Document:

EXHIBIT 10.mm

                       AMENDMENT NO. 9 TO CREDIT AGREEMENT

         AMENDMENT NO. 9 (this "AMENDMENT"), dated as of November 30, 1999, to
and under the Credit Agreement, dated as of March 30, 1998 (as amended by
Amendment No. 1 dated as of May 8, 1998, Amendment No. 2 dated as of June 30,
1998, Amendment No. 3 dated as of October 19, 1998, Amendment No. 4 dated as of
April 10, 1999, Amendment No. 5 dated as of April 15, 1999, Amendment No. 6
dated as of May 25, 1999, Amendment No. 7 dated as of October 27, 1999 and
Amendment No. 8 dated as of November 16, 1999, as so amended, the "CREDIT
AGREEMENT"), among SUNBEAM CORPORATION (the "PARENT"), the SUBSIDIARY BORROWERS
referred to therein, the LENDERS party thereto, MORGAN STANLEY SENIOR FUNDING,
INC., as Syndication Agent, BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Documentation Agent, and FIRST UNION NATIONAL BANK, as
Administrative Agent.

                              W I T N E S S E T H :

         WHEREAS, the Parent, the Subsidiary Borrowers, the Lenders and the
Agents are parties to the Credit Agreement;

         WHEREAS, the Parent has requested that the Administrative Agent and the
Lenders agree to amend certain reporting requirements contained in Section 5.02
of the Credit Agreement;

         WHEREAS, the Administrative Agent and the Lenders are willing to agree
to such requested amendments, but only upon the terms and conditions of this
Amendment; and

         NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt of which is hereby acknowledged, the parties
hereto agree as follows:

         SECTION 1. DEFINED TERMS; REFERENCES. Unless otherwise specifically
defined herein, each term used herein which is defined in the Credit Agreement
has the meaning assigned to such term in the Credit Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Credit Agreement shall, after this Amendment becomes effective,
refer to the Credit Agreement as amended hereby. Except as herein specifically
amended, all terms and provisions of the Credit Agreement shall remain in full
force and effect and shall be performed by the parties hereto according to such
terms and provisions. This Amendment is limited as specified and shall not
constitute a modification, amendment or waiver of any other provision of the
Credit Agreement or any other Loan Document or indicate the Lenders' willingness
to consent to any other modification, amendment or waiver of the Credit
Agreement or any other Loan Document, including without limitation, any
modification, amendment or waiver of the Section amended pursuant to this
Amendment for any other date or time period or in connection with any other
transaction.

<PAGE>

         SECTION 2. ADDITIONAL INFORMATIONAL REQUIREMENTS. Section 5.02 of the
Credit Agreement is amended to replace paragraphs (B), (C), (D) and (F) with the
following new paragraphs (B), (C), (D) and (F):

                  "(B) (i) On or before the last Business Day of each month, a
         cash forecast, showing monthly cash flows (and existing and forecasted
         liquidity under all financing and securitization arrangements) for the
         succeeding three months and (ii) on or before the fifteenth day of each
         month, a comparison of actual monthly cash flows for the immediately
         preceding month to the forecasted monthly cash flows for such
         immediately preceding month as set forth in the most recent forecast
         covering such immediately preceding month delivered pursuant to clause
         (i) of this paragraph (B).

                  (C) (i) On or before December 31, 1999, a Business Plan for
         the 2000 fiscal year of the Parent setting forth for each Strategic
         Business Unit and on a consolidated basis monthly final forecasted
         income statements, (ii) on or before January 15, 2000, a preliminary
         Business Plan for the 2000 fiscal year of the Parent setting forth for
         each Strategic Business Unit and on a consolidated basis monthly
         preliminary forecasted cash flow statements and balance sheets and
         (iii) on or before February 15, 2000, a final Business Plan for the
         2000 fiscal year of the Parent setting forth for each Strategic
         Business Unit and on a consolidated basis monthly final forecasted cash
         flow statements and balance sheets.

                  (D) (i) On or before January 31, 2000, projections for the
         fiscal years 2001 and 2002 of the Parent setting forth for each
         Strategic Business Unit and on a consolidated basis projected income
         statements and (ii) on or before February 15, 2000, projections for the
         fiscal years 2001 and 2002 of the Parent setting forth (A) for each
         Strategic Business Unit projected capital expenditures and (B) for the
         Parent and its Consolidated Subsidiaries on a consolidated basis
         projected cash flow statements and balance sheets.

                  (F) (i) Biweekly, a report summarizing the status of the
         Parent's Year 2000 Computer Compatibility Project until such time as a
         Financial Officer delivers a certificate to the Administrative Agent
         certifying that such project is materially complete and (ii) if such
         certificate is delivered prior to March 31, 2000, on or before the last
         day of each month through March 31, 2000, a report summarizing the
         status of the year 2000 compatibility of the Parent and its Material
         Subsidiaries.".

         SECTION 3. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.

         SECTION 4. COUNTERPARTS. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.

         SECTION 5. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. After giving
effect to this Amendment, the Parent and the Subsidiary Borrower (to the extent
applicable to it

<PAGE>

thereunder) hereby represent and warrant that all representations and warranties
contained in the Credit Agreement are true and correct on and as of the date
hereof (unless stated to relate to a specific earlier date, in which case, such
representations and warranties shall be true and correct as of such earlier
date) and that no Default or Event of Default shall have occurred and be
continuing or would result from the execution and delivery of this Amendment.

         SECTION 6. EFFECTIVENESS. This Amendment shall become effective on the
date on which the Administrative Agent shall have received from each of the
Parent, the Subsidiary Borrower and the Required Lenders, a counterpart hereof
signed by such party or facsimile or other written confirmation (in form
satisfactory to the Administrative Agent) that such party has signed a
counterpart hereof.

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.

                                     SUNBEAM CORPORATION

                                     By:________________________________________
                                     Name:
                                     Title:

                                     THE COLEMAN COMPANY, INC.

                                     By:________________________________________
                                     Name:
                                     Title:

                                     MORGAN STANLEY SENIOR FUNDING, INC.,
                                       individually and as Syndication Agent

                                     By:________________________________________
                                     Name:
                                     Title:

                                     BANK OF AMERICA NATIONAL TRUST AND
                                     SAVINGS ASSOCIATION, individually
                                     and as Documentation Agent

                                     By:________________________________________
                                     Name:
                                     Title:

                                     FIRST UNION NATIONAL BANK,
                                       individually and as Administrative Agent
                                     By:________________________________________
                                     Name:
                                     Title:<PAGE>

                                                                     EXHIBIT 4.3

                               TABLE OF CONTENTS

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ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION.........   1

     SECTION 1.1    Definitions...........................................   1
     SECTION 1.2    Compliance Certificates And Opinions..................  10
     SECTION 1.3    Form of Documents Delivered to the Trustee............  11
     SECTION 1.4    Acts of Holders of Securities.........................  11
     SECTION 1.5    Notices, Etc to the Trustee and Company...............  13
     SECTION 1.6    Notice to Holders of Securities; Waiver...............  14
     SECTION 1.7    Effect of Headings and Table of Contents..............  14
     SECTION 1.8    Successors and Assigns................................  14
     SECTION 1.9    Separability Clause...................................  14
     SECTION 1.10   Benefits of Indenture.................................  15
     SECTION 1.11   Governing Law.........................................  15
     SECTION 1.12   Legal Holidays........................................  15
     SECTION 1.13   Conflict With Trust Indenture Act.....................  15

ARTICLE II SECURITY FORMS.................................................  16

     SECTION 2.1    Form Generally........................................  16
     SECTION 2.2    Form of Security......................................  16
     SECTION 2.3    Form of Certificate of Authentication.................  29
     SECTION 2.4    Form of Conversion Notice.............................  30
     SECTION 2.5    Form of Assignment....................................  31

ARTICLE III THE SECURITIES................................................  32

     SECTION 3.1    Title and Terms.......................................  32
     SECTION 3.2    Denominations.........................................  32
     SECTION 3.3    Execution, Authentication, Delivery and Dating........  33
     SECTION 3.4    Global Securities; Non-global Securities; Book-entry
                    Provisions............................................  33
     SECTION 3.5    Registration; Registration of Transfer and Exchange;
                    Restrictions on Transfer..............................  35
     SECTION 3.6    Mutilated, Destroyed, Lost or Stolen Securities.......  38
     SECTION 3.7    Payment of Interest; Interest Rights Preserved........  39
     SECTION 3.8    Persons Deemed Owners.................................  40
     SECTION 3.9    Cancellation..........................................  40
     SECTION 3.10   Computation of Interest...............................  40
     SECTION 3.11   CUSIP Numbers.........................................  41

ARTICLE IV SATISFACTION AND DISCHARGE.....................................  41

     SECTION 4.1    Satisfaction And Discharge of Indenture...............  41
</TABLE>

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                               TABLE OF CONTENTS
                                  (continued)
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     SECTION 4.2    Application of Trust Money............................  42

ARTICLE V REMEDIES........................................................  43

     SECTION 5.1    Events of Default.....................................  43
     SECTION 5.2    Acceleration of Maturity; Rescission and Annulment....  44
     SECTION 5.3    Collection of Indebtedness and Suits for Enforcement
                    by Trustee............................................  45
     SECTION 5.4    Trustee May File Proofs of Claim......................  46
     SECTION 5.5    Trustee May Enforce Claims Without Possession of
                    Securities............................................  47
     SECTION 5.6    Application of Money Collected........................  47
     SECTION 5.7    Limitation on Suits...................................  47
     SECTION 5.8    Unconditional Right of Holders to Receive Principal,
                    Premium and Interest and to Convert...................  48
     SECTION 5.9    Restoration of Rights and Remedies....................  48
     SECTION 5.10   Rights and Remedies Cumulative........................  48
     SECTION 5.11   Delay or Omission Not Waiver..........................  49
     SECTION 5.12   Control by Holders of Securities......................  49
     SECTION 5.13   Waiver of Past Defaults...............................  49
     SECTION 5.14   Undertaking for Costs.................................  49
     SECTION 5.15   Waiver of Stay, Usury or Extension Laws...............  50

ARTICLE VI THE TRUSTEE....................................................  50

     SECTION 6.1    Certain Duties and Responsibilities...................  50
     SECTION 6.2    Notice of Defaults....................................  51
     SECTION 6.3    Certain Rights of Trustee.............................  52
     SECTION 6.4    Not Responsible for Recitals or Issuance of
                    Securities............................................  53
     SECTION 6.5    May Hold Securities, Act as Trustee under Other
                    Indentures............................................  53
     SECTION 6.6    Money Held in Trust...................................  53
     SECTION 6.7    Compensation and Reimbursement........................  53
     SECTION 6.8    Corporate Trustee Required; Eligibility...............  54
     SECTION 6.9    Resignation and Removal; Appointment of Successor.....  54
     SECTION 6.10   Acceptance of Appointment by Successor................  55
     SECTION 6.11   Merger, Conversion, Consolidation or Succession to
                    Business..............................................  56
     SECTION 6.12   Authenticating Agents.................................  56
     SECTION 6.13   Disqualification; Conflicting Interests...............  57
     SECTION 6.14   Preferential Collection of Claims Against Company.....  57

ARTICLE VII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE..........  58

     SECTION 7.1    Company May Consolidate, Etc,.........................  58
     SECTION 7.2    Successor Substituted.................................  58
</TABLE>

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                               TABLE OF CONTENTS
                                  (continued)
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ARTICLE VIII SUPPLEMENTAL INDENTURES......................................  59

     SECTION 8.1    Supplemental Indentures Without Consent of Holders
                    of Securities.........................................  59
     SECTION 8.2    Supplemental Indentures with Consent of Holders of
                    Securities............................................  60
     SECTION 8.3    Execution of Supplemental Indentures..................  61
     SECTION 8.4    Effect of Supplemental Indentures.....................  61
     SECTION 8.5    Reference in Securities to Supplemental Indentures....  61
     SECTION 8.6    Notice of Supplemental Indentures.....................  61

ARTICLE IX MEETINGS OF HOLDERS OF SECURITIES..............................  62

     SECTION 9.1    Purposes for Which Meetings May Be Called.............  62
     SECTION 9.2    Call, Notice and Place of Meetings....................  62
     SECTION 9.3    Persons Entitled to Vote at Meetings..................  62
     SECTION 9.4    Quorum; Action........................................  62
     SECTION 9.5    Determination of Voting Rights; Conduct and
                    Adjournment of Meetings...............................  63
     SECTION 9.6    Counting Votes and Recording Action of Meetings.......  64

ARTICLE X COVENANTS.......................................................  64

     SECTION 10.1   Payment of Principal, Premium and Interest............  64
     SECTION 10.2   Maintenance of Offices or Agencies....................  65
     SECTION 10.3   Money for Security Payments to Be Held in Trust.......  65
     SECTION 10.4   Existence.............................................  66
     SECTION 10.5   Maintenance of Properties.............................  67
     SECTION 10.6   Payment of Taxes and Other Claims.....................  67
     SECTION 10.7   Registration and Listing..............................  67
     SECTION 10.8   Statement by Officers as to Default...................  67
     SECTION 10.9   Delivery of Certain Information.......................  68
     SECTION 10.10  Resale of Certain Securities..........................  68
     SECTION 10.11  Registration Rights...................................  69
     SECTION 10.12  Waiver of Certain Covenants...........................  70

ARTICLE XI REDEMPTION OF SECURITIES.......................................  71

     SECTION 11.1   Right of Redemption...................................  71
     SECTION 11.2   Applicability of Article..............................  71
     SECTION 11.3   Election to Redeem; Notice to Trustee.................  71
     SECTION 11.4   Selection by Trustee of Securities to Be Redeemed.....  71
     SECTION 11.5   Notice of Redemption..................................  72
     SECTION 11.6   Deposit of Redemption Price...........................  73
     SECTION 11.7   Securities Payable on Redemption Date.................  73
</TABLE>

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                                  (continued)
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     SECTION 11.8   Conversion Arrangement on Call for Redemption.........  74

