehman Brothers Inc., as representative (the “Representative”) of the initial purchasers attached hereto
on Schedule I (collectively, the “Initial Purchasers”).

Pursuant to the Purchase
Agreement, dated January 17,
2007, among the Issuer and the Representative, as representative of the Initial
Purchasers (the “Purchase Agreement”), the Initial
Purchasers have agreed to purchase from the Issuer up to $125,000,000 aggregate principal amount
2 5¤8%
Convertible Subordinated Notes due 2027 (the “Notes”)
(or up to $162,500,000 aggregate
principal amount if the Initial Purchasers exercise in full their option to
purchase additional Notes, as set forth in the Purchase Agreement).  The Notes initially may be convertible into
fully paid, nonassessable common stock, $0.001 par value per share, of the Issuer
(the “Common Stock”) on the terms, and
subject to the conditions, set forth in the Indenture (as defined herein).  To induce the Initial Purchasers to purchase
the Notes, the Issuer has agreed to provide the registration rights set forth
in this Agreement pursuant to the Purchase Agreement.

The
parties hereby agree as follows:

1.             Definitions.  As
used in this Agreement, the following capitalized terms shall have the
following meanings:

Additional Interest:  As
defined in Section 3(a) hereof.

Additional Interest
Payment Date:  Each February 15 and August 15, commencing
August 15, 2007.

Agreement:  This
Registration Rights Agreement, as amended, modified or otherwise supplemented
from time to time in accordance with the terms hereof.

Broker-Dealer:  Any
broker or dealer registered under the Exchange Act.

Business Day:  A
day other than a Saturday or Sunday or any day on which banking institutions in
The City of New York are authorized or obligated by law or executive order to
close.

Commission: 
Securities and Exchange Commission.

Common Stock: 
As defined in the
preamble hereto.

Effectiveness Period:  As
defined in Section 2(a)(iii) hereof.

Effectiveness Target Date:  As
defined in Section 2(a)(ii) hereof.

Exchange Act: 
Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission thereunder.

Holder:  A
Person who owns, beneficially or otherwise, Transfer Restricted Securities.

Indemnified Holder:  As
defined in Section 6(a) hereof.

Indenture:  The
Indenture, dated as of January 23, 2007, among the Issuer and Trustee, pursuant
to which the Notes are to be issued, as such Indenture is amended, modified or
supplemented from time to time in accordance with the terms thereof.

Initial Purchasers:  As
defined in the preamble hereto.

Issuer:  As
defined in the preamble hereto.

Majority of Holders: 
Registered Holders of a number of shares of the then outstanding Common
Stock constituting Transfer Restricted Securities and an aggregate principal
amount of then outstanding Notes constituting Transfer Restricted Securities,
such that the sum of such shares of Common Stock and the shares of Common Stock
issuable upon conversion of such Notes constitute in excess of 50% of the sum
of all of the then outstanding shares of Common Stock constituting Transfer
Restricted Securities and the number of shares of Common Stock issuable upon
conversion of then outstanding Notes constituting Transfer Restricted
Securities, in each case assuming that the Notes are then convertible and that
no cash is paid upon a conversion of Notes. For purposes of the immediately
preceding sentence, (i) any Holder may elect to make any request, notice,
demand, objection or other action hereunder with respect to all or any portion
of Transfer Restricted Securities held by it and only the portion as to which
such action is taken shall be included in the numerator of the fraction
described in the preceding sentence and (ii) Transfer Restricted Securities
owned, directly or indirectly, by the Issuer or its Affiliates shall be deemed
not to be outstanding.

NASD:  National
Association of Securities Dealers, Inc.

New Securities:  As
defined in Section 10(d).

Notes:  As defined in the preamble hereto.

Offering Memorandum:  The
Offering Memorandum relating to the offer of the Notes dated January 17, 2007.

Person:  An
individual, partnership, corporation, unincorporated organization, limited
liability company, trust, joint venture or a government or agency or political
subdivision thereof.

Prospectus:  The
prospectus included in a Shelf Registration Statement (including, without
limitation, a prospectus that discloses information previously omitted from a
prospectus filed as part of an effective registration statement in reliance
upon Rule 430A promulgated pursuant to the Securities Act), as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.

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Purchase Agreement:  As
defined in the preamble hereto.

Questionnaire:  As
defined in Section 2(b) hereof.

Questionnaire Deadline:  As
defined in Section 2(b) hereof.

Record Holder:  With
respect to any Additional Interest Payment Date, each Person who is a Holder on
the record date with respect to such Additional Interest Payment Date, which
record date shall be the date that is the 15th day preceding the relevant Additional Interest
Payment Date.

Registration Default:  As
defined in Section 3(a) hereof.

Securities Act: 
Securities Act of 1933, as amended, and the rules and resolutions of the
Commission thereunder.

Shelf Filing Deadline: As defined in Section 2(a)(i) hereof.

Shelf Registration
Statement:  As defined in Section 2(a)(i) hereof.

Suspension Notice:  As
defined in Section 4(c) hereof.

Suspension Period:  As
defined in Section 4(b)(i) hereof.

TIA: 
Trust Indenture Act of 1939, as amended, and the rules and regulations
of the Commission thereunder, in each case, as in effect on the date the
Indenture is qualified under the TIA.

Transfer Restricted
Securities:  Each of the Notes and each of the shares of
Common Stock or New Securities issued upon conversion of Notes until the
earliest of, in the case of any such Notes or share(s) of Common Stock or New
Securities:

(i)            the date on which such Notes or such shares of Common
Stock or New Securities issued upon conversion thereof has been effectively
registered under the Securities Act and disposed of in accordance with the
Shelf Registration Statement;

(ii)           the date on which such Notes or such shares of Common
Stock or New Securities issued upon conversion thereof is transferred in
compliance with Rule 144 under the Securities Act or may be sold or transferred
by a person who is not an affiliate of the Issuer pursuant to Rule 144 under
the Securities Act (or any other similar provision then in force) without any
volume or manner of sale restrictions thereunder; or

(iii)          the date on which such Notes or such shares of Common Stock
or New Securities issued upon conversion ceases to be outstanding (whether as a
result of repurchase and cancellation, conversion or otherwise).