ARTICLE XII CONVERSION OF SECURITIES......................................  74

     SECTION 12.1   Conversion Privilege and Conversion Rate..............  74
     SECTION 12.2   Exercise of Conversion Privilege......................  75
     SECTION 12.3   Fractions of Shares...................................  76
     SECTION 12.4   Adjustment of Conversion Rate.........................  77
     SECTION 12.5   Notice of Adjustments of Conversion Rate..............  81
     SECTION 12.6   Notice of Certain Corporate Action....................  82
     SECTION 12.7   Company to Reserve Common Stock.......................  83
     SECTION 12.8   Taxes on Conversions..................................  83
     SECTION 12.9   Covenant as to Common Stock...........................  83
     SECTION 12.10  Cancellation of Converted Securities..................  83
     SECTION 12.11  Provision in Case of Consolidation, Merger or Sale
                    of Assets.............................................  83
     SECTION 12.12  Rights Issued in Respect of Common Stock..............  84
     SECTION 12.13  Responsibility of Trustee for Conversion Provisions...  85

ARTICLE XIII SUBORDINATION OF SECURITIES..................................  85

     SECTION 13.1   Securities Subordinate to Senior Debt.................  85
     SECTION 13.2   No Payment in Certain Circumstances, Payment over
                    of Proceeds upon Dissolution, Etc.....................  86
     SECTION 13.3   Prior Payment to Senior Debt upon Acceleration of
                    Securities............................................  88
     SECTION 13.4   Payment Permitted If No Default.......................  88
     SECTION 13.5   Subrogation to Rights of Holders of Senior Debt.......  88
     SECTION 13.6   Provisions Solely to Define Relative Rights...........  88
     SECTION 13.7   Trustee to Effectuate Subordination...................  89
     SECTION 13.8   No Waiver of Subordination Provisions.................  89
     SECTION 13.9   Notice to Trustee.....................................  89
     SECTION 13.10  Reliance on Judicial Order or Certificate of
                    Liquidating Agent.....................................  90
     SECTION 13.11  Trustee Not Fiduciary for Holders of Senior Debt......  91
     SECTION 13.12  Reliance by Holders of Senior Debt on Subordination
                    Provisions............................................  91
     SECTION 13.13  Rights of Trustee as Holder of Senior Debt;
                    Preservation of Trustee's Rights......................  91
     SECTION 13.14  Article Applicable to Paying Agents...................  91
     SECTION 13.15  Certain Conversions and Repurchases Deemed Payment....  91

ARTICLE XIV REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDER
     UPON A CHANGE IN CONTROL.............................................  92

     SECTION 14.1   Right to Require Repurchase...........................  92
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     SECTION 14.2   Conditions to the Company's Election to Pay the
                    Repurchase Price in Common Stock......................  93
     SECTION 14.3   Notices; Method of Exercising Repurchase Right, Etc...  93
     SECTION 14.4   Certain Definitions...................................  96
     SECTION 14.5   Consolidation, Merger, etc............................  97

ARTICLE XV HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY;
     NON-RECOURSE.........................................................  98

     SECTION 15.1   Company to Furnish Trustee Names and Addresses
                    of Holders............................................  98
     SECTION 15.2   Preservation of Information...........................  98
     SECTION 15.3   Reserved..............................................  99
     SECTION 15.4   Reports by Trustee....................................  99
     SECTION 15.5   Reports by Company....................................  99

ARTICLE XVI IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND
     DIRECTORS............................................................  99

     SECTION 16.1   Indenture and Securities Solely Corporate
                    Obligations...........................................  99
</TABLE>
<PAGE>

          INDENTURE, dated as of February 2, 2000, between RATIONAL SOFTWARE
CORPORATION, a corporation duly organized and existing under the laws of the
State of Delaware, having its principal office at 18880 Homestead Road,
Cupertino, CA 95014 (herein called the "Company"), and STATE STREET BANK AND
TRUST COMPANY OF CALIFORNIA, N.A., a national banking association organized
under the laws of the United States, as Trustee hereunder (herein called the
"Trustee").

                            RECITALS OF THE COMPANY

          The Company has duly authorized the creation of an issue of its 5%
Convertible Subordinated Notes due February 1, 2007 (herein called the
"Securities") of substantially the tenor and amount hereinafter set forth, and
to provide therefor the Company has duly authorized the execution and delivery
of this Indenture.

          All things necessary to make the Securities, when the Securities are
executed by the Company and authenticated and delivered hereunder, the valid
obligations of the Company, and to make this Indenture a valid agreement of the
Company, in accordance with their and its terms, have been done. Further, all
things necessary to duly authorize the issuance of the Common Stock of the
Company issuable upon the conversion of the Securities, and to duly reserve for
issuance the number of shares of Common Stock issuable upon such conversion,
have been done.

          NOW, THEREFORE, THIS INDENTURE WITNESSETH:

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

                                   ARTICLE I
            DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

SECTION 1.1    Definitions.
               -----------

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

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

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

                                                                             -1-
<PAGE>

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

     "Act", when used with respect to any Holder of a Security, has the meaning
specified in Section 1.4.

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

     "Agent Member" means any member of, or participant in, the Depositary.

     "Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Security or beneficial interest therein, the rules and
procedures of The Depository Trust Company, in each case to the extent
applicable to such transaction and as in effect from time to time.

     "Authenticating Agent" means any Person authorized pursuant to Section 6.12
to act on behalf of the Trustee to authenticate Securities.

     "Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.

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

     "Business Day", when used with respect to any Place of Payment, Place of
Conversion or any other place, as the case may be, means each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking institutions
in such Place of Payment, Place of Conversion or other place, as the case may
be, are authorized or obligated by law or executive order to close; provided,
however, that a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close shall not be a
Business Day for purposes of Section 13.9.

     "Change in Control" has the meaning specified in Section 14.4(2).

     "Closing Price Per Share" means, with respect to the Common Stock, for any
day, (i) the last reported bid price regular way on the Nasdaq National Market
or, (ii) if the Common Stock is not quoted on the Nasdaq National Market, the
last reported sale price regular way per share or, in case no such reported sale
takes place on such day, the average of the reported closing bid and asked
prices regular way, in either case, on the principal national securities
exchange on which the

                                                                             -2-
<PAGE>

Common Stock is listed or admitted to trading, or (iii) if the Common Stock is
not quoted on the Nasdaq National Market or listed or admitted to trading on any
national securities exchange, the average of the closing bid prices in the over-
the-counter market as furnished by any New York Stock Exchange member firm
selected from time to time by the Company for that purpose.

     "Code" has the meaning specified in Section 2.1.

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

     "Common Stock" means the Common Stock, par value $0.01 per share, of the
Company authorized at the date of this instrument as originally executed.
Subject to the provisions of Section 12.11, shares issuable on conversion or
repurchase of Securities shall include only shares of Common Stock or shares of
any class or classes of common stock resulting from any reclassification or
reclassifications thereof; provided, however, that if at any time there shall be
more than one such resulting class, the shares so issuable on conversion of
Securities shall include shares of all such classes, and the shares of each such
class then so issuable shall be substantially in the proportion which the total
number of shares of such class resulting from all such reclassifications bears
to the total number of shares of all such classes resulting from all such
reclassifications.

     "common stock" includes any stock of any class of capital stock 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 issuer
thereof and which is not subject to redemption by the issuer thereof.

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

     "Company Notice" has the meaning specified in Section 14.3.

     "Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its (i) Chairman of the Board, its Vice
Chairman of the Board, its Chief Executive Officer, its President, an Executive
Vice President or a Vice President, and by its (ii) Principal financial officer,
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and
delivered to the Trustee.

     "Constituent Person" has the meaning specified in Section 12.11.

     "Conversion Agent" means any Person authorized by the Company to convert
Securities in accordance with Article XII. The Company has initially appointed
the Trustee as its Conversion Agent pursuant to Section 10.2 hereof.

                                                                             -3-
<PAGE>

     "Conversion Price" has the meaning specified in Section 14.4(3).

     "Conversion Rate" has the meaning specified in Section 12.1.

     "Corporate Trust Office" means the office of the Trustee at which at any
particular time the trust created by this Indenture shall be principally
administered (which at the date of this Indenture is located at 633 West 5th
Street, 12th Floor, Los Angeles, California  90071, Attention: Corporate Trust
Administration (Rational Software  Corporation, 5% Convertible Subordinated
Notes due February 1, 2007)).

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

     "Defaulted Interest" has the meaning specified in Section 3.7.

     "Depositary" means, with respect to any Securities (including any Global
Securities), a clearing agency that is registered as such under the Exchange Act
and is designated by the Company to act as Depositary for such Securities (or
any successor securities clearing agency so registered).

     "Designated Senior Debt" means the Company's obligations under any
particular Senior Debt in 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 Debt shall be
"Designated Senior Debt" for purposes of this Indenture (provided that such
instrument, agreement or other document may place limitations and conditions on
the right of such Senior Debt to exercise the rights of Designated Senior Debt).

     "Distribution Date" shall mean the "Distribution Date" as such term is
defined in the Registration Rights Agreement.

     "Dollar" or "U.S. $" means a dollar or other equivalent unit in such coin
or currency of the United States as at the time shall be legal tender for the
payment of public and private debts.

     "DTC" means The Depository Trust Company, a New York corporation.

     "Effective Failure" has the meaning specified in Section 10.11.

     "Effectiveness Period" has the meaning specified in Section 10.11.

     "Event of Default" has the meaning specified in Section 5.1.

     "Exchange Act" means the United States Securities Exchange Act of 1934 (or
any successor statute), as amended from time to time.

     "Global Security" means a Security that is registered in the Security
Register in the name of a Depositary or a nominee thereof.

                                                                             -4-
<PAGE>

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

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

     "Initial Purchasers" means Goldman, Sachs & Co., Credit Suisse First Boston
Corporation and Chase Securities, Inc.

     "Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.

     "Issue Date" means February 2, 2000.

     "Liquidated Damages" has the meaning specified in Section 10.11.

     "Maturity", when used with respect to any Security, means the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption, exercise of the repurchase right set forth in Article XIV or
otherwise.

     "Non-electing Share" has the meaning specified in Section 12.11.

     "Notice of Default" has the meaning specified in Section 5.1.

     "Officers' Certificate" means a certificate signed by (i) the Chairman of
the Board, a Vice Chairman of the Board, the Chief Executive Officer, the
President, an Executive Vice President or a Vice President and by (ii) the
principal financial officer, the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee. One of the Officers signing an Officers' Certificate given pursuant to
Section 10.8 shall be the principal executive, financial or accounting officer
of the Company.

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

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

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

          (ii) Securities for the payment or redemption of which money in
               the necessary amount has been theretofore deposited with the
               Trustee or any Paying Agent (other than the Company) in
               trust or set aside and segregated in trust by the

                                                                             -5-
<PAGE>

                 Company (if the Company shall act as its own Paying Agent) for
                 the Holders of such Securities, provided that if such
                 Securities are to be redeemed, notice of such redemption has
                 been duly given pursuant to this Indenture or provision
                 therefor satisfactory to the Trustee has been made;

          (iii)  Securities which have been paid pursuant to Section 3.6 or in
                 exchange for or in lieu of which other Securities have been
                 authenticated and delivered pursuant to this Indenture, other
                 than any such Securities in respect of which there shall have
                 been presented to the Trustee proof satisfactory to it that
                 such Securities are held by a bona fide purchaser in whose
                 hands such Securities are valid obligations of the Company; and

          (iv)   Securities converted into Common Stock pursuant to Article XII;

provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities are present at a meeting of Holders
of Securities for quorum purposes or have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such determination as to the presence of a quorum or upon
any such request, demand, authorization, direction, notice, consent or waiver,
only Securities which a Responsible Officer of the Trustee has been notified in
writing to be so owned shall be so disregarded. Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee is not
the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor, and the Trustee shall be protected in relying
upon an Officer's Certificate to such effect.

     "Over-allotment Option" has the meaning specified in Section 3.1.

     "Paying Agent" means any Person authorized by the Company to pay the
principal of or interest on any Securities on behalf of the Company and, except
as otherwise specifically set forth herein, such term shall include the Company
if it shall act as its own Paying Agent. The Company has initially appointed the
Trustee as its Paying Agent pursuant to Section 10.2 hereof.

     "Payment Blockage Notice" has the meaning specified in Section 13.2.

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

     "Place of Conversion" has the meaning specified in Section 3.1.

     "Place of Payment" has the meaning specified in Section 3.1.

                                                                             -6-
<PAGE>

     "Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.6 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.

     "Purchase Agreement" means the Purchase Agreement, dated as of January 27,
2000, between the Company and the Initial Purchasers, as such agreement may be
amended from time to time.

     "Qualified Institutional Buyer" shall mean a "qualified institutional
buyer" as defined in Rule 144A.

     "Record Date" means any Regular Record Date or Special Record Date.

     "Record Date Period" means the period from the close of business of any
Regular Record Date next preceding any Interest Payment Date to the opening of
business on such Interest Payment Date.

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

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

     "Registrable Securities" has the meaning specified in Section 10.11.

     "Registration Default" has the meaning specified in Section 10.11.

     "Registration Rights Agreement" means the Registration Rights Agreement,
dated as of February 2, 2000 between the Company and the Initial Purchasers, as
such agreement may be amended from time to time.

     "Regular Record Date" for interest payable in respect of any Security on
any Interest Payment Date means the January 15 or July 15 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.

     "Representative" means the (a) indenture trustee or other trustee, agent or
representative for any Senior Debt or (b) with respect to any Senior Debt that
does not have any such trustee, agent or other representative, (i) in the case
of such Senior Debt issued pursuant to an agreement providing for voting
arrangements as among the holders or owners of such Senior Debt, any holder or
owner of such Senior Debt acting with the consent of the required persons
necessary to bind such holders or owners of such Senior Debt and (ii) in the
case of all other such Senior Debt, the holder or owner of such Senior Debt.

                                                                             -7-
<PAGE>

     "Repurchase Date" has the meaning specified in Section 14.1.

     "Repurchase Price" has the meaning specified in Section 14.1.

     "Responsible Officer", when used with respect to the Trustee, means any
officer within the Corporate Trust Office of the Trustee with direct
responsibility for the administration of this Indenture and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge and familiarity with the particular
subject.

     "Restricted Global Security" has the meaning specified in Section 2.1.

     "Restricted Securities" means all Securities required pursuant to Section
3.5(3) to bear any Restricted Securities Legend. Such term includes the
Restricted Global Security.

     "Restricted Securities Certificate" means a certificate substantially in
the form set forth in Annex A.

     "Restricted Securities Legend" means, collectively, the legends
substantially in the forms of the legends required in the form of Security set
forth in Section 2.2 to be placed upon each Restricted Security.

     "Rule 144A" means Rule 144A under the Securities Act (or any successor
provision), as it may be amended from time to time.

     "Rule 144A Information" has the meaning specified in Section 10.9.

     "Securities" has the meaning ascribed to it in the first paragraph under
the caption "Recitals of the Company".

     "Securities Act" means the United States Securities Act of 1933 (or any
successor statute), as amended from time to time.

     "Security Register" and "Security Registrar" have the respective meanings
specified in Section 3.5.

     "Senior Debt" means the principal of (and premium, if any) and 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) on, and all fees and
other amounts payable in connection with, the following, whether absolute or
contingent, secured or unsecured, due or to become due, outstanding on the date
of this Indenture or thereafter created, incurred or assumed: (a) indebtedness
of the Company evidenced by a credit or loan agreement, note, bond, debenture or
other written obligation, (b) all obligations of the Company for money borrowed,
(c) all obligations of the Company evidenced by a note or similar instrument
given in connection with the acquisition of any businesses, properties or assets
of any kind, (d) obligations of the Company (i) as lessee under leases required
to be capitalized on the balance sheet of the lessee

                                                                             -8-
<PAGE>

under generally accepted accounting principles and (ii) as lessee under other
leases for facilities, capital equipment or related assets, whether or not
capitalized, entered into or leased for financing purposes, (e) all obligations
of the Company under interest rate and currency swaps, caps, floors, collars,
hedge agreements, forward contracts or similar agreements or arrangements, (f)
all obligations of the Company with respect to letters of credit, bankers'
acceptances and similar facilities (including reimbursement obligations with
respect to the foregoing), (g) all obligations of the Company issued or assumed
as the deferred purchase price of property or services (but excluding trade
accounts payable and accrued liabilities arising in the ordinary course of
business), (h) all obligations of the type referred to in clauses (a) through
(g) above of another Person and all dividends of another Person, the payment of
which, in either case, the Company has assumed or guaranteed, or for which the
Company is responsible or liable, directly or indirectly, jointly or severally,
as obligor, guarantor or otherwise, or which is secured by a lien on the
property of the Company, and (i) renewals, extensions, modifications,
replacements, restatements and refundings of, or any indebtedness or obligation
issued in exchange for, any such indebtedness or obligation described in clauses
(a) through (h) of this paragraph; provided, however, that Senior Debt shall not
include any such indebtedness or obligation if the terms of such indebtedness or
obligation (or the terms of the instrument under which, or pursuant to which it
is issued) expressly provide that such indebtedness or obligation is not
superior in right of payment to the Securities.

     "Shelf Registration Statement" has the meaning specified in Section 10.11.

     "Significant Subsidiary" means, with respect to any Person, a Subsidiary of
such Person that would constitute a "significant subsidiary" as such term is
defined under Rule 1-02 of Regulation S-X under the Securities Act and the
Exchange Act.

     "Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Company pursuant to Section 3.7.

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

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

     "Successor Security" of any particular Security means every Security issued
after, and evidencing all or a portion of the same debt as that evidenced by,
such particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.6 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.

                                                                             -9-
<PAGE>

     "Surrender Certificate" means a certificate substantially in the form set
forth in Annex C.

     "Trading Day" means (i) if the Common Stock is quoted on the Nasdaq
National Market or any other system of automated dissemination of quotations of
securities prices, days on which trades may be effected through such system,
(ii) if the Common Stock is listed or admitted for trading on any national or
regional securities exchange, days on which such national or regional securities
exchange is open for business, or (iii) if the Common Stock is not listed on a
national or regional securities exchange or quoted on the Nasdaq National Market
or any other system of automated dissemination of quotation of securities
prices, days on which the Common Stock is traded regular way in the over-the-
counter market and for which a closing bid and a closing asked price for the
Common Stock are available.

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

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

     "United States" means the United States of America (including the States
and the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction (its "possessions" including Puerto Rico, the U.S.
Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana
Islands).

     "Unrestricted Securities Certificate" means a certificate substantially in
the form set forth in Annex B.

SECTION 1.2    Compliance Certificates And Opinions.
               ------------------------------------

     Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.

     Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (including certificates provided for in
Section 10.8) shall include:

                                                                            -10-
<PAGE>

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

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

     (3)  a statement that, in the opinion of such individual, he 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

     (4)  a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.

SECTION 1.3  Form of Documents Delivered to the Trustee.
             ------------------------------------------

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

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

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

SECTION 1.4  Acts of Holders of Securities.
             -----------------------------

     (1)  Any request, demand, authorization, direction, notice, consent, waiver
or other action provided or permitted by this Indenture to be given or taken by
Holders of Securities may be embodied in and evidenced by (A) one or more
instruments of substantially similar tenor signed by such Holders in person or
by an agent or proxy duly appointed in writing by such Holders or (B) the record
of Holders of Securities voting in favor thereof, either in person or by proxies
duly appointed in writing, at any meeting of Holders of Securities duly called
and held in accordance with the

                                                                            -11-
<PAGE>

provisions of Article IX. Such action shall become effective when such
instrument or instruments or record is delivered to the Trustee and, where it is
hereby expressly required, to the Company. The Trustee shall promptly deliver to
the Company copies of all such instruments and records delivered to the Trustee.
Such instrument or instruments and records (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
of Securities signing such instrument or instruments and so voting at such
meeting. Proof of execution of any such instrument or of a writing appointing
any such agent or proxy, or of the holding by any Person of a Security, shall be
sufficient for any purpose of this Indenture and (subject to Section 6.1)
conclusive in favor of the Trustee and the Company if made in the manner
provided in this Section. The record of any meeting of Holders of Securities
shall be proved in the manner provided in Section 9.6.

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

     (3)  The principal amount and serial number of any Security held by any
Person, and the date of his holding the same, shall be proved by the Security
Register.

     (4)  The fact and date of execution of any such instrument or writing and
the authority of the Person executing the same may also be proved in any other
manner which the Trustee deems sufficient; and the Trustee may in any instance
require further proof with respect to any of the matters referred to in this
Section 1.4.

     (5)  The Company may set any day as the record date for the purpose of
determining the Holders entitled to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action, or to vote on
any action, authorized or permitted by this Indenture to be given or taken by
Holders. Promptly and in any case not later than ten days after setting a record
date, the Company shall notify the Trustee and the Holders of such record date.
If not set by the Company prior to the first solicitation of a Holder made by
any Person in respect of any such action, or, in the case of any such vote,
prior to such vote, the record date for any such action or vote shall be the
30th day (or, if later, the date of the most recent list of Holders required to
be provided pursuant to Section 15.1) prior to such first solicitation or vote,
as the case may be. With regard to any record date, the Holders on such date (or
their duly appointed agents or proxies), and only such Persons, shall be
entitled to give or take, or vote on, the relevant action, whether or not such
Holders remain Holders after such record date. Notwithstanding the foregoing,
the Company shall not set a record date for, and the provisions of this
paragraph shall not apply with respect to, any notice, declaration or direction
referred to in the next paragraph.

     Upon receipt by the Trustee from any Holder of (i) any notice of default or
breach referred to in Section 5.1(4), if such default or breach has occurred and
is continuing and the Trustee shall not have given such a notice to the Company,
(ii) any declaration of acceleration referred to in Section 5.2, if an Event of
Default has occurred and is continuing and the Trustee shall not have given such
a

                                                                            -12-
<PAGE>

declaration to the Company, or (iii) any direction referred to in Section 5.12,
if the Trustee shall not have taken the action specified in such direction,
then, with respect to clauses (ii) and (iii), a record date shall automatically
and without any action by the Company or the Trustee be set for determining the
Holders entitled to join in such declaration or direction, which record date
shall be the close of business on the tenth day (or, if such day is not a
Business Day, the first Business Day thereafter) following the day on which the
Trustee receives such declaration or direction, and, with respect to clause (i),
the Trustee may set any day as a record date for the purpose of determining the
Holders entitled to join in such notice of default. Promptly after such receipt
by the Trustee of any such declaration or direction referred to in clause (ii)
or (iii), and promptly after setting any record date with respect to clause (i),
and as soon as practicable thereafter, the Trustee shall notify the Company and
the Holders of any such record date so fixed. The Holders on such record date
(or their duly appointed agents or proxies), and only such Persons, shall be
entitled to join in such notice, declaration or direction, whether or not such
Holders remain Holders after such record date; provided that, unless such
notice, declaration or direction shall have become effective by virtue of
Holders of the requisite principal amount of Securities on such record date (or
their duly appointed agents or proxies) having joined therein on or prior to the
90th day after such record date, such notice, declaration or direction shall
automatically and without any action by any Person be canceled and of no further
effect. Nothing in this paragraph shall be construed to prevent a Holder (or a
duly appointed agent or proxy thereof) from giving, before or after the
expiration of such 90-day period, a notice, declaration or direction contrary to
or different from, or, after the expiration of such period, identical to, the
notice, declaration or direction to which such record date relates, in which
event a new record date in respect thereof shall be set pursuant to this
paragraph. In addition, nothing in this paragraph shall be construed to render
ineffective any notice, declaration or direction of the type referred to in this
paragraph given at any time to the Trustee and the Company by Holders (or their
duly appointed agents or proxies) of the requisite principal amount of
Securities on the date such notice, declaration or direction is so given.

     (6)  Except as provided in Sections 5.12 and 5.13, any request, demand,
authorization, direction, notice, consent, election, waiver or other Act of the
Holder of any Security shall bind every future Holder of the same Security and
the Holder of every Security issued upon the registration of transfer thereof or
in exchange therefor or in lieu thereof in respect of anything done, omitted or
suffered to be done by the Trustee or the Company in reliance thereon, whether
or not notation of such action is made upon such Security.

     (7)  The provisions of this Section 1.4 are subject to the provisions of
Section 9.5.

SECTION 1.5  Notices, Etc to the Trustee and Company.
             ---------------------------------------

     Any request, demand, authorization, direction, notice, consent, election,
waiver or other Act of Holders of Securities or other document provided or
permitted by this Indenture to be made upon, given or furnished to, or filed
with,

     (1)  the Trustee by any Holder of Securities or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with a Responsible Officer of the Trustee and received at its
Corporate Trust Office, Attention: Corporate Trust

                                                                            -13-
<PAGE>

Administration (RATIONAL SOFTWARE CORPORATION, 5% Convertible Subordinated Notes
due February 1, 2007).

     (2)  the Company by the Trustee or by any Holder of Securities shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing, mailed, first-class postage prepaid, or telecopied and
confirmed by mail, first-class postage prepaid, or delivered by hand or
overnight courier, addressed to the Company at 18880 Homestead Road, Cupertino,
CA 95014, Attention:  Chief Financial Officer, or at any other address
previously furnished in writing to the Trustee by the Company.

SECTION 1.6  Notice to Holders of Securities; Waiver.
             ---------------------------------------

     Except as otherwise expressly provided herein, where this Indenture
provides for notice to Holders of Securities of any event, such notice shall be
sufficiently given to Holders if in writing and mailed, first-class postage
prepaid or delivered by an overnight delivery service, to each Holder of a
Security affected by such event, at the address of such Holder as it appears in
the Security Register, not earlier than the earliest date and not later than the
latest date prescribed for the giving of such notice.

     Neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder of a Security shall affect the sufficiency of
such notice with respect to other Holders of Securities. In case by reason of
the suspension of regular mail service or by reason of any other cause it shall
be impracticable to give such notice by mail, then such notification to Holders
of Securities as shall be made with the approval of the Trustee, which approval
shall not be unreasonably withheld, shall constitute a sufficient notification
to such Holders for every purpose hereunder.

     Such notice shall be deemed to have been given when such notice is mailed.

     Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders of Securities shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.

SECTION 1.7  Effect of Headings and Table of Contents.
             ----------------------------------------

     The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.

SECTION 1.8  Successors and Assigns.
             ----------------------

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

                                                                            -14-
<PAGE>

SECTION 1.9   Separability Clause.
              -------------------

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

SECTION 1.10  Benefits of Indenture.
              ---------------------

     Except as provided in the next sentence, nothing in this Indenture or in
the Securities, express or implied, shall give to any Person, other than the
parties hereto and their successors assigns hereunder and the Holders of
Securities, any benefit or legal or equitable right, remedy or claim under this
Indenture. The provisions of Article XIII are intended to be for the benefit of,
and shall be enforceable directly by, the holders of Senior Debt.

SECTION 1.11  Governing Law.
              -------------

     THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, THE UNITED STATES OF AMERICA,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.

SECTION 1.12  Legal Holidays.
              --------------

     In any case where any Interest Payment Date, Redemption Date, Repurchase
Date or Stated Maturity of any Security or the last day on which a Holder of a
Security has a right to convert his Security shall not be a Business Day at a
Place of Payment or Place of Conversion, as the case may be, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal of, premium, if any, or interest on, or the payment of the
Redemption Price or Repurchase Price (whether the same is payable in cash or in
shares of Common Stock in the case of the Repurchase Price) with respect to, or
delivery for conversion of, such Security need not be made at such Place of
Payment or Place of Conversion, as  the case may be, on or by such day, but may
be made on or by the next succeeding Business Day at such Place of Payment or
Place of Conversion, as the case may be, with the same force and effect as if
made on the Interest  Payment Date, Redemption Date or Repurchase Date, or at
the Stated Maturity or by such last day for conversion; provided, however, that
in the case that payment is made on such succeeding Business Day, no interest
shall accrue on the amount so payable for the period from and after such
Interest Payment Date, Redemption Date, Repurchase Date, Stated Maturity or last
day for conversion, as the case may be.

SECTION 1.13  Conflict With Trust Indenture Act.
              ---------------------------------

     If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act that is required under such Act to be a part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
that may be so modified or excluded, the latter provision shall be deemed to
apply to this

                                                                            -15-
<PAGE>

Indenture as so modified or to be excluded, as the case may be. Until such time
as this Indenture shall be qualified under the Trust Indenture Act, this
Indenture, the Company and the Trustee shall be deemed for all purposes hereof
to be subject to and governed by the Trust Indenture Act to the same extent as
would be the case if this Indenture were so qualified on the date hereof.