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Trustee means Wells Fargo Bank, N.A. as trustee.

Underwritten Registration
or Underwritten Offering:  A registration in which Notes of the Issuer
are sold to an underwriter for reoffering to the public pursuant to the Shelf
Registration Statement.

2.             Shelf
Registration.

(a)           The Issuer shall:

(i)            not later than 90 days after the date hereof (the “Shelf Filing Deadline”), cause to be filed
a registration statement for an offering to be made on a continuous basis
pursuant to Rule 415 under the Securities Act (together with any amendments
thereto and including any documents incorporated by reference therein, the “Shelf Registration Statement”), which Shelf
Registration Statement shall provide for resales of all Transfer Restricted
Securities held by Holders that have provided the information required pursuant
to the terms of Section 2(b) hereof;

(ii)           use reasonable best efforts to cause the Shelf
Registration Statement to be declared effective by the Commission not later
than 180 days after the date hereof (the “Effectiveness
Target Date”); and

(iii)          use reasonable best efforts to keep the Shelf Registration
Statement continuously effective, supplemented and amended as required by, and
subject to, the provisions of Section 4(b) hereof to the extent necessary to
ensure that it (A) is available for resales by the Holders of Transfer
Restricted Securities entitled to the benefit of this Agreement and (B)
conforms with the requirements of this Agreement and the Securities Act for a
period (the “Effectiveness Period”)
ending on the earliest of:

(1)           the date when the Holders of the Transfer Restricted
Securities are able to sell under Rule 144(k) under the Securities Act all
Transfer Restricted Securities immediately without volume, manner of sale, filing
or other restriction; or

(2)            the date when all Transfer Restricted Securities are
registered under the Shelf Registration Statement and sold pursuant thereto; or

(3)           the date when all Transfer Restricted Securities have
ceased to be outstanding (whether as a result of repurchase and cancellation,
conversion or otherwise).

(b)           To have its Transfer Restricted
Securities included in the Shelf Registration Statement pursuant to this
Agreement, each Holder shall complete the Selling

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Securityholder Notice and
Questionnaire, the form of which is contained in Annex A to the Offering
Memorandum relating to the Notes (the “Questionnaire”).  The Issuer shall mail the Questionnaire to
each Holder identified in the records of the Depository Trust Company not less
than 20 Business Days (but not more than 40 Business Days) prior to the time
the Issuer intends in good faith to have the Shelf Registration Statement
declared effective by the Commission. 
Holders are required to complete and deliver the Questionnaire to the
Issuer within 10 Business Days prior to the effectiveness of the Registration
Statement (the “Questionnaire Deadline”)
in order to be named as selling securityholders in the Prospectus at the time
that the Shelf Registration Statement is declared effective.  Upon receipt of a completed Questionnaire
from a Holder on or prior to the Questionnaire Deadline, the Issuer shall
include such Holder’s Transfer Restricted Securities in the Shelf Registration
Statement and the Prospectus. In addition, promptly upon the request of a
Holder given to the Issuer at any time, the Issuer shall deliver a
Questionnaire to such Holder.  With
respect to any Holder that does not fully complete and deliver a Questionnaire
prior to the Questionnaire Deadline, Issuer will not be required to name such
Holder as a selling securityholder in the Shelf Registration Statement at the
time that it is declared effective.  Upon
receipt of a completed Questionnaire from a Holder who did not complete and
deliver a Questionnaire prior to the Questionnaire Deadline, the Issuer shall,
within 30 Business Days of such receipt, file such amendments to the Shelf
Registration Statement or supplements to a related Prospectus as are necessary
to permit such Holder to deliver such Prospectus to transferees of Transfer
Restricted Securities; provided,that the
Issuer shall not be obligated to file more than one amendment or supplement for
all such Holders in any one fiscal quarter.

The Issuer will give notice
of the effectiveness of the Shelf Registration Statement to all Holders who have properly delivered
to the Issuer completed Questionnaires as described above either (i) by electronic mail at the applicable email address, or
(ii) in writing at the applicable mailing
address, in each case, as set forth in each such Holder’s Questionnaire.  The Issuer will have no obligation to provide
notice of the effectiveness of the Shelf Registration Statement to any Holder
who delivers a Questionnaire after the effectiveness notice described above has
been delivered.

(c)           Upon receipt of written request for
additional information from the Issuer, each Holder who intends to be named as
a selling securityholder in the Shelf Registration Statement shall furnish to
the Issuer in writing, within 10 Business Days after such Holder’s receipt of
such request, such additional information regarding such Holder and the
proposed distribution by such Holder of its Transfer Restricted Securities, in
connection with the Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein and in any application to be filed with or under
state securities law, as the Issuer may reasonably request.  In connection with all such requests for
information from Holders of Transfer Restricted Securities, the Issuer shall
notify such Holders of the requirements set forth in this paragraph regarding
their obligation to provide the information requested pursuant to this Section
2.  Each Holder as to which the Shelf
Registration Statement is being effected agrees to furnish promptly to the
Issuer all information required to be disclosed in order to make information
previously furnished to the Issuer by such Holder not materially misleading.

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3.             Additional
Interest.