                                  ARTICLE II
                                SECURITY FORMS

SECTION 2.1  Form Generally.
             --------------

     The Securities shall be in substantially the form set forth in this
Article, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange, the Internal Revenue Code of 1986, as amended, and
regulations thereunder (the "Code"), or as may, consistent herewith, be
determined by the officers executing such Securities, as evidenced by their
execution thereof. All Securities shall be in fully registered form.

     The Trustee's certificates of authentication shall be in substantially the
form set forth in Section 2.3.

     Conversion notices shall be in substantially the form set forth in Section
2.4.

     Repurchase notices shall be substantially in the form set forth in Section
2.2.

     The Securities shall be printed, lithographed, typewritten or engraved or
produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any automated quotation system or securities
exchange (including on steel engraved borders if so required by any securities
exchange upon which the Securities may be listed) on which the Securities may be
quoted or listed, as the case may be, all as determined by the officers
executing such Securities, as evidenced by their execution thereof.

     Upon their original issuance, Securities issued as contemplated by the
Purchase Agreement to Qualified Institutional Buyers in reliance on Rule 144A
shall be issued in the form of one or more Global Securities in definitive,
fully registered form without interest coupons and bearing the Restricted
Securities Legend. Such Global Security shall be registered in the name of DTC,
as Depositary, or its nominee and deposited with the Trustee, as custodian for
DTC, for credit by DTC to the respective accounts of beneficial owners of the
Securities represented thereby (or such other accounts as they may direct). Such
Global Security, together with its Successor Securities which are Global
Securities, are collectively herein called the "Restricted Global Security".

SECTION 2.2  Form of Security.
             ----------------

                                                                            -16-
<PAGE>

                                [FORM OF FACE]

     [THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH RESTRICTED SECURITY:

     THIS SECURITY AND ANY COMMON STOCK ISSUABLE UPON THE CONVERSION OF THIS
SECURITY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

     THIS SECURITY AND ANY COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)
(I) TO A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
ACQUIRING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) PURSUANT TO THE
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE), (III) TO AN INSTITUTION THAT IS AN "ACCREDITED
INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D
UNDER THE SECURITIES ACT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (iv) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.

     THIS SECURITY, ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS CONVERSION AND
ANY RELATED DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO
MODIFY THE RESTRICTIONS ON RESALES AND OTHER TRANSFERS OF THIS SECURITY AND ANY
SUCH SHARES TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR THE
INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO THE RESALE OR TRANSFER OF
RESTRICTED SECURITIES GENERALLY.  THE HOLDER OF THIS SECURITY AND ANY SUCH
SHARES SHALL BE DEEMED BY THE ACCEPTANCE OF THIS SECURITY AND ANY SUCH SHARES TO
HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT.]

     [THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH GLOBAL SECURITY:

                                                                            -17-
<PAGE>

     THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A
NOMINEE OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND
ANY AGENT THEREOF AS OWNER AND HOLDER OF THIS SECURITY FOR ALL PURPOSES.

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

     UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERRED TO IN THE
INDENTURE, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY.]

                                                                            -18-
<PAGE>

                         RATIONAL SOFTWARE CORPORATION

             5% CONVERTIBLE SUBORDINATED NOTE DUE FEBRUARY 1, 2007

No.__________                                                              $____
____________

CUSIP NO.___________

     RATIONAL SOFTWARE CORPORATION, a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company", which term
includes any successor Person under the Indenture referred to on the reverse
hereof), for value received, hereby promises to pay to _________________, or
registered assigns, the principal sum of ________ United States Dollars
(U.S.$______ ) [if this Security is a Global Security, then insert -- (which
principal amount may from time to time be increased or decreased to such other
principal amounts (which, taken together with the principal amounts of all other
Outstanding Securities, shall not exceed $425,000,000 (or $500,000,000 if the
Over-allotment Option is exercised in full) by adjustments made on the records
of the Trustee hereinafter referred to in accordance with the Indenture)] on
February 1, 2007 and to pay interest thereon, from February 2, 2000, or from the
most recent Interest Payment Date (as defined below) to which interest has been
paid or duly provided for, semi-annually in arrears on February 1 and August 1
in each year (each, an "Interest Payment Date"), commencing August 1, 2000, at
the rate of 5% per annum, until the principal hereof is due, and at the rate of
5% per annum on any overdue principal and premium, if any, and, to the extent
permitted by law, on any overdue interest. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Security (or
one or more  Predecessor Securities) is registered at the close of business on
the Regular Record Date for such interest, which shall be the January 15 or July
15 (whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date.  Except as otherwise provided in the Indenture, any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Company, notice whereof shall be
given to Holders of Securities not less than 10 days prior to the Special Record
Date, or be paid at any time in any other lawful manner not inconsistent with
the requirements of any automated quotation system or securities exchange on
which the Securities may be quoted or listed, and upon such notice as may be
required by such exchange, all as more fully provided in the Indenture. Payments
of principal shall be made upon the surrender of  this Security at the option of
the Holder at the Corporate Trust Office of  the Trustee, or at such other
office or agency of the Company as may be designated by it for such purpose in
the Borough of Manhattan, The City of  New York, in such lawful monies of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts, or at such other offices or agencies as the
Company may designate, by United States Dollar check drawn on, or wire transfer
to, a United States Dollar account (such a transfer to be made only to a

                                                                            -19-
<PAGE>

Holder of an aggregate principal amount of Securities in excess of
U.S.$2,000,000 and only if such Holder shall have furnished wire instructions in
writing to the Trustee no later than 15 days prior to the relevant payment
date). Payment of interest on this Security may be made by United States Dollar
check mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register, or, upon written application by the Holder to
the Security Registrar setting forth wire instructions not later than the
relevant Record Date, by transfer to a United States Dollar account (such a
transfer to be made only to a Holder of an aggregate principal amount of
Securities in excess of U.S. $2,000,000 and only if such Holder shall have
furnished wire instructions in writing to the Trustee no later than 15 days
prior to the relevant payment date).

     Except as specifically provided herein and in the Indenture, the Company
shall not be required to make any payment with respect to any tax, assessment or
other governmental charge imposed by any government or any political subdivision
or taxing authority thereof or therein.

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

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

                                                                            -20-
<PAGE>

IN WITNESS WHEREOF, the Company has caused this Security to be duly executed.

                                        RATIONAL SOFTWARE CORPORATION

                                        By:___________________________________
                                        Name:
                                        Title:

Attest:

By:___________________________________
Name:
Title:

TRUSTEE'S CERTIFICATE OF AUTHENTICATION

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

Dated:

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

By:___________________________________
Authorized Signatory
<PAGE>

                               [FORM OF REVERSE]

     This Security is one of a duly authorized issue of securities of the
Company designated as its "5% Convertible Subordinated Notes due February 1,
2007" (herein called the "Securities"), limited in aggregate principal amount to
U.S. $425,000,000 (or $500,000,000 if the Over-allotment Option is exercised in
full), issued and to be issued under an Indenture, dated as of February 2, 2000
(herein called the "Indenture"), between the Company and State Street Bank and
Trust Company of California, N.A., as Trustee (herein called the "Trustee",
which term includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee, the holders of Senior Debt and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered. As provided in the Indenture and subject
to certain limitations therein set forth, Securities are exchangeable for a like
aggregate principal amount of Securities of any authorized denominations as
requested by the Holder surrendering the same upon surrender of the Security or
Securities to be exchanged, at the Corporate Trust Office of the Trustee. The
Trustee upon such surrender by the Holder will issue the new Securities in the
requested denominations.

     No sinking fund is provided for the Securities. The Securities will not be
subject to redemption prior to February 5, 2003 and will be redeemable on and
after that date at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days notice to the Holders prior to the Redemption Date
at the Redemption Prices (expressed as percentages of the principal amount) set
forth below.

     The following table sets forth the Redemption Prices (expressed as
percentages of the principal amount) if such Security is redeemed during the 12-
month period beginning February 1 (February 5, 2003 through January 31, 2004 in
the case of the first such period):

                    YEAR           REDEMPTION PRICE
                 ----------        ----------------
                    2003               102.857%
                    2004               102.143
                    2005               101.429
                    2006               100.714

and thereafter at a Redemption Price equal to 100% of the principal amount,
together, in each case, with accrued interest to the Redemption Date; provided,
however, that interest installments on Securities whose Stated Maturity is on or
prior to such Redemption Date will be payable to the Holders of such Securities,
or one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture.

     In the event of a redemption of the Securities, the Company will not be
required (a) to register the transfer or exchange of Securities for a period of
15 days immediately preceding the date

                                                                            -21-
<PAGE>

notice is given identifying the serial numbers of the Securities called for such
redemption or (b) to register the transfer or exchange of any Security, or
portion thereof, called for redemption.

     In any case where the due date for the payment of the principal of,
premium, if any, interest, or Liquidated Damages on any Security or the last day
on which a Holder of a Security has a right to convert his Security shall be, at
any Place of Payment or Place of Conversion as the case may be, a day on which
banking institutions at such Place of Payment or Place of Conversion are
authorized or obligated by law or executive order to close, then payment of
principal, premium, if any, interest, or Liquidated Damages, or delivery for
conversion of such Security need not be made on or by such date at such place
but may be made on or by the next succeeding day at such place which is not a
day on which banking institutions are authorized or obligated by law or
executive order to close, with the same force and effect as if made on the date
for such payment or the date fixed for redemption or repurchase, or by such last
day for conversion, and no interest shall accrue on the amount so payable for
the period after such date.

     Subject to and upon compliance with the provisions of the Indenture, the
Holder of this Security is entitled, at his option, at any time on or before the
close of business on the date of Maturity, or in case this Security or a portion
hereof is called for redemption or the Holder hereof has exercised his right to
require the Company to repurchase this Security or such portion hereof, then in
respect of this Security until and including, but (unless the Company defaults
in making the payment due upon redemption or repurchase, as the case may be) not
after, the close of business on the Redemption Date or the Repurchase Date, as
the case may be, to convert this Security (or any portion of the principal
amount hereof that is an integral multiple of U.S.$1,000, provided that the
unconverted portion of such principal amount is U.S.$1,000 or any integral
multiple of U.S.$1,000 in excess thereof) into fully paid and nonassessable
shares of Common Stock of the Company at an initial Conversion Rate of 13.9983
shares of Common Stock for each U.S.$1,000 principal amount of Securities (or at
the current adjusted Conversion Rate if an adjustment has been made as provided
in the Indenture) by surrender of this Security, duly endorsed or assigned to
the Company or in blank and, in case such surrender shall be made during the
period from the close of business on any Regular Record Date next preceding any
Interest Payment Date to the opening of business on such Interest Payment Date
(except if this Security or portion thereof has been called for redemption on a
Redemption Date or is repurchasable on a Repurchase Date occurring, in either
case, during such period and, as a result, the right to convert would terminate
in such period), also accompanied by payment in New York Clearing House or other
funds acceptable to the Company of an amount equal to the interest payable on
such Interest Payment Date on the principal amount of this Security then being
converted, and also the conversion notice hereon duly executed, to the Company
at the Corporate Trust Office of the Trustee, or at such other office or agency
of the Company, subject to any laws or regulations applicable thereto and
subject to the right of the Company to terminate the appointment of any
Conversion Agent (as defined below) as may be designated by it for such purpose
in the Borough of Manhattan, The City of New York, or at such other offices or
agencies as the Company may designate (each a "Conversion Agent"), provided,
further, that if this Security or portion hereof has been called for redemption
on a Redemption Date or is repurchasable on a Repurchase Date occurring, in
either case, during the period from the close of business on any Regular Record
Date next preceding any Interest Payment Date to the opening of business on such

                                                                            -22-
<PAGE>

succeeding Interest Payment Date and is surrendered for conversion during such
period, then the Holder of this Security on such Regular Record Date will be
entitled to receive the interest accruing hereon from the Interest Payment Date
next preceding the date of such conversion to such succeeding Interest Payment
Date and the Holder of this Security who converts this Security or a portion
hereof during such period shall not be required to pay such interest upon
surrender of this Security for conversion. Subject to the provisions of the
preceding sentence and, in the case of a conversion after the close of business
on the Regular Record Date next preceding any Interest Payment Date and on or
before the close of business on such Interest Payment Date, to the right of the
Holder of this Security (or any Predecessor Security of record as of such
Regular Record Date) to receive the related installment of interest to the
extent and under the circumstances provided in the Indenture, no cash payment or
adjustment is to be made on conversion for interest accrued hereon from the
Interest Payment Date next preceding the day of conversion, or for dividends on
the Common Stock issued on conversion hereof. The Company shall thereafter
deliver to the Holder the fixed number of shares of Common Stock (together with
any cash adjustment, as provided in the Indenture) into which this Security is
convertible and such delivery will be deemed to satisfy the Company's obligation
to pay the principal amount of this Security. No fractions of shares or scrip
representing fractions of shares will be issued on conversion, but instead of
any fractional interest (calculated to the nearest 1/100th of a share) the
Company shall pay a cash adjustment as provided in the Indenture. The Conversion
Rate is subject to adjustment as provided in the Indenture. In addition, the
Indenture provides that in case of certain consolidations or mergers to which
the Company is a party (other than a consolidation or merger that does not
result in any reclassification, conversion, exchange or cancellation of the
Common Stock) or the conveyance, transfer, sale or lease of all or substantially
all of the property and assets of the Company, the Indenture shall be amended,
without the consent of any Holders of Securities, so that this Security, if then
Outstanding, will be convertible thereafter, during the period this Security
shall be convertible as specified above, only into the kind and amount of
securities, cash and other property receivable upon such consolidation, merger,
conveyance, transfer, sale or lease by a holder of the number of shares of
Common Stock of the Company into which this Security could have been converted
immediately prior to such consolidation, merger, conveyance, transfer, sale or
lease (assuming such holder of Common Stock is not a Constituent Person or an
Affiliate of a Constituent Person, failed to exercise any rights of election and
received per share the kind and amount received per share by a plurality of Non-
electing Shares. No adjustment in the Conversion Rate will be made until such
adjustment would require an increase or decrease of at least one percent of such
rate, provided that any adjustment that would otherwise be made will be carried
forward and taken into account in the computation of any subsequent adjustment.