(a)           If:

(i)            the Shelf Registration Statement is not filed with the Commission
prior to or on the Shelf Filing Deadline;

(ii)           the Shelf Registration Statement has not been declared
effective by the Commission prior to or on the Effectiveness Target Date;

(iii)          except as provided in Section 4(b)(i) hereof, the Shelf
Registration Statement is filed and declared effective but, during the
Effectiveness Period, shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded within five Business
Days by a post-effective amendment to the Shelf Registration Statement, a
supplement to the Prospectus or a report filed with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act that cures such failure
and, in the case of a post-effective amendment, is itself immediately declared
effective; or

(iv)          (A)  prior to or on
the 45th or 60th day, as the case may be, of any
Suspension Period, such suspension has not been terminated or (B) Suspension
Periods exceed an aggregate of 90 days in any 360 day period,

(each such event referred to
in foregoing clauses (i) through (iv), a “Registration Default”),
the Issuer hereby agrees to pay additional interest (“Additional
Interest”) with respect to the Transfer Restricted Securities from
and including the day following the Registration Default to but excluding the
day on which the Registration Default has been cured, accruing at a rate, to
each holder of Notes, (x) with respect to the first 90-day period during which
a Registration Default shall have occurred and be continuing, equal to 0.25%
per annum of the principal amount of the Notes, and (y) with respect to the
period commencing on the 91st day following the day the Registration Default
shall have occurred and be continuing, equal to 0.50% per annum of the
principal amount of the Notes; provided that in no event shall Additional
Interest accrue at an aggregate rate per year exceeding 0.50% of the principal
amount of the Notes; provided
further that in no event shall Additional Interest plus any Special Interest
(as defined in the Indenture) accrue at an aggregate rate per year exceeding
0.50% of the principal amount of the Notes.  No Additional Interest
shall be payable on any Notes that have been converted into shares of Common
Stock.

(b)           All accrued Additional Interest shall
be paid in arrears to Record Holders by the Issuer on each Additional Interest
Payment Date by wire transfer of immediately available funds or by federal
funds check and in accordance with the terms of the Indenture.  Following the cure of all Registration Defaults
relating to the Notes, the accrual of Additional Interest with respect to such
Notes will cease.  The Issuer agrees to
deliver all notices, certificates and other documents contemplated by the
Indenture in connection with the payment of Additional Interest.

If a Transfer Restricted
Security ceases to be a Transfer Restricted Security, such cessation will not
relieve the issuer from any liability under this Section 3 that was accrued but
unpaid immediately prior to such cessation. 
The Additional Interest set forth above shall be the

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exclusive monetary remedy
available to the Holders of Transfer Restricted Securities for such
Registration Default.

4.             Registration
Procedures.

(a)           In connection with the registration
of the Transfer Restricted Securities, the Issuer shall comply with all the
provisions of Section 4(b) hereof and shall use its reasonable best efforts to
effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof, and pursuant thereto, shall as expeditiously as possible
prepare and file with the Commission a Shelf Registration Statement relating to
the registration on any appropriate form under the Securities Act.

(b)           In connection with the Shelf
Registration Statement and any Prospectus required by this Agreement to permit
the sale or resale of Transfer Restricted Securities, the Issuer shall:

(i)            Subject to any notice by the Issuer in accordance with
this Section 4(b) of the existence of any fact or event of the kind described
in Section 4(b)(iii)(D), use its reasonable best efforts to keep the Shelf
Registration Statement continuously effective during the Effectiveness Period;
upon the occurrence of any event that would cause the Shelf Registration
Statement or the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not be effective and usable for resale of
Transfer Restricted Securities during the Effectiveness Period, the Issuer
shall file promptly an appropriate amendment to the Shelf Registration
Statement, a supplement to the Prospectus or a report filed with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the case
of clause (A), correcting any such misstatement or omission, and, in the case
of either clause (A) or (B), use its reasonable best efforts to cause such
amendment to be declared effective and the Shelf Registration Statement and the
related Prospectus to become usable for their intended purposes as soon as
practicable thereafter.  Notwithstanding
the foregoing, the Issuer may suspend the effectiveness of the Shelf
Registration Statement by written notice to the Holders for a period not to
exceed an aggregate of 45 days in any 90-day period (each such period, a “Suspension Period”) and not to exceed an
aggregate of 90 days in any 360-day period if:

(x)  
an event occurs and is continuing as a result of which the Shelf
Registration Statement would, in the Issuer’s reasonable judgment, contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and

(y)  
the Issuer reasonably determines that the disclosure of such event at
such time would have a material adverse effect on the business of the Issuer
(and its subsidiaries, if any, taken as a whole);

 7
 

provided that in the event
the disclosure relates to a previously undisclosed proposed or pending material
business transaction, the disclosure of which would impede the Issuer’s ability
to consummate such transaction, the Issuer may extend a Suspension Period from
45 days to 60 days in any 90-day period.

(ii)           Prepare and file with the Commission such amendments and
post-effective amendments to the Shelf Registration Statement as may be
necessary to keep the Shelf Registration Statement effective during the
Effectiveness Period; cause the Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
under the Securities Act, and to comply with the applicable provisions of Rules
424 and 430A under the Securities Act in a timely manner; and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by the Shelf Registration Statement during the applicable
period in accordance with the intended method or methods of distribution by the
sellers thereof set forth in the Shelf Registration Statement or supplement to
the Prospectus; provided, however, that in no event will such method(s) of
distribution take the form of an Underwritten Offering without the prior
written agreement of the Issuer.

(iii)          Advise the underwriter(s), if any, and selling Holders
promptly (but in any event within five Business Days of becoming aware of such
event) and, if requested by such Persons, to confirm such advice in writing:

(A)  when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to the Shelf Registration Statement or any post-effective amendment
thereto, when the same has become effective,

(B)   of any request by the
Commission for amendments to the Shelf Registration Statement or amendments or
supplements to the Prospectus or for additional information relating thereto,

(C)   of the issuance by the
Commission of any stop order suspending the effectiveness of the Shelf
Registration Statement under the Securities Act or of the suspension by any
state securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation of any
proceeding for any of the preceding purposes, or

(D)  of the existence of any fact
or the happening of any event, during the Effectiveness Period, that makes any
statement of a material fact made in the Shelf Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document incorporated
by reference therein untrue, or that requires the making of any additions to or
changes in the Shelf Registration Statement or the Prospectus in order to make
the statements therein not misleading.