     If this Security is a Registrable Security (as defined in this Indenture),
then the Holder of this Security [if this security is a global security, then
insert -- (including any Person that has a beneficial interest in this
Security)] and the Common Stock of the Company issuable upon conversion hereof
is entitled to the benefits of a Registration Rights Agreement, dated as of
February 2, 2000, executed by the Company (the "Registration Rights Agreement").
Pursuant to the Registration Rights Agreement, the Company has agreed for the
benefit of the Holders from time to time of the Registrable Securities that it
will, at its expense, (a) within 90 days after the Issue Date file a shelf
registration statement (the "Shelf Registration Statement") with the Commission
with

                                                                            -23-
<PAGE>

respect to resales of the Registrable Securities, (b) use all reasonable efforts
to cause such Shelf Registration Statement to be declared effective by the
Commission within 180 days after the Issue Date of the Securities, provided,
however, that the Company may, upon written notice to all the Holders, postpone
having the Shelf Registration Statement declared effective for a reasonable
period not to exceed 90 days if the Company possesses material non-public
information, the disclosure of which would have a material adverse effect on the
Company and its subsidiaries taken as a whole, and (c) use all reasonable
efforts to maintain such Shelf Registration Statement effective under the
Securities Act of 1933, as amended, until the second annual anniversary of the
date it is declared effective or such earlier date as is provided in the
Registration Rights Agreement (the "Effectiveness Period"). The Company will be
permitted to suspend the use of the prospectus which is part of the Shelf
Registration Statement during certain periods of time as provided in the
Registration Rights Agreement.

     If (i) on or prior to 90 days following the Issue Date, a Shelf
Registration Statement has not been filed with the Commission, or (ii) on or
prior to the 180th day following the Issue Date, such Shelf Registration
Statement is not declared effective (each, a "Registration Default"), additional
interest ("Liquidated Damages") will accrue on this Restricted Security from and
including the day following such Registration Default to but excluding the day
on which such Registration Default has been cured. Liquidated Damages will be
paid semi-annually in arrears, with the first semi-annual payment due on the
first Interest Payment Date, as applicable, in respect of the Restricted
Securities following the date on which such Liquidated Damages begin to accrue,
and will accrue at a rate per annum equal to an additional one-quarter of one
percent (0.25%) of the principal amount of the Restricted Securities to and
including the 90th day following such Registration Default and at a rate per
annum equal to one-half of one percent (0.50%) thereof from and after the 91st
day following such Registration Default. Pursuant to the Registration Rights
Agreement, in the event that the Shelf Registration Statement ceases to be
effective (or the Holders of Registrable Securities are otherwise prevented or
restricted by the Company from effecting sales pursuant thereto) (an "Effective
Failure") during the Effectiveness Period for more than 45 days, whether or not
consecutive, during any 90-day period or for more than 90 days, whether or not
consecutive, during any 12-month period, then the interest rate borne by the
Restricted Securities shall increase by an additional one-half of one percent
(0.50%) per annum from the 46th day of the applicable 90-day period or the 91st
day of the applicable 12-month period until the earlier of (A) such time as the
Effective Failure is cured or (B) the Effectiveness Period expires.

     Whenever in this Security there is a reference, in any context, to the
payment of the principal of, premium, if any, or interest on, or in respect of,
any Security, such mention shall be deemed to include mention of the payment of
Liquidated Damages payable as described in the preceding paragraph to the extent
that, in such context, Liquidated Damages are, were or would be payable in
respect of such Security and express mention of the payment of Liquidated
Damages (if applicable) in any provisions of this Security shall not be
construed as excluding Liquidated Damages in those provisions of this Security
where such express mention is not made.

     [If this Security is a Registrable Security and the Holder of this Security
[if this security is a global security, then insert -- (including any Person
that has a beneficial interest in this Security)]

                                                                            -24-
<PAGE>

elects to sell this Security pursuant to the Shelf Registration Statement then,
by its acceptance hereof, such Holder of this Security agrees to be bound by the
terms of the Registration Rights Agreement relating to the Registrable
Securities which are the subject of such election.]

     If a Change in Control occurs, the Holder of this Security, at the Holder's
option, shall have the right, in accordance with the provisions of the
Indenture, to require the Company to repurchase this Security (or any portion of
the principal amount hereof that is at least $1,000 or an integral multiple of
$1,000 in excess thereof, provided that the portion of the principal amount of
this Security to be Outstanding after such repurchase is at least equal to
U.S.$1,000) for cash at a Repurchase Price equal to 100% of the principal amount
thereof plus interest accrued to the Repurchase Date. At the option of the
Company, the Repurchase Price may be paid in cash or, subject to the conditions
provided in the Indenture, by delivery of shares of Common Stock having a fair
market value equal to the Repurchase Price. For purposes of this paragraph, the
fair market value of shares of Common Stock shall be determined by the Company
and shall be equal to 95% of the average of the Closing Prices Per Share for the
five consecutive Trading Days immediately preceding and including the third
Trading Day prior to the Repurchase Date. Whenever in this Security there is a
reference, in any context, to the principal of any Security as of any time, such
reference shall be deemed to include reference to the Repurchase Price payable
in respect of such Security to the extent that such Repurchase Price is, was or
would be so payable at such time, and express mention of the Repurchase Price in
any provision of this Security shall not be construed as excluding the
Repurchase Price so payable in those provisions of this Security when such
express mention is not made; provided, however, that, for the purposes of the
second succeeding paragraph, such reference shall be deemed to include reference
to the Repurchase Price only to the extent the Repurchase Price is payable in
cash.

     [The following paragraph shall appear in each Global Security:

     In the event of a deposit or withdrawal of an interest in this Security,
including an exchange, transfer, redemption, repurchase or conversion of this
Security in part only, the Trustee, as custodian of the Depositary, shall make
an adjustment on its records to reflect such deposit or withdrawal in accordance
with the Applicable Procedures.]

     [The following paragraph shall appear in each Security that is not a Global
Security:

     In the event of redemption, repurchase or conversion of this Security in
part only, a new Security or Securities for the unredeemed, unrepurchased or
unconverted portion hereof will be issued in the name of the Holder hereof.]

     The indebtedness evidenced by this Security is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of  payment
to the prior payment in full of all Senior Debt of the Company, and this
Security is issued subject to such provisions of the Indenture with respect
thereto. Each Holder of this Security, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to effectuate the
subordination so provided and (c) appoints the Trustee his attorney-in-fact for
any and all such purposes.

                                                                            -25-
<PAGE>

     If an Event of Default shall occur and be continuing, the principal of all
the Securities, together with accrued interest to the date of declaration, may
be declared due and payable in the manner and with the effect provided in the
Indenture. Upon payment (i) of the amount of principal so declared due and
payable, together with accrued interest to the date of declaration, and (ii) of
interest on any overdue principal and, to the extent permitted by applicable
law, overdue interest, all of the Company's obligations in respect of the
payment of the principal of and interest on the Securities shall terminate.

     The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with either (a) the written consent of
the Holders of not less than a majority in principal amount of the Securities at
the time Outstanding, or (b) by the adoption of a resolution, at a meeting of
Holders of the Outstanding Securities at which a quorum is present, by the
Holders of at least 66-2/3% in aggregate principal amount of the Outstanding
Securities represented and entitled to vote at such meeting. The Indenture also
contains provisions permitting the Holders of specified percentages in principal
amount of the Securities at the time Outstanding, on behalf of the Holders of
all the Securities, to waive compliance by the Company with certain provisions
of the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued in exchange therefore or in lieu hereof
whether or not notation of such consent or waiver is made upon this Security or
such other Security.

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

     No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest (including Liquidated Damages) on this Security at the times, places
and rate, and in the coin or currency, herein prescribed or to convert this
Security as provided in the Indenture.

                                                                            -26-
<PAGE>

     As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable on the Security Register
upon surrender of this Security for registration of transfer at the Corporate
Trust Office of the Trustee or at such other office or agency of the Company as
may be designated by it for such purpose in the Borough of Manhattan, The City
of New York (which shall initially be an office or agency of the Trustee), or at
such other offices or agencies as the Company may designate, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder thereof or his
attorney duly authorized in writing, and thereupon one or more new Securities,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees by the Registrar. No service
charge shall be made for any such registration of transfer or exchange, but the
Company may require payment of a sum sufficient to recover any tax or other
governmental charge payable in connection therewith.

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

     No recourse for the payment of the principal (and premium, if any) or
interest on this Security and no recourse under or upon any obligation, covenant
or agreement of the Company in the Indenture or any indenture supplemental
thereto or in any Security, or because of the creation of any indebtedness
represented thereby, shall be had against any incorporator, stockholder,
employee, agent, officer or director or subsidiary, as such, past, present or
future, of the Company or of any successor corporation, either directly or
through the Company or any successor corporation, whether by virtue of any
constitution, statute or rule of law or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance hereof and as
part of consideration for the issue hereof, expressly waived and released.

     THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.

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

                                                                            -27-
<PAGE>

                                 ABBREVIATIONS

     The following abbreviations, when used in the inscription of the face of
this Security, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S>            <C>                                          <C>                      <C>
TEN COM        as tenant in common                          UNIF GIFT MIN ACT        ____ Custodian ____
TEN ENT        as tenants by the entireties (Cust)                                      (Cust)        (Minor)
JT TEN         as joint tenants with right of survivorship                           under Uniform Gifts to
               and not as tenants in common                                          Minors Act _______
                                                                                                (State)
</TABLE>

     Additional abbreviations may also be used though not in the above list.

                                                                            -28-
<PAGE>

                   ELECTION OF HOLDER TO REQUIRE REPURCHASE

     (1)  Pursuant to Section 14.1 of the Indenture, the undersigned hereby
elects to have this Security repurchased by the Company.

     (2)  The undersigned hereby directs the Trustee or the Company to pay it or
______________ an amount in cash or, at the Company's election, Common Stock
valued as set forth in the Indenture, equal to 100% of the principal amount to
be repurchased (as set forth below), plus interest accrued to the Repurchase
Date, as provided in the Indenture.

Dated:

_______________________________________

_______________________________________
Signature(s)

Signature(s) must be guaranteed by an Eligible
Guarantor Institution with membership in an
approved signature guarantee program pursuant
to Rule 17Ad-15 under the Securities Exchange
Act of 1934.

_______________________________________
Signature Guaranteed

Principal amount to be repurchased (at least
U.S. $1,000 or an integral multiple of $1,000
in excess thereof):  ___________________

Remaining principal amount following such
repurchase (not less than U.S. $1,000):

______________

NOTICE: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.

SECTION 2.3  Form of Certificate of Authentication.
             -------------------------------------

     The Trustee's certificate of authentication shall be in substantially the
following form:

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

Dated: _______________

                                                                            -29-
<PAGE>

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

                    as Trustee

                    By:______________________
                       Authorized Signatory

SECTION 2.4  Form of Conversion Notice.
             -------------------------

                               CONVERSION NOTICE

     The undersigned Holder of this Security hereby irrevocably exercises the
option to convert this Security, or any portion of the principal amount hereof
(which is U.S.$1,000 or an integral multiple of U.S.$1,000 in excess thereof,
provided that the unconverted portion of such principal amount is U.S. $1,000 or
any integral multiple of U.S. $1,000 in excess thereof) below designated, into
shares of Common Stock in accordance with the terms of the Indenture referred to
in this Security, and directs that such shares, together with a check in payment
for any fractional share and any Securities representing any unconverted
principal amount hereof, be delivered to and be registered in the name of the
undersigned unless a different name has been indicated below. If shares of
Common Stock or Securities are to be registered in the name of a Person other
than the undersigned, (a) the undersigned will pay all transfer taxes payable
with respect thereto and (b) signature(s) must be guaranteed by an Eligible
Guarantor Institution with membership in an approved signature guarantee program
pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. Any amount
required to be paid by the undersigned on account of interest accompanies this
Security.

Dated: ____________      __________________________________________________
                                           Signature(s)

If shares or Securities are to be registered in the
name of a Person other than the Holder, please
print such Person's name and address:

____________________________________________
(Name)

____________________________________________

____________________________________________
(Address)

____________________________________________
Social Security or other Identification
Number, if any

                                                                            -30-
<PAGE>

______________________________________
[Signature Guaranteed]

If only a portion of the Securities is to be converted, please indicate:

1.   Principal amount to be converted: U.S. $ ___________

2.   Principal amount and denomination of Securities
     representing unconverted principal amount to be issued:

     Amount: U.S. $___________   Denominations: U.S. $____________

(U.S.$1,000 or any integral multiple of U.S.$1,000 in excess thereof, provided
that the unconverted portion of such principal amount is U.S. $1,000 or any
integral multiple of U.S. $1,000 in excess thereof)

SECTION 2.5    Form of Assignment.
               ------------------

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

Dated: _________   __________________________________________

                                    _________________________________
                                    Signature(s)

                                    Signature(s) must be guaranteed by an
                                    Eligible Guarantor Institution with
                                    membership in an approved signature
                                    guarantee program pursuant to Rule 17Ad - 15
                                    under the Securities Exchange Act of 1934.

                                    __________________________________
                                    Signature Guaranteed

                                                                            -31-
<PAGE>

                                  ARTICLE III
                                THE SECURITIES

SECTION 3.1    Title and Terms.
               ---------------

     The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is limited to U.S. $425,000,000 (or $500,000,000
if the Over-allotment Option set forth in Section 2 of the Purchase Agreement is
exercised in full (the "Over-allotment Option")), except for Securities
authenticated and delivered pursuant to Section 3.4, 3.5, 3.6, 8.5, 12.2 or
14.3(5) in exchange for, or in lieu of, other Securities previously
authenticated and delivered under this Indenture.

     The Securities shall be known and designated as the "5% Convertible
Subordinated Notes due February 1, 2007" of the Company.  Their Stated Maturity
shall be February 1, 2007 and they shall bear interest on their principal amount
from February 2, 2000, payable semi-annually in arrears on February 1 and August
1 in each year, commencing August 1, 2000, at the rate of 5% per annum until the
principal thereof is due and at the rate of 5% per annum on any overdue
principal and, to the extent permitted by law, on any overdue interest;
provided, however, that payments shall only be made on a Business Day as
provided in Section 1.12.

     The principal of, premium, if any, and interest on the Securities shall be
payable as provided in the form of Securities set forth in Section 2.2, and the
Repurchase Price, whether payable in cash or in shares of Common Stock, shall be
payable at such places as are identified in the Company Notice given pursuant to
Section 14.3 (any city in which any Paying Agent is located being herein called
a "Place of Payment").