 8
 

If at any time the
Commission shall issue any stop order suspending the effectiveness of the Shelf
Registration Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state securities or
Blue Sky laws, the Issuer shall use its reasonable best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time and will
provide to the Initial Purchasers and each Holder who is named in the Shelf
Registration Statement prompt notice of the withdrawal of any such order.

(iv)          Furnish to one counsel for the selling
Holders and each of the underwriter(s), if any, before filing with the
Commission, a copy of the Shelf Registration Statement and copies of any
Prospectus included therein or any amendments or supplements to the Shelf
Registration Statement or Prospectus (other than documents incorporated by
reference after the initial filing of the Shelf Registration Statement or any
amendments or supplements the sole purpose of which is to name additional
selling Holders), which documents will be subject to the review of such counsel
and underwriter(s), if any, for a period of at least two Business Days but no
more than five Business Days (in the case of the Shelf Registration Statement
and Prospectus) and no more than two Business Days (in the case of any such
amendment or supplement thereto), and the Issuer will not file the Shelf
Registration Statement or Prospectus or any amendment or supplement to the
Shelf Registration Statement or Prospectus (other than documents incorporated
by reference after the initial filing of the Shelf Registration Statement or
any amendments or supplements the sole purpose of which is to name additional
selling Holders) to which such counsel or the underwriter(s), if any, shall
reasonably object prior to the filing thereof; provided, however, that such objection
is provided in writing and specifies in reasonable detail the reason for such
objection.

(v)           In connection with an Underwritten
Offering of the Transfer Restricted Securities pursuant to the Shelf
Registration Statement, make available at reasonable times for inspection by
one or more representatives of the selling Holders, designated in writing by a
Majority of Holders whose Transfer Restricted Securities are included in the
Shelf Registration Statement, any underwriter participating in any distribution
pursuant to the Shelf Registration Statement, and any attorney or accountant
retained by such selling Holders or any of the underwriter(s), all financial
and other records, pertinent corporate documents and properties of the Issuer
as shall be reasonably necessary to enable them to exercise any applicable due
diligence responsibilities, and cause the officers, directors, managers and
employees of the Issuer to supply all information reasonably requested by any
such representative or representatives of the selling Holders, underwriter,
attorney or accountant in connection with the Shelf Registration Statement
after the filing thereof and before its effectiveness, provided, however, that
any information designated by the Issuer as confidential at the time of
delivery of such information shall be kept confidential by the recipient
thereof and shall be subject, upon request of the Issuer, to the execution

 9
 

by such persons of a
confidentiality agreement in a form that is reasonable in the context of a
registered public offering.

(vi)          If requested by any selling Holders or
the underwriter(s), if any, promptly incorporate in the Shelf Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling Holders and
underwriter(s), if any, may reasonably request to have included therein,
including, without limitation: (1) information relating to the “Plan of
Distribution” of the Transfer Restricted Securities, (2) information with
respect to the principal amount of the Notes or number of shares of Common
Stock being sold to such underwriter(s), (3) the purchase price being paid
therefor and (4) any other terms of the offering of the Transfer Restricted
Securities to be sold in such offering; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as reasonably
practicable after the Issuer is notified of the matters to be incorporated in
such Prospectus supplement or post-effective amendment.

(vii)         Furnish to each selling Holder and each
underwriter, if any, upon their request, without charge, at least one copy of
the Shelf Registration Statement, as first filed with the Commission, and of
each amendment thereto (and any documents incorporated by reference therein or
exhibits thereto (or exhibits incorporated in such exhibits by reference) as
such Person may request).

(viii)        Deliver to each selling Holder and each
of the underwriter(s), if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons reasonably may request; subject to any notice by the Issuer in
accordance with this Section 4(b) of the existence of any fact or event of the
kind described in Section 4(b)(iii)(D), the Issuer hereby consents to the use
(in accordance with applicable law) of the Prospectus and any amendment or
supplement thereto by each of the selling Holders and each of the
underwriter(s), if any, in connection with the offering and the sale of the Transfer
Restricted Securities covered by the Prospectus or any amendment or supplement
thereto.

(ix)           The Issuer shall:

(A)          upon request, furnish
to each selling Holder and each underwriter, if any, in such substance and
scope as they may reasonably request and as are customarily made by issuers to
underwriters in primary underwritten offerings for selling security holders,
upon the date of closing of any sale of Transfer Restricted Securities in an
Underwritten Registration:

(1)           a certificate, dated the date of such
closing, signed by the Chief Financial Officer or the Chief Executive Officer
of the Issuer covering such matters as are customarily covered in closing
certificates delivered to underwriters in connection with underwritten
offerings of securities;

 10
 

(2)           an opinion, dated
the date of such closing, of counsel to the Issuer covering such of the matters
as are customarily covered in legal opinions to underwriters in connection with
underwritten offerings of securities; and

(3)           a customary comfort letter, dated the
date of such closing, from the independent public accountant of the Issuer (and
from any other accountants whose report is contained or incorporated by
reference in the Shelf Registration Statement) in the customary form and
covering matters of the type customarily covered in comfort letters to
underwriters in connection with underwritten offerings of securities;

(B)           set forth in full in
the underwriting agreement, if any, indemnification provisions and procedures
which provide rights no less protective than those set forth in Section 6
hereof with respect to all parties to be indemnified; and

(C)           deliver such other
documents and certificates as may be reasonably requested by such parties to
evidence compliance with clause (A) above and with any customary conditions
contained in the underwriting agreement or other agreement entered into by the
selling Holders pursuant to this clause (ix).