     The Registrable Securities are entitled to the benefits of a Registration
Rights Agreement as provided by Section 10.11 and in the form of Security set
forth in Section 2.2. The Securities are entitled to the payment of Liquidated
Damages as provided by Section 10.11.

     The Securities shall be redeemable at the option of the Company at any time
on or after February 5, 2003, in whole or in part, subject to the conditions and
as otherwise provided in Article XI and in the form of Security set forth in
Section 2.2.

     The Securities shall be convertible as provided in Article XII (any city in
which any Conversion Agent is located being herein called a "Place of
Conversion").

     The Securities shall be subordinated in right of payment to Senior Debt of
the Company as provided in Article XIII.

     The Securities shall be subject to repurchase by the Company at the option
of the Holders as provided in Article XIV.

SECTION 3.2    Denominations.
               -------------

                                                                            -32-
<PAGE>

     The Securities shall be issuable only in registered form, without coupons,
in denominations of U.S.$1,000 and integral multiples of U.S.$1,000 in excess
thereof.

SECTION 3.3    Execution, Authentication, Delivery and Dating.
               ----------------------------------------------

     The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Vice Chairman of the Board, its Chief Executive Officer, its
President, one of its Executive Vice Presidents or one of its Vice Presidents,
and attested by its Chief Financial Officer, Secretary or one of its Assistant
Secretaries. Any such signature may be manual or facsimile.

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

     At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the Company to the
Trustee or to its order for authentication, together with a Company Order for
the authentication and delivery of such Securities, and the Trustee in
accordance with such Company Order shall authenticate and make available for
delivery such Securities as in this Indenture provided.

     Each Security shall be dated the date of its authentication.

     No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature of an authorized signatory, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.

SECTION 3.4    Global Securities; Non-global Securities; Book-entry Provisions.
               ---------------------------------------------------------------

     (1)  Global Securities

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

          (ii)   Except for exchanges of Global Securities for definitive, Non-
global Securities at the sole discretion of the Company, no Global Security may
be exchanged in whole or in part for Securities registered, and no transfer of a
Global Security in whole or in part may be registered, in the name of any Person
other than the Depositary for such Global Security or a nominee thereof unless
(A) such Depositary (i) has notified the Company that it is unwilling or unable
to continue as Depositary for such Global Security or (ii) has ceased to be a
clearing agency registered as such under the Exchange Act or announces an
intention permanently to cease business

                                                                            -33-
<PAGE>

or does in fact do so or (B) there shall have occurred and be continuing an
Event of Default with respect to such Global Security. In such event, if a
successor Depositary for such Global Security is not appointed by the Company
within 90 days after the Company receives such notice or becomes aware of such
ineligibility, the Company will execute, and the Trustee, upon receipt of an
Officers' Certificate directing the authentication and delivery of Securities,
will authenticate and deliver, Securities, in any authorized denominations in an
aggregate principal amount equal to the principal amount of such Global Security
in exchange for such Global Security.

          (iii)  If any Global Security is to be exchanged for other Securities
or canceled in whole, it shall be surrendered by or on behalf of the Depositary
or its nominee to the Trustee, as Security Registrar, for exchange or
cancellation, as provided in this Article III. If any Global Security is to be
exchanged for other Securities or canceled in part, or if another Security is to
be exchanged in whole or in part for a beneficial interest in any Global
Security, in each case, as provided in Section 3.5, then either (A) such Global
Security shall be so surrendered for exchange or cancellation, as provided in
this Article III, or (B) the principal amount thereof shall be reduced or
increased by an amount equal to the portion thereof to be so exchanged or
canceled, or equal to the principal amount of such other Security to be so
exchanged for a beneficial interest therein, as the case may be, by means of an
appropriate adjustment made on the records of the Trustee, as Security
Registrar, whereupon the Trustee, in accordance with the Applicable Procedures,
shall instruct the Depositary or its authorized representative to make a
corresponding adjustment to its records. Upon any such surrender or adjustment
of a Global Security, the Trustee shall, subject to Section 3.5(3) and as
otherwise provided in this Article III, authenticate and deliver any Securities
issuable in exchange for such Global Security (or any portion thereof) to or
upon the order of, and registered in such names as may be directed by, the
Depositary or its authorized representative. Upon the request of the Trustee in
connection with the occurrence of any of the events specified in the preceding
paragraph, the Company shall promptly make available to the Trustee a reasonable
supply of Securities that are not in the form of Global Securities. The Trustee
shall be entitled to rely upon any order, direction or request of the Depositary
or its authorized representative which is given or made pursuant to this Article
III if such order, direction or request is given or made in accordance with the
Applicable Procedures.

          (iv)   Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Article III or otherwise, shall be
authenticated and delivered in the form of, and shall be, a registered Global
Security, unless such Security is registered in the name of a Person other than
the Depositary for such Global Security or a nominee thereof, in which case such
Security shall be authenticated and delivered in definitive, fully registered
form, without interest coupons.

          (v)    The Depositary or its nominee, as registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under the
Indenture and the Securities, and owners of beneficial interests in a Global
Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security will be
shown only on, and the transfer of such interest shall be effected only through,
records maintained

                                                                            -34-
<PAGE>

by the Depositary or its nominee or its Agent Members and such owners of
beneficial interests in a Global Security will not be considered the owners or
holders thereof.

     (2)  Non-global Securities.  Securities issued upon the events described in
Section 3.4(l)(ii) shall be in definitive, fully registered form, without
interest coupons, and shall bear the Restricted Securities Legend if and as
required by this Indenture.

SECTION 3.5  Registration; Registration of Transfer and Exchange; Restrictions
             -----------------------------------------------------------------
on Transfer.
-----------

     (1)  The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office referred to as
the "Security Register") in which, subject to such reasonable regulations as it
may prescribe, the Company shall provide for the registration of Securities and
of transfers of Securities. The Trustee is hereby appointed "Security Registrar"
for the purpose of registering Securities and transfers and exchanges of
Securities as herein provided.

     Upon surrender for registration of transfer of any Security at an office or
agency of the Company designated pursuant to Section 10.2 for such purpose, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
any authorized denominations and of a like aggregate principal amount and
bearing such restrictive legends as may be required by this Indenture.

     At the option of the Holder, and subject to the other provisions of this
Section 3.5, Securities may be exchanged for other Securities of any authorized
denomination and of a like aggregate principal amount, upon surrender of the
Securities to be exchanged at any such office or agency. Whenever any Securities
are so surrendered for exchange, and subject to the other provisions of this
Section 3.5, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive. Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Security Registrar) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company, the Trustee and the Security Registrar duly
executed, by the Holder thereof or his attorney duly authorized in writing.

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

     No service charge shall be made to a Holder for any registration of
transfer or exchange of Securities except as provided in Section 3.6, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Securities, other than exchanges pursuant to Section
3.4, 8.5, 12.2 or 14.3 (other than where the shares of Common Stock are to be
issued or delivered in a name other than that of the Holder of the Security) not
involving any transfer and other than any stamp and other duties, if any, which
may be imposed in connection with any such transfer or exchange by the United
States or any political subdivision thereof or therein, which shall be paid by
the Company.

                                                                            -35-
<PAGE>

     In the event of a redemption of the Securities, neither the Company nor the
Securities Registrar will be required (a) to register the transfer of or
exchange Securities for a period of 15 days immediately preceding the date
notice is given identifying the serial numbers of the Securities called for such
redemption or (b) to register the transfer of or exchange any Security, or
portion thereof, called for redemption.

     (2)  Certain Transfers and Exchanges.  Notwithstanding any other provision
          -------------------------------
of this Indenture or the Securities, transfers and exchanges of Securities and
beneficial interests in a Global Security of the kinds specified in this Section
3.5(2) shall be made only in accordance with this Section 3.5(2).

          (i)    Restricted Global Security to Restricted Non-global Security.
                 ------------------------------------------------------------
In the event that Non-global Securities are to be issued pursuant to Section
3.4(1)(ii) in connection with any transfer of Securities, such transfer may be
effected only in accordance with the provisions of this Clause (2)(i) and
subject to the Applicable Procedures. Upon receipt by the Trustee, as Security
Registrar, of (A) a Company Order from the Company directing the Trustee, as
Security Registrar, to (x) authenticate and deliver one or more Securities of
the same aggregate principal amount as the beneficial interest in the Restricted
Global Security to be transferred, such instructions to contain the name or
names of the designated transferee or transferees, the authorized denomination
or denominations of the Securities to be so issued and appropriate delivery
instructions and (y) decrease the beneficial interest of a specified Agent
Member's account in a Restricted Global Security by a specified principal amount
not greater than the principal amount of such Restricted Global Security, and
(B) such other certifications, legal opinions or other information as the
Company or the Trustee 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, then the Trustee, as
Security Registrar, shall decrease the principal amount of the Restricted Global
Security by the specified amount and authenticate and deliver Securities in
accordance with such instructions from the Company as provided in Section
3.4(1)(iii).

          (ii)   Restricted Non-global Security to Restricted Global Security.
                 ------------------------------------------------------------
If the Holder of a Restricted Security (other than a Global Security) wishes at
any time to transfer all or any portion of such Restricted Security to a Person
who wishes to take delivery thereof in the form of a beneficial interest in the
Restricted Global Security, such transfer may be effected only in accordance
with the provisions of this Clause (2)(ii) and subject to the Applicable
Procedures. Upon receipt by the Trustee, as Security Registrar, of (A) such
Restricted Security as provided in Section 3.5(1) and instructions from the
Company directing that a beneficial interest in the Restricted Global Security
in a specified principal amount not greater than the principal amount of such
Security be credited to a specified Agent Member's account and (B) a Restricted
Securities Certificate, satisfactory to the Trustee and duly executed by such
Holder or his attorney duly authorized in writing, then the Trustee, as Security
Registrar, shall cancel such Restricted Security (and issue a new Restricted
Security in respect of any untransferred portion thereof) as provided in Section
3.5(1) and increase the principal amount of the Restricted Global Security by
the specified principal amount as provided in Section 3.4(1)(iii).

                                                                            -36-
<PAGE>

          (iii)  Exchanges Between Global Security and Non-global Security.  A
                 ---------------------------------------------------------
beneficial interest in a Global Security may be exchanged for a Security that is
not a Global Security only as provided in Section 3.4 or only if such exchange
occurs in connection with a transfer effected in accordance with Clause 2(i)
above, provided that, if such interest is a beneficial interest in the
Restricted Global Security, then such interest shall be exchanged for a
Restricted Security (subject in each case to Section 3.5(3)). A Security that is
not a Global Security may be exchanged for a beneficial interest in a Global
Security only if such exchange occurs in connection with a transfer effected in
accordance with Clause (2)(ii) above.

     (3)  Securities Act Legends.  All Securities issued pursuant to this
          ----------------------
Indenture, and all Successor Securities, shall bear the Restricted Securities
Legend, subject to the following:

          (i)    subject to the following Clauses of this Section 3.5(3), a
Security or any portion thereof which is exchanged, upon transfer or otherwise,
for a Global Security or any portion thereof shall bear the Restricted
Securities Legend borne by such Global Security for which the Security was
exchanged;

          (ii)   subject to the following Clauses of this Section 3.5(3), a new
Security which is not a Global Security and is issued in exchange for another
Security (including a Global Security) or any portion thereof, upon transfer or
otherwise, shall bear the Restricted Securities Legend borne by the Security for
which the new Security was exchanged;

          (iii)  any Securities which are sold or otherwise disposed of pursuant
to an effective registration statement under the Securities Act (including the
Shelf Registration Statement), together with their Successor Securities shall
not bear a Restricted Securities Legend; the Company shall inform the Trustee in
writing of the effective date of any such registration statement registering the
Securities under the Securities Act and shall notify the Trustee at any time
when prospectuses must be delivered with respect to Securities to be sold
pursuant to such registration statement. The Trustee shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
aforementioned registration statement;

          (iv)   at any time after the Securities may be freely transferred
without registration under the Securities Act or without being subject to
transfer restrictions pursuant to the Securities Act, a new Security which does
not bear a Restricted Securities Legend may be issued in exchange for or in lieu
of a Security (other than a Global Security) or any portion thereof which bears
such a legend if the Trustee has received an Unrestricted Securities
Certificate, satisfactory to the Trustee and duly executed by the Holder of such
Security bearing a Restricted Securities Legend or his attorney duly authorized
in writing, and after such date and receipt of such certificate, the Trustee
shall authenticate and deliver such new Security in exchange for or in lieu of
such other Security as provided in this Article III;

          (v)    a new Security which does not bear a Restricted Securities
Legend may be issued in exchange for or in lieu of a Security or any portion
thereof which bears such a legend if, in the Company's judgment, placing such a
legend upon such new Security is not necessary to ensure compliance with the
registration requirements of the Securities Act, and the Trustee, at the
direction

                                                                            -37-
<PAGE>

of the Company, shall authenticate and deliver such a new Security as provided
in this Article III; and

          (vi)   notwithstanding the foregoing provisions of this Section
3.5(3), a Successor Security of a Security that does not bear a Restricted
Securities Legend shall not bear such legend unless the Company has reasonable
cause to believe that such Successor Security is a "restricted security" within
the meaning of Rule 144, in which case the Trustee, at the direction of the
Company, shall authenticate and deliver a new Security bearing a Restricted
Securities Legend in exchange for such Successor Security as provided in this
Article III.

     (4)  Any stock certificate representing shares of Common Stock issued upon
conversion of the Securities shall bear the Restricted Securities Legend borne
by such Securities, to the extent required by this Indenture, unless such shares
of Common Stock have 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(k) of the
Securities Act, or unless otherwise agreed by the Company in writing with
written notice thereof to the transfer agent for the Common Stock.  With respect
to the transfer of shares of Common Stock issued upon conversion of the
Securities that are restricted hereunder, any deliveries of certificates, legal
opinions or other instruments that would be required to be made to the Security
Registrar in the case of a transfer of Securities, as described above, shall
instead be made to the transfer agent for the Common Stock.

     (5)  Neither the Trustee, the Paying Agent nor any of their agents shall
(i) have any duty to monitor compliance with or with respect to any federal or
state or other securities or tax laws or (ii) have any duty to obtain
documentation on any transfers or exchanges other than as specifically required
hereunder.

SECTION 3.6   Mutilated, Destroyed, Lost or Stolen Securities.
              -----------------------------------------------

     If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.