(x)            Before any public offering of
Transfer Restricted Securities, cooperate with the selling Holders, the underwriter(s),
if any, and their respective counsel in connection with the registration and
qualification of the Transfer Restricted Securities under the securities or
Blue Sky laws of such jurisdictions in the United States as the selling Holders
or underwriter(s), if any, may reasonably request and do any and all other acts
or things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the Shelf
Registration Statement; provided, however, that the Issuer shall not be
required (A) to register or qualify as a foreign corporation or a dealer of
securities where it is not now so qualified or to take any action that would
subject it to the service of process in any jurisdiction where it is not now so
subject or (B) to subject itself to taxation in any such jurisdiction if it is
not now so subject.

(xi)           Unless recorded in book-entry form,
cooperate with the selling Holders and the underwriter(s), if any, to
facilitate the timely preparation and delivery of certificates representing
Transfer Restricted Securities to be sold and not bearing any restrictive
legends (unless required by applicable securities laws); and enable such
Transfer Restricted Securities to be in such denominations and registered in
such names as the Holders or the underwriter(s), if any, may request at least
two Business Days before any sale of Transfer Restricted Securities made by
such underwriter(s); provided however, such selling Holders and the
underwriter(s), if any, provide issuer with a certificate containing
representations, warranties and covenants that are reasonable and customary in
connection with such transactions.

 11
 

(xii)          Use its reasonable best efforts to
cause the Transfer Restricted Securities covered by the Shelf Registration
Statement to be registered with or approved by such other U.S. governmental
agencies or authorities as may be necessary to enable the seller or sellers
thereof or the underwriter(s), if any, to consummate the disposition of such
Transfer Restricted Securities.

(xiii)         Subject to Section 4(b)(i) hereof, if
any fact or event contemplated by Section 4(b)(iii)(D) hereof shall exist or
have occurred, use its reasonable best efforts to prepare a supplement or post-effective
amendment to the Shelf Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other reasonably
required document so that, as thereafter delivered to the purchasers of
Transfer Restricted Securities, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.

(xiv)        Provide CUSIP numbers for all Transfer
Restricted Securities not later than the effective date of the Shelf
Registration Statement and provide the Trustee under the Indenture with
certificates for the Notes that are in a form eligible for deposit with The
Depository Trust Company.

(xv)         Cooperate and assist in any filings
required to be made with the NASD and in the performance of any due diligence
investigation by any underwriter that is required to be retained in accordance
with the rules and regulations of the NASD.

(xvi)        Otherwise use its reasonable best
efforts to comply with all applicable rules and regulations of the Commission
and all reporting requirements under the Exchange Act.

(xvii)       Cause the Indenture to be qualified under
the TIA not later than the effective date of the Shelf Registration Statement
required by this Agreement, and, in connection therewith, cooperate with the
Trustee and the holders of the Notes to effect such changes to the Indenture as
may be required for such Indenture to be so qualified in accordance with the
terms of the TIA; and execute and use its commercially reasonable efforts to
cause the Trustee thereunder to execute all documents that may be required by
Trustee to effect such changes and all other forms and documents required to be
filed with the Commission to enable such Indenture to be so qualified in a
timely manner.

(xviii)      Cause all Transfer Restricted Securities
covered by the Shelf Registration Statement to be listed or quoted, as the case
may be, on each securities exchange or automated quotation system on which
similar securities issued by the Issuer are then listed or quoted.

 12
 

(xix)         Provide to each Holder upon written
request each document filed with the Commission pursuant to the requirements of
Section 13 and Section 15 of the Exchange Act after the effective date of the
Shelf Registration Statement.

(xx)          If requested in writing in connection
with a disposition of Transfer Restricted Securities pursuant to a Registration
Statement, make reasonably available for inspection during normal business
hours by a representative for the Holders of such Transfer Restricted
Securities and any Broker-Dealers, attorneys and accountants retained by such
Holders, all relevant financial and other records and pertinent corporate
documents and properties of the Issuer and its subsidiaries, and cause the
appropriate officers, directors and employees of the Issuer and its
subsidiaries to make reasonably available for inspection during normal business
hours on reasonable notice all relevant information reasonably requested by
such representative for the Holders or any such Broker-Dealers, attorneys or
accountants in connection with such disposition, in each case as is customary
for similar “due diligence” examinations; provided, however, that such persons
shall first agree in writing with the Issuer that any information that is
reasonably and in good faith designated by the Issuer in writing as
confidential at the time of delivery of such information shall be kept
confidential by such persons and shall be used solely for the purposes of
exercising rights under this Agreement, unless (i) disclosure of such
information is required by court or administrative order or is necessary to
respond to inquiries of regulatory authorities, (ii) disclosure of such
information is required by law (including any disclosure requirements pursuant
to federal securities laws in connection with the filing of any Shelf
Registration Statement or the use of any Prospectus referred to in this
Agreement), (iii) such information becomes generally available to the public
other than as a result of a disclosure or failure to safeguard by any such
person or (iv) such information becomes available to any such person from a
source other than the Issuer and such source is not bound by a confidentiality
agreement, and provided, that the foregoing inspection and information
gathering shall, to the greatest extent possible, be coordinated on behalf of
all the Holders and the other parties entitled thereto by the counsel referred
to in Section 5 and provided further, that the Issuer shall not be required to
disclose any information subject to the attorney-client or attorney work
product privilege if and to the extent such disclosure would constitute a
waiver of such privilege.

(xxi)         Use all reasonable efforts to comply
with all applicable rules and regulations of the SEC.

(xxii)         Make generally available to its
securityholders earning statements (which need not be audited) satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or
any similar rule promulgated under the Securities Act) no later than 40 days
after the end of any 3-month period (or 75 days after the end of any 12-month
period if such period is a fiscal year) commencing on the first day of the
first fiscal quarter of the Issuer commencing after the effective date of a
Registration Statement, which statements shall cover said periods; provided,
however, that such requirement shall be deemed satisfied

 13
 

if the Issuer timely files
its periodic reports on Form 10-Q and Form 10-K (as applicable) pursuant to
Section 13 or 15(d) of the Exchange Act.