     If there be delivered to the Company and to the Trustee:

     (1)  evidence to their satisfaction of the destruction, loss or theft of
any Security, and

     (2)  such security or indemnity as may be satisfactory to the Company and
the Trustee to save each of them and any agent of either of them harmless, then,
in the absence of actual notice to the Company or the Trustee that such Security
has been acquired by a bona fide purchaser, the Company shall execute and the
Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or
stolen Security, a new Security of like tenor and principal amount and bearing a
number not contemporaneously outstanding.

                                                                            -38-
<PAGE>

     In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion, but
subject to any conversion rights, may, instead of issuing a new Security, pay
such Security, upon satisfaction of the conditions set forth in the preceding
paragraph.

     Upon the issuance of any new Security under this Section 3.6, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto (other than any
stamp and other duties, if any, which may be imposed in connection therewith by
the United States or any political subdivision thereof or therein, which shall
be paid by the Company) and any other expenses (including the fees and expenses
of the Trustee) connected therewith.

     Every new Security issued pursuant to this Section 3.6 in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and such new Security shall be entitled to all the benefits of this Indenture
equally and proportionately with any and all other Securities duly issued
hereunder.

     The provisions of this Section 3.6 are exclusive and shall preclude (to the
extent lawful) all other rights and remedies of any Holder with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.

SECTION 3.7    Payment of Interest; Interest Rights Preserved.
               ----------------------------------------------

     Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest.

     Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in Clause (1) or (2) below:

     (1)  The Company may elect to make payment of any Defaulted Interest to the
Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the following
manner.  The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Security, the date of the
proposed payment and the Special Record Date, and at the same time the Company
shall deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date of
the proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this Clause
provided. The Special Record Date for the payment of such

                                                                             -39
<PAGE>

Defaulted Interest shall be not more than 15 days and not less than 10 days
prior to the date of the proposed payment and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The Trustee, in
the name and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor to be
mailed, first-class postage prepaid, to each Holder at such Holder's address as
it appears in the Security Register, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted Interest
shall be paid to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such Special
Record Date and shall no longer be payable pursuant to the following Clause (2).

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

     Subject to the foregoing provisions of this Section and Section 3.5, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.

     Interest on any Security which is converted in accordance with Section 12.2
during a Record Date Period shall be payable in accordance with the provisions
of Section 12.2.

SECTION 3.8  Persons Deemed Owners.
             ---------------------

     Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee, any Paying Agent and any agent of the Company, the Trustee
or any Paying Agent may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of, premium, if any, and (subject to Section 3.7) interest on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and neither the Company, the Trustee, any Paying Agent nor any agent of
the Company, the Trustee or any Paying Agent shall be affected by notice to the
contrary.

SECTION 3.9  Cancellation.
             ------------

     All Securities surrendered for payment, redemption, repurchase,
registration of transfer or exchange or conversion shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee. All Securities so
delivered to the Trustee shall be canceled promptly by the Trustee (or its
agent). No Securities shall be authenticated in lieu of or in exchange for any
Securities canceled as provided in this Section 3.9. The Trustee shall dispose
of all canceled Securities in accordance with applicable law and its customary
practices in effect from time to time.

SECTION 3.10 Computation of Interest.
             -----------------------

                                                                            -40-
<PAGE>

     Interest on the Securities (including any Liquidated Damages) shall be
computed on the basis of a 360-day year of twelve 30-day months.

SECTION 3.11 CUSIP Numbers.
             -------------

     The Company in issuing Securities may use "CUSIP" numbers (if then
generally in use) in addition to serial numbers; if so, the Trustee shall use
such CUSIP numbers in addition to serial numbers in notices of redemption and
repurchase as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness of such CUSIP numbers
either as printed on the Securities or as contained in any notice of a
redemption or repurchase and that reliance may be placed only on the serial or
other identification numbers printed on the Securities, and any such redemption
or repurchase shall not be affected by any defect in or omission of such CUSIP
numbers.

                                  ARTICLE IV
                          SATISFACTION AND DISCHARGE

SECTION 4.1  Satisfaction And Discharge of Indenture.
             ---------------------------------------

     This Indenture shall upon Company Request cease to be of further effect
(except as to any surviving rights of conversion, or registration of transfer or
exchange, or replacement of Securities herein expressly provided for and any
right to receive Liquidated Damages as provided in Section 10.11 and in the form
of Securities set forth in Section 2.2 and the Company's obligations to the
Trustee pursuant to Section 6.7), and the Trustee, at the expense of the
Company, shall execute proper instruments in form and substance satisfactory to
the Trustee acknowledging satisfaction and discharge of this Indenture, when

     (1)  either

          (i)  all Securities theretofore authenticated and delivered (other
than (A) Securities which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 3.6 and (B) Securities for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust, as provided in Section 10.3) have been delivered to the Trustee for
cancellation; or

          (ii) all such Securities not theretofore delivered to the Trustee or
its agent for cancellation (other than Securities referred to in clauses (A) and
(B) of clause (1)(i) above)

               (a) have become due and payable, or

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

                                                                            -41-
<PAGE>

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

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

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

     Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.7, the obligations of
the Company to any Authenticating Agent under Section 6.12, the obligation of
the Company to pay Liquidated Damages, if money shall have been deposited with
the Trustee pursuant to clause (1)(ii) of this Section 4.1, the obligations of
the Trustee under Section 4.2 and the last paragraph of Section 10.3 and the
obligations of the Company and the Trustee under Section 3.5 and Article XII
shall survive. Funds held in trust pursuant to this Section are not subject to
the provisions of Article XIII.

SECTION 4.2  Application of Trust Money.
             --------------------------

     Subject to the provisions of the last paragraph of Section 10.3, all money
deposited with the Trustee pursuant to Section 4.1 and in accordance with the
provisions of Article XIII shall be held in trust for the sole benefit of the
Holders and not be subject to the subordination provisions of Article XIII, and
such monies shall be applied by the Trustee, in accordance with the provisions
of the Securities and this Indenture, to the payment, either directly or through
any Paying Agent, to the Persons entitled thereto, of the principal, premium, if
any, and interest for whose payment such money has been deposited with the
Trustee.

     All moneys deposited with the Trustee pursuant to Section 4.1 (and held by
it or any Paying Agent) for the payment of Securities subsequently converted
shall be returned to the Company upon Company Request.

     The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed or assessed against all money deposited with the Trustee
pursuant to Section 4.1 (other than income taxes and franchise taxes incurred or
payable by the Trustee and such other taxes, fees or charges incurred or payable
by the Trustee that are not directly the result of the deposit of such money
with the Trustee).

                                                                            -42-
<PAGE>

                                   ARTICLE V
                                   REMEDIES

SECTION 5.1  Events of Default.
             -----------------

     "Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article XIII or be voluntary or involuntary or
be effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or governmental
body):

     (1) default in the payment of the principal of or premium, if any, on any
Security at its Maturity, whether or not such payment is prohibited by the
subordination provisions of the Securities or of this Indenture; or

     (2) default in the payment of any interest (including any Liquidated
Damages) upon any Security when it becomes due and payable, and continuance of
such default for a period of 30 days, whether or not such payment is prohibited
by the subordination provisions of the Securities or of this Indenture; or

     (3) failure by the Company to give a Company Notice in accordance with
Section 14.3 whether or not such Company Notice is prohibited by the
subordination provisions of the Securities or the Indenture; or

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

     (5) any indebtedness under any bonds, debentures, notes or other evidences
of indebtedness for money borrowed (or guarantee thereof) by the Company or any
Significant Subsidiary or under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company or any Significant Subsidiary (an
"Instrument") with an aggregate principal amount in excess of U.S. $10,000,000,
whether such indebtedness now exists or shall hereafter be created, is not paid
at final maturity of any Instrument (either at its stated maturity or upon
acceleration thereof), and such indebtedness is not discharged, or such
acceleration is not rescinded or annulled, within a period of 30 days after
there shall have been given, by registered or certified mail, to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Securities a written notice specifying such
default and requiring the Company to cause such indebtedness to be discharged or
cause such default to be cured or waived or such acceleration to be rescinded or
annulled and stating that such notice is a "Notice of Default" hereunder; or

                                                                            -43-
<PAGE>

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

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

SECTION 5.2  Acceleration of Maturity; Rescission and Annulment.
             --------------------------------------------------

     If an Event of Default (other than an Event of Default specified in Section
5.1(6) or 5.1(7) with respect to the Company) occurs and is continuing, then in
every such case the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Securities may, subject to the provisions of Article
XIII, declare the principal of all the Securities to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by the Holders), and upon any such declaration such principal and all accrued
interest thereon shall become immediately due and payable. If an Event of
Default specified in Section 5.1(6) or 5.1(7) with respect to the Company
occurs, the principal of, and accrued interest on, all the Securities shall,
subject to the provisions of Article XIII, ipso facto become immediately due and
payable without any declaration or other Act of the Holders or any act on the
part of the Trustee.

     At any time after such declaration of acceleration has been made and before
a judgment or decree for payment of the money due has been obtained by the
Trustee as hereinafter in this Article V provided, the Holders of a majority in
principal amount of the Outstanding Securities, by written

                                                                            -44-
<PAGE>

notice to the Company and the Trustee, may, on behalf of all Holders, rescind
and annul such declaration and its consequences if:

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

         (i)   all overdue interest on all Securities,

         (ii)  the principal of and premium, if any, on any Securities which
have become due otherwise than by such declaration of acceleration and any
interest thereon at the rate borne by the Securities,

         (iii) to the extent permitted by applicable law, interest upon overdue
interest at a rate of 5% per annum, and

         (iv)  all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel;

     (2) all Events of Default, other than the nonpayment of the principal of
and any premium and interest on, Securities which have become due solely by such
declaration of acceleration, have been cured or waived as provided in Section
5.13; and

     (3) such rescission and annulment would not conflict with any judgment or
decree issued in appropriate judicial proceedings regarding the payment by the
Trustee to the Holders of the amounts referred to in 5.2(1).

     No rescission or annulment referred to above shall affect any subsequent
default or impair any right consequent thereon.

SECTION 5.3  Collection of Indebtedness and Suits for Enforcement by Trustee.
             ---------------------------------------------------------------

     The Company covenants that if:

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

     (2) default is made in the payment of the principal of or premium, if any,
on any Security at the Maturity thereof,

the Company will, upon demand of the Trustee but subject to the provisions of
Article XIII pay to it, for the benefit of the Holders of such Securities the
whole amount then due and payable on such Securities for principal and interest
(including any Liquidated Damages) and interest on any overdue principal and
premium, if any, and, to the extent permitted by applicable law, on any overdue
interest (including any Liquidated Damages), at a rate of 5% per annum, and in
addition thereto, such further amount as shall be sufficient to cover the
reasonable costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.

                                                                            -45-
<PAGE>

     If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.

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

SECTION 5.4  Trustee May File Proofs of Claim.
             --------------------------------

     In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or the
creditors of either, the Trustee (irrespective of whether the principal of, and
any interest on, the Securities shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand on the Company for the payment of overdue principal
or interest) shall be entitled and empowered, by intervention in such proceeding
or otherwise,

     (1) to file and prove a claim for the whole amount of principal, premium,
if any, and interest owing and unpaid in respect of the Securities and take such
other actions, including participating as a member, voting or otherwise, of any
official committee of creditors appointed in such matter, and to file such other
papers or documents, in each of the foregoing cases, as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders of Securities allowed in
such judicial proceeding, and

     (2) to collect and receive any moneys or other property payable or
deliverable on any such claim and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Holder of
Securities to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders of
Securities to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel and any other amounts due the Trustee under Section 6.7.

     Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a Security
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder of a Security in any such proceeding;

                                                                            -46-
<PAGE>

provided, however, that the Trustee may, on behalf of such Holders, vote for the
election of a trustee in bankruptcy or similar official.

SECTION 5.5  Trustee May Enforce Claims Without Possession of Securities.
             -----------------------------------------------------------

     All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Securities in respect of which judgment has been recovered.

SECTION 5.6  Application of Money Collected.
             ------------------------------

     Subject to Article XIII, any money collected by the Trustee pursuant to
this Article V shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
of principal, premium, if any, or interest, upon presentation of the Securities
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:

     FIRST:  To the payment of all amounts due the Trustee under Section 6.7;

     SECOND: To the payment of the amounts then due and unpaid for principal of,
premium, if any, or interest (including Liquidated Damages, if any) on, the
Securities in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal, premium, if any, and
interest (including Liquidated Damages, if any), respectively;

     THIRD:  To such other Person or Persons, if any, to the extent entitled
thereto; and

     FOURTH:  Any remaining amounts shall be repaid to the Company.

SECTION 5.7  Limitation on Suits.
             -------------------

     No Holder of any Security shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:

     (1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;

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

                                                                            -47-
<PAGE>

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

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

     (5) no direction inconsistent with such written request has been given to
the Trustee during such 60 day period by the Holders of a majority in principal
amount of the Outstanding Securities, it being understood and intended that no
one or more of such Holders shall have any right in any manner whatever by
virtue of, or by availing of, any provision of this Indenture to affect, disturb
or prejudice the rights of any other of such Holders, or to obtain or seek to
obtain priority or preference over any other of such Holders or to enforce any
right under this Indenture, except in the manner herein provided and for the
equal and ratable benefit of all such Holders.

SECTION 5.8  Unconditional Right of Holders to Receive Principal, Premium and
             ----------------------------------------------------------------
Interest and to Convert.
-----------------------

     Notwithstanding any other provision in this Indenture, but subject to the
provisions of Article XIII, the Holder of any Security shall have the right,
which is absolute and unconditional, to receive payment of the principal of,
premium, if any, and (subject to Section 3.7) interest (including Liquidated
Damages, if any) on such Security on the respective Stated Maturities expressed
in such Security (or, in the case of redemption or repurchase, on the Redemption
Date or Repurchase Date, as the case may be), and to convert such Security in
accordance with Article XII, and to institute suit for the enforcement of any
such payment and right to convert, and such rights shall not be impaired without
the consent of such Holder.

SECTION 5.9  Restoration of Rights and Remedies.
             ----------------------------------

     If the Trustee or any Holder of a Security has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders of
Securities shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
such Holders shall continue as though no such proceeding had been instituted.