(c)           Each Holder agrees
by acquisition of a Transfer Restricted Security that, upon receipt of any
notice (a “Suspension Notice”)
from the Issuer of the existence of any fact of the kind described in Section
4(b)(iii)(D) hereof, such Holder will, and will use its reasonable best efforts
to cause any underwriter(s) in an Underwritten Offering to, forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the Shelf
Registration Statement until:

(i)            such Holder has received copies of
the supplemented or amended Prospectus contemplated by Section 4(b)(xiii)
hereof; or

(ii)           such Holder is advised in writing by
the Issuer that the use of the Prospectus may be resumed, and has received
copies of any additional or supplemental filings that are incorporated by
reference in the Prospectus.

If so directed by the
Issuer, each Holder will deliver to the Issuer (at the Issuer’s expense) all
copies, other than permanent file copies then in such Holder’s possession, of
the Prospectus covering such Transfer Restricted Securities that was current at
the time of receipt of such notice of suspension.

5.             Registration
Expenses.

(a)           All expenses
incident to the performance of or compliance with this Agreement by the Issuer
shall be borne by the Issuer regardless of whether a Shelf Registration
Statement becomes effective, including, without limitation:

(i)            all registration and filing fees and
expenses (including filings made by the Initial Purchasers or any Holders with
the NASD);

(ii)           all fees and expenses of compliance
with federal securities and state Blue Sky or securities laws;

(iii)          all expenses of printing (including
printing of Prospectuses and certificates for the Common Stock to be issued
upon conversion of the Notes) and the expenses of the Issuer for messenger and
delivery services and telephone;

(iv)          all fees and disbursements of counsel
to the Issuer and, subject to Section 5(b) below, the Holders of Transfer
Restricted Securities;

(v)           all application and filing fees in
connection with listing (or authorizing for quotation) the Common Stock on a
national securities exchange or automated quotation system pursuant to the
requirements hereof; and

(vi)          all fees and disbursements of the
independent certified public accountant of the Issuer (including the expenses
of any special audit and comfort letters required by or incident to such
performance).

 14
 

The Issuer shall bear its
internal expenses (including, without limitation, all salaries and expenses of
their officers and employees performing legal, accounting or other duties), the
expenses of any annual audit and the fees and expenses of any Person, including
special experts, retained by the Issuer.

(b)           In connection with
the Shelf Registration Statement required by this Agreement, including any
amendment or supplement thereto, and any other documents delivered to any
Holders, the Issuer shall reimburse the Initial Purchasers and the Holders of
Transfer Restricted Securities being registered pursuant to the Shelf
Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel as may be chosen by a Majority of
Holders for whose benefit the Shelf Registration Statement is being prepared,
not to exceed an aggregate of $20,000. 
The Issuer shall not be required to pay any underwriting discount,
commission or similar fee related to the sale of any securities.

6.             Indemnification
and Contribution.

(a)           The Issuer shall
indemnify and hold harmless each Holder, such Holder’s officers, directors,
partners and employees and each person, if any, who controls such Holder within
the meaning of the Securities Act (each, an “Indemnified
Holder”), from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof (including, but not limited
to, any loss, claim, damage, liability or action relating to resales of the
Transfer Restricted Securities), to which such Indemnified Holder may become
subject, insofar as any such loss, claim, damage, liability or action arises
out of, or is based upon (i) any untrue statement or alleged untrue statement
of a material fact contained in the Shelf Registration Statement or Prospectus
or any amendment or supplement thereto or (ii) the omission or alleged omission
to state therein any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, and shall reimburse each Indemnified Holder
promptly upon demand for any legal or other expenses reasonably incurred by
such Indemnified Holder in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or action
as such expenses are incurred; provided, however, that the Issuer shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement or
alleged untrue statement or omission or alleged omission made in the Shelf
Registration Statement or Prospectus or amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Issuer by or on behalf of such Holder; provided, further, that the Issuer shall
not be liable for any loss, liability, claim, damage or expense to the extent
that it arises from a sale of Transfer Restricted Securities occurring during a
Suspension Period, provided that Issuer shall have provided such Holder a
Suspension Notice with respect to such Suspension Period prior to such sale.

(b)           Each
Holder, severally and not jointly, shall indemnify and hold harmless the
Issuer, their officers, directors and employees and each person, if any, who
controls the Issuer within the meaning of the Securities Act, from and against
any loss, claim, damage or liability, joint or several, or any action in
respect thereof, to which the Issuer or any such officer, director, employee or
controlling person may become subject, insofar as any such loss, claim, damage
or liability or action arises out of, or is based upon (i) any untrue statement
or alleged untrue statement of any material fact contained in the Shelf
Registration Statement or Prospectus

 15

or
any amendment or supplement thereto or (ii) the omission or the alleged
omission to state therein any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, but in each case only to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Issuer by or on behalf of such Holder (or its related
Indemnified Holder) specifically for use therein, and shall reimburse the
Issuer and any such officer, director, employee or controlling person promptly
upon demand for any legal or other expenses reasonably incurred by the Issuer
or any such officer, director, employee or controlling person in connection
with investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred.  The foregoing indemnity agreement is in addition
to any liability that any Holder may otherwise have to the Issuer and any such
officer, employee or controlling person.

(c)                                  Promptly after receipt by an indemnified
party under this Section 6 of notice of any claim or the commencement of any
action, the indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under this Section 6, notify the
indemnifying party in writing of the claim or the commencement of that action;
provided, however, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have
under this Section 6 except to the extent it has been materially prejudiced by
such failure and, provided, further, that the
failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 6.  If any such claim or action
shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel satisfactory to the indemnified party. 
After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying party
shall not be liable to the indemnified party under this Section 6 for any legal
or other expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than reasonable costs of investigation;
provided, however, that a Majority of Holders shall have the right to employ a
single counsel to represent jointly a Majority of Holders and their respective
officers, directors, partners, employees and controlling persons who may be
subject to liability arising out of any claim in respect of which indemnity may
be sought by a Majority of Holders against the Issuer under this Section 6, if
a Majority of Holders seeking indemnification shall have been advised in good
faith by legal counsel that there may be one or more legal defenses available
to them and their respective officers, employees and controlling persons that
are different from or additional to those available to the Issuer and its
officers, directors, employees and controlling persons, the fees and expenses
of a single separate counsel shall be paid by the Issuer.  No indemnifying party shall:

(i)                                     without the prior written consent of the
indemnified parties (which consent shall not be unreasonably withheld) settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent

 16
 

includes an unconditional
release of each indemnified party from all liability arising out of such claim,
action, suit or proceeding, or

(ii)                                  be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be
a final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against
any loss or liability by reason of such settlement or judgment.

(d)                                 If the indemnification provided for in this
Section 6 shall for any reason be unavailable or insufficient to hold harmless
an indemnified party under Section 6(a) or 6(b) in respect of any loss, claim,
damage or liability (or action in respect thereof) referred to therein, each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability (or action in respect thereof):

(i)                                     in such proportion as is appropriate to
reflect the relative benefits received by the Issuer from the offering and sale
of the Transfer Restricted Securities on the one hand and a Holder with respect
to the sale by such Holder of the Transfer Restricted Securities on the other,
or

(ii)                                  if the allocation provided by clause
(6)(d)(i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
6(d)(i) but also the relative fault of the Issuer on the one hand and the
Holders on the other in connection with the statements or omissions or alleged
statements or alleged omissions that resulted in such loss, claim, damage or
liability (or action in respect thereof), as well as any other relevant
equitable considerations.

The relative benefits
received by the Issuer on the one hand and a Holder on the other with respect
to such offering and such sale shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Notes purchased under the
Purchase Agreement (net of discounts and commissions but before deducting
expenses) received by the Issuer on the one hand, bear to the total proceeds
received by such Holder with respect to its sale of Transfer Restricted
Securities on the other.  The relative
fault of the parties shall be determined by reference to whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Issuer on the
one hand or the Holders on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such statement or omission.  The Issuer
and each Holder agree that it would not be just and equitable if the amount of
contribution pursuant to this Section 6(d) were determined by pro rata allocation or by any other method of allocation
that does not take into account the equitable considerations referred to in the
first sentence of this paragraph (d). 
The amount paid or payable by an indemnified party as a result of the
loss, claim, damage or liability, or action in respect thereof, referred to
above in this Section 6 shall be deemed to include, for purposes of this
Section 6, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending or preparing to

 17
 

defend any such action or
claim.  Notwithstanding the provisions of
this Section 6, no Holder shall be required to contribute any amount in excess
of the amount by which the total price at which the Transfer Restricted
Securities purchased by it were resold exceeds the amount of any damages which
such Holder has otherwise been required to pay by reason of any untrue or
alleged untrue statement or omission or alleged omission.  No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.  The Holders’
obligations to contribute as provided in this Section 6(d) are several and not
joint.

(e)                                  The indemnity and contribution provisions
contained in this Section 6 shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any investigation made
by or on behalf of any Holder or any person controlling any Holder, or the
Issuer, or the Issuer’s officers or directors or any person controlling the
Issuer and (iii) the sale of any Transfer Restricted Securities by any Holder.

7.                                      Rule 144A.  In
the event the Issuer is not subject to Section 13 or 15(d) of the Exchange Act,
the Issuer hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding, to make available to any Holder or
beneficial owner of Transfer Restricted Securities in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted Securities
from such Holder or beneficial owner, the information required by Rule
144A(d)(4) under the Securities Act in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144A.

8.                                      Participation in Underwritten
Registrations.  No
Holder may participate in any Underwritten Registration hereunder unless such
Holder:

(i)                                     agrees to sell such Holder’s Transfer
Restricted Securities on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements; and

(ii)                                  fully completes and executes all reasonable
questionnaires, powers of attorney, indemnities, underwriting agreements,
lock-up letters and other documents required under the terms of such
underwriting arrangements.

9.                                      Selection of Underwriters.  The
Holders of Transfer Restricted Securities covered by the Shelf Registration
Statement who desire to do so may sell such Transfer Restricted Securities in
an Underwritten Offering if approved by the Issuer, as provided in Section
4(b)(ii).  In any such Underwritten
Offering, the investment banker or investment bankers and manager or managers
that will administer the offering will be selected by a Majority of Holders
whose Transfer Restricted Securities are included in such offering; provided,
that such investment bankers and managers must be reasonably satisfactory to
the Issuer.

10.                               Miscellaneous.

(a)                                  Remedies.  The
Issuer acknowledges and agrees that any failure by the Issuer to comply with
its obligations under Section 2 hereof may result in material irreparable
injury to the Initial Purchasers or the Holders for which there is no adequate
remedy at law, that it will not be possible to measure damages for such
injuries precisely and that, in the event of any

 18
 

such
failure, the Initial Purchasers or any Holder may obtain such relief as may be
required to specifically enforce the obligations of the Issuer under Section 2 hereof.  The Issuer further agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.

(b)                                 Adjustments
Affecting Transfer Restricted Securities.  The Issuer shall not take any
action with the primary purpose of adversely affecting the ability of the
Holders of the Transfer Restricted Securities as a class to include such
Transfer Restricted Securities in a registration undertaken pursuant to this
Agreement.

(c)                                  No Inconsistent
Agreements.  The Issuer will not, on or after the date of
this Agreement, enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. 
In addition, the Issuer shall not grant to any of its security holders
(other than the Holders of Transfer Restricted Securities in such capacity) the
right to include any securities in the Shelf Registration Statement provided
for in this Agreement other than the Transfer Restricted Securities.  Except as disclosed in the Offering
Memorandum, the Issuer has not previously entered into any agreement (which has
not expired or been terminated) granting any registration rights with respect
to its securities to any Person which rights conflict with the provisions
hereof.