SECTION 5.10 Rights and Remedies Cumulative.
             ------------------------------

     Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
3.6, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders of Securities is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter

                                                                            -48-
<PAGE>

existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.

SECTION 5.11 Delay or Omission Not Waiver.
             ----------------------------

     No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or any
acquiescence therein. Every right and remedy given by this Article V or by law
to the Trustee or to the Holders of Securities may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or (subject to the
limitations contained in this Indenture) by the Holders of Securities as the
case may be.

SECTION 5.12 Control by Holders of Securities.
             --------------------------------

     Subject to Section 6.3, the Holders of a majority in principal amount of
the Outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee, provided that

     (1) such direction shall not be in conflict with any rule of law or with
this Indenture, and

     (2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and

     (3) the Trustee need not take any action which might involve it in personal
liability or be unjustly prejudicial to the Holders of Securities not
consenting.

SECTION 5.13 Waiver of Past Defaults.
             -----------------------

     The Holders, either (i) through the written consent of not less than a
majority in principal amount of the Outstanding Securities or (ii) by the
adoption of a resolution, at a meeting of Holders of the Outstanding Securities
at which a quorum is present, by the Holders of at least 66-2/3% in principal
amount of the Outstanding Securities represented at such meeting, may on behalf
of the Holders of all the Securities waive any past default hereunder and its
consequences, except a default (A) in the payment of the principal of, premium,
if any, or interest (including Liquidated Damages) on any Security, or (B) in
respect of a covenant or provision hereof which under Article VIII cannot be
modified or amended without the consent of the Holder of each Outstanding
Security affected.

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

SECTION 5.14 Undertaking for Costs.
             ---------------------

                                                                            -49-
<PAGE>

     All parties to this Indenture agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or any suit against the Trustee for any action taken, suffered
or omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.14 shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in principal
amount of the Outstanding Securities, or to any suit instituted by any Holder of
any Security for the enforcement of the payment of the principal of, premium, if
any, or interest on any Security on or after the respective Stated Maturity or
Maturities expressed in such Security (or, in the case of redemption or
repurchase, on or after the Redemption Date or Repurchase Date, as the case may
be) or for the enforcement of the right to convert any Security in accordance
with Article XII.

SECTION 5.15   Waiver of Stay, Usury or Extension Laws.
               ---------------------------------------

     The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, usury or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede by reason of such law the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.

                                  ARTICLE VI
                                  THE TRUSTEE

SECTION 6.1    Certain Duties and Responsibilities.
               -----------------------------------

     (1)  Except during the continuance of an Event of Default,

          (i)  the Trustee undertakes to perform such duties and only 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

          (ii) in the absence of bad faith 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, but in the case of
any such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture, but not to verify the contents thereof.

                                                                            -50-
<PAGE>

     (2)  In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.

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

          (i)    this paragraph (3) shall not be construed to limit the effect
of paragraph (1) of this Section;

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

          (iii)  the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the Outstanding
Securities relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture; and

          (iv)   no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.

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

SECTION 6.2    Notice of Defaults.
               ------------------

     Within 90 days after the occurrence of any default hereunder as to which
the Trustee has received written notice, the Trustee shall give to all Holders
of Securities, in the manner provided in Section 1.6, notice of such default,
unless such default shall have been cured or waived; provided, however, that,
except in the case of a default in the payment of the principal of, premium, if
any, or interest on any Security the Trustee shall be protected in withholding
such notice if and so long as the board of directors, the executive committee or
a trust committee of directors or Responsible Officers of the Trustee in good
faith determines that the withholding of such notice is in the interest of the
Holders; and provided, further, that in the case of any default of the character
specified in Section 5.1(4), no such notice to Holders of Securities shall be
given until at least 60 days after the occurrence thereof or, if applicable, the
cure period specified therein. For the purpose of this Section,

                                                                            -51-
<PAGE>

the term "default" means any event which is, or after notice or lapse of time or
both would become, an Event of Default.

SECTION 6.3    Certain Rights of Trustee.
               -------------------------

     Subject to the provisions of Section 6.1:

     (1)  the Trustee may rely, and shall be protected in acting or refraining
from acting, upon any resolution, Officers' Certificate, other certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, coupon, other evidence of indebtedness or other
paper or document (collectively, the "Documents") believed by it to be genuine
and to have been signed or presented by the proper party or parties, and the
Trustee need not investigate any fact or matter stated in such Documents;

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

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

     (4)  the Trustee may consult with counsel of its selection and the advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon;

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

     (6)  the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, coupon, other evidence of indebtedness or other paper or document, but the
Trustee may make such further inquiry or investigation into such facts or
matters as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company, personally or by agent or attorney; and

     (7)  the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.

                                                                            -52-
<PAGE>

SECTION 6.4    Not Responsible for Recitals or Issuance of Securities.
               ------------------------------------------------------

     The recitals contained herein and in the Securities (except the Trustee's
certificates of authentication) shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness.  The Trustee
makes no representations as to the validity or sufficiency of this Indenture, of
the Securities or of the Common Stock issuable upon the conversion of the
Securities. The Trustee shall not be accountable for the use or application by
the Company of Securities or the proceeds thereof.

SECTION 6.5    May Hold Securities, Act as Trustee under Other Indentures.
               ----------------------------------------------------------

     The Trustee, any Authenticating Agent, any Paying Agent, any Conversion
Agent or any other agent of the Company or the Trustee, in its individual or any
other capacity, may become the owner or pledgee of Securities and may otherwise
deal with the Company with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Conversion Agent or such other agent.

     The Trustee may become and act as trustee under other indentures under
which other securities, or certificates of interest or participation in other
securities, of the Company are outstanding in the same manner as if it were not
Trustee hereunder.

SECTION 6.6    Money Held in Trust.
               -------------------

     Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Company.

SECTION 6.7    Compensation and Reimbursement.
               ------------------------------

     The Company agrees

     (1)  to pay to the Trustee from time to time such reasonable compensation
as the Company and the Trustee shall from time to time agree in writing for its
acceptance of this Indenture and for all services rendered by it hereunder
(which compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);

     (2)  except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee (including costs and expenses of enforcing this
Indenture and defending itself against any claim (whether asserted by the
Company, any Holder of Securities or any other Person) or liability in
connection with the exercise of any of its powers or duties hereunder) in
accordance with any provision of this Indenture (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and

                                                                            -53-
<PAGE>

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

     When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 5.1(6) or Section 5.1(7), the expenses
(including the reasonable charges of its counsel) and the compensation for the
services are intended to constitute expenses of the administration under any
applicable Federal or state bankruptcy, insolvency or other similar law.

     The provisions of this Section shall survive the termination of this
Indenture or the earlier resignation or removal of the Trustee.

SECTION 6.8    Corporate Trustee Required; Eligibility.
               ---------------------------------------

     There shall at all times be a Trustee hereunder which shall be a Person
that is eligible pursuant to the Trust Indenture Act to act as such, having (or
being part of a holding company group with) a combined capital and surplus of at
least U.S. $50,000,000, subject to supervision or examination by federal or
state authority, and in good standing. The Trustee or an Affiliate of the
Trustee shall maintain an established place of business in the Borough of
Manhattan, The City of New York. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article and a
successor shall be appointed pursuant to Section 6.9.

SECTION 6.9    Resignation and Removal; Appointment of Successor.
               -------------------------------------------------

     (1)  No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 6.10.

     (2)  The Trustee may resign at any time by giving written notice thereof to
the Company. If the instrument of acceptance by a successor Trustee required by
Section 6.10 shall not have been delivered to the Trustee within 30 days after
the giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.

     (3)  The Trustee may be removed at any time by an Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and the Company. If the instrument of acceptance by a successor Trustee
required by Section 6.10 shall not have been delivered to the Trustee within 30
days after the giving of such notice of removal, the removed Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.

                                                                            -54-
<PAGE>

     (4)  If at any time:

          (i)   the Trustee shall cease to be eligible under Section 6.8 and
shall fail to resign after written request therefor by the Company or by any
Holder of a Security who has been a bona fide Holder of a Security for at least
six months, or

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

then, in any such case (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 5.14, any Holder of a Security who has been
a bona fide Holder of a Security for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.

     (5)  If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
by a Board Resolution, shall promptly appoint a successor Trustee and shall
comply with the applicable requirements of this Section and Section 6.10. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 6.10, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders of Securities
and accepted appointment in the manner required by this Section and Section
6.10, any Holder of a Security who has been a bona fide Holder of a Security for
at least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee.

     (6)  The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to all Holders of
Securities in the manner provided in Section 1.6. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.

SECTION 6.10   Acceptance of Appointment by Successor.
               --------------------------------------

     Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on the request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee

                                                                            -55-
<PAGE>

hereunder. Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts.

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

SECTION 6.11   Merger, Conversion, Consolidation or Succession to Business.
               -----------------------------------------------------------

     Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee (including the trust created by this Indenture), shall
be the successor of the Trustee hereunder, provided such corporation shall be
otherwise eligible under this Article, without the execution or filing of any
paper or any further act on the part of any of the parties hereto. In case any
Securities shall have been authenticated, but not delivered, by the Trustee then
in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Securities
so authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.

SECTION 6.12   Authenticating Agents.
               ---------------------

     The Trustee may, with the consent of the Company, appoint an Authenticating
Agent or Agents acceptable to the Company with respect to the Securities which
shall be authorized to act on behalf of the Trustee to authenticate Securities
issued upon exchange or substitution pursuant to this Indenture.

     Securities authenticated by an Authenticating Agent shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder, and every reference in
this Indenture to the authentication and delivery of Securities by the Trustee
or the Trustee's certificate of authentication shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be subject to acceptance
by the Company and shall at all times be a corporation organized and doing
business under the laws of the United States of America, any State thereof or
the District of Columbia, authorized under such laws to act as Authenticating
Agent and subject to supervision or examination by government or other fiscal
authority. If at any time an Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section 6.12, such Authenticating Agent
shall resign immediately in the manner and with the effect specified in this
Section 6.12.

     Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section 6.12,

                                                                            -56-
<PAGE>

without the execution or filing of any paper or any further act on the part of
the Trustee or the Authenticating Agent.

     An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.12, the Trustee may appoint a successor
Authenticating Agent which shall be subject to acceptance by the Company. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section 6.12.

     The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section 6.12.

     If an Authenticating Agent is appointed with respect to the Securities
pursuant to this Section 6.12, the Securities may have endorsed thereon, in
addition to or in lieu of the Trustee's certification of authentication, an
alternative certificate of authentication in the following form:

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

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

                                             as Trustee

                                             By:

                                             ________________________________
                                             As Authenticating Agent

                                             By:

                                             ________________________________
                                             Authorized Signatory

SECTION 6.13   Disqualification; Conflicting Interests.
               ---------------------------------------

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

SECTION 6.14   Preferential Collection of Claims Against Company.
               -------------------------------------------------

                                                                            -57-
<PAGE>

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

                                  ARTICLE VII
             CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

SECTION 7.1    Company May Consolidate, Etc,. Only on Certain Terms.
               ------------------------------

     The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease all its properties and assets substantially as an
entirety to any Person, and the Company shall not permit any Person to
consolidate with or merge into the Company or convey, transfer, sell or lease
such Person's properties and assets substantially as an entirety to the Company
unless:

     (1)  the Person formed by such consolidation or into or with which the
Company is merged or the Person to which the properties and assets of the
Company are so conveyed, transferred, sold or leased shall be a corporation,
limited liability company, partnership or trust organized and validly existing
under the laws of the United States of America, any State thereof or the
District of Columbia and, if other than the Company, shall expressly assume, by
an indenture supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the principal of,
premium, if any, and interest (including Liquidated Damages, if any) on all of
the Securities as applicable, and the performance or observance of every
covenant of this Indenture on the part of the Company to be performed or
observed and shall have provided for conversion rights in accordance with
Article XII;

     (2)  immediately after giving effect to such transaction, no Event of
Default, and no event that after notice or lapse of time or both, would become
an Event of Default, shall have occurred and be continuing; and

     (3)  the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger, conveyance,
transfer or lease and, if a supplemental indenture is required in connection
with such transaction, such supplemental indenture comply with this Article and
that all conditions precedent herein provided for relating to such transaction
have been complied with, together with any documents required under Section 8.3.

SECTION 7.2    Successor Substituted.
               ---------------------

                                                                            -58-
<PAGE>

     Upon any consolidation of the Company with, or merger of the Company into
any other Person or any conveyance, transfer or lease of all or substantially
all the properties and assets of the Company in accordance with Section 7.1, the
successor Person formed by such consolidation or into or with which the Company
is merged or to which such conveyance, transfer or lease is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under this Indenture with the same effect as if such successor Person
had been named as the Company herein, and thereafter, except in the case of a
lease, the predecessor Person shall be relieved of all obligations and covenants
under this Indenture and the Securities.

                                 ARTICLE VIII
                            SUPPLEMENTAL INDENTURES

SECTION 8.1    Supplemental Indentures Without Consent of Holders of Securities.
               ----------------------------------------------------------------

     Without the consent of any Holders of Securities the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto for any of the
following purposes:

     (1)  to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants and obligations of the Company
herein and in the Securities as permitted by Article VII of this Indenture; or

     (2)  to add to the covenants of the Company for the benefit of the Holders
of Securities or to surrender any right or power herein conferred upon the
Company; or

     (3)  to secure the Securities; or

     (4)  to make provision with respect to the conversion rights of Holders of
Securities pursuant to Section 12.11 or to make provision with respect to the
repurchase rights of Holders of Securities pursuant to Section 14.5; or

     (5)  to make any changes or modifications to this Indenture necessary in
connection with the registration of any Registrable Securities under the
Securities Act as contemplated by Section 10.11, provided such action pursuant
to this clause (5) shall not adversely affect the interests of the Holders of
Securities; or

     (6)  to comply with the requirements of the Trust Indenture Act or the
rules and regulations of the Commission thereunder in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act, as
contemplated by this Indenture or otherwise; or

     (7)  to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee; or

     (8)  subject to Section 13.12, to make any change in Article XIII that
would limit or terminate the benefits available to any holder of Senior Debt
under such Article; or

                                                                            -59-
<PAGE>

     (9)  to cure any ambiguity, to correct or supplement any provision herein
which may be inconsistent with any other provision herein or which is otherwise
defective, or to make any other provisions with respect to matters or questions
arising under this Indenture as the Company