(d)                                 Amendments and
Waivers.  Except as provided in the next paragraph,
this Agreement may not be amended, modified or supplemented, and waivers or
consents to or departures from the provisions hereof may not be given, unless
the Issuer has obtained the written consent of a Majority of Holders or such
greater percentage of the Holders as required by the Indenture.

In
the event of a merger or consolidation or sale, assignment, conveyance,
transfer, lease or other disposition of all or substantially all of the
properties and assets of the Issuer and its subsidiaries on a consolidated
basis, the Issuer shall procure the assumption of its obligations under this
Agreement (which it is understood and agreed shall include the registration of
any other securities into which the Notes or the Common Stock (the “New Securities”) have become convertible on substantially
the same terms as provided for the registration of the Common Stock) by the
Person (if other than the Issuer) formed by such consolidation or into which
the Issuer is merged or the Person who acquires by sale, assignment,
conveyance, transfer, lease or other disposition all or substantially all of
the properties and assets of the Issuer and its subsidiaries on a consolidated
basis and this Agreement may be amended, modified or supplemented without the
consent of any Holders to provide for such assumption of the Issuer’s
obligations hereunder (including the registration of any New Securities).  Without the consent of each Holder of the
Notes, no amendment or modification may change the provisions relating to the
payment of Additional Interest during the pendency of a Registration Default.

Each
Holder of Transfer Restricted Securities outstanding at the time of any
amendment, modification, supplement, waiver or consent or thereafter shall be
bound by any amendment, modification, supplement, waiver or consent effected
pursuant to this Section 10(d), whether or not any notice, writing or marking
indicating such amendment, modification, supplement, waiver or consent appears
on the Transfer Restricted Securities or is delivered to such Holder.

 19
 

(e)                                  Notices.  All
notices and other communications provided for or permitted hereunder shall be
made in writing by hand-delivery, first-class mail (registered or
certified, return receipt requested), telex, facsimile transmission, or air
courier guaranteeing overnight delivery:

(i)                                     if to a Holder, at the address set forth on
the records of the registrar under the Indenture or the transfer agent of the
Common Stock, as the case may be; and

(ii)                                  if to the Issuer:

Isis Pharmaceuticals, Inc.

1896 Rutherford Road

Carlsbad, CA 92008

 

Attention: Executive Vice
President

Telephone: (760) 931-9200

Facsimile: (760) 603-4650

 

With a copy to:

 

Attention: General
Counsel

Telephone: (760) 931-9200

Facsimile: (760) 268-4922

 

All such notices and
communications shall be deemed to have been duly given: (i) at the time
delivered by hand, if personally delivered; (ii) five Business Days after being
deposited in the mail, postage prepaid, if mailed; (iii) when answered back, if
telexed; (iv) when receipt acknowledged, if transmitted by facsimile; and (v)
on the next Business Day, if timely delivered to an air courier guaranteeing
overnight delivery.  In addition, (y)
Issuer may provide notice to any Holder by sending an electronic mail to the
email address specified on such Holder’s Questionnaire and (z) Issuer may
satisfy its obligations to furnish, deliver, supply or make available any
document under this Agreement by filing it on the Commission’s electronic data
gathering and retrieval system (EDGAR).

(f)                                    Successors and
Assigns.  This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided, however, that
(i) this Agreement shall not inure to the benefit of or be binding upon a
successor or assign of a Holder unless and to the extent such successor or
assign acquired Transfer Restricted Securities from such Holder and (ii)
nothing contained herein shall be deemed to permit any assignment, transfer or
other disposition of Transfer Restricted Securities in violation of the terms
of the Purchase Agreement or the Indenture. 
If any transferee of any Holder shall acquire Transfer Restricted
Securities, in any manner, whether by operation of law or otherwise, such
Transfer Restricted Securities shall be held subject to all of the terms of
this Agreement, and by taking and holding such Transfer Restricted Securities
such person shall

 20
 

be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement.

(g)                                 Counterparts.  This
Agreement may be executed in any number of counterparts and by the parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which taken together shall constitute one and the
same agreement.

(h)                                 Notes Held by
the Issuer or Its Affiliates.  Whenever the consent or approval of Holders
of a specified percentage of Transfer Restricted Securities is required
hereunder, Transfer Restricted Securities held by the Issuer or its “affiliates”
(as such term is defined in Rule 405 under the Securities Act) shall not be
counted in determining whether such consent or approval was given by the
Holders of such required percentage.

(i)                                     Headings.  The
headings in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.

(j)                                     Governing Law.  This
Agreement shall be governed by, and construed in accordance with, the law of
the State of New York.

(k)                                  Severability. 
If  any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.

(l)                                     Entire Agreement.  This
Agreement is intended by the parties as a final expression of their agreement
and intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein.  There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Issuer with
respect to the Transfer Restricted Securities. 
This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.

(m)                               Termination.  This
Agreement and the obligations of the parties hereunder shall terminate upon the
end of the Effectiveness Period, except for any liabilities or obligations
under Sections 5 or 6 hereof and the obligations to make payments of and
provide for liquidated damages under Section 3 hereof to the extent such
damages accrue prior to the end of the Effectiveness Period, each of which
shall remain in effect in accordance with its terms.

[Signature page follows]

 21

IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.

	
   

  	
  ISIS PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ B. Lynne Parshall

  	
   

  
	
   

  	
   

  	
  Name: B. Lynne Parshall

  
	
   

  	
   

  	
  Title: EVP & CFO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LEHMAN BROTHERS INC.

  
	
   

  	
   

  
	
   

  	
  BY:

  	
  LEHMAN BROTHERS INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Tran Nguyen

  	
   

  
	
   

  	
   

  	
  Authorized Representative

  

 

SCHEDULE I

Initial Purchasers

Lehman
Brothers Inc.

Cowen
and Company, LLC

Needham
& Company, LLC

Leerink Swann & Co.,
Inc.

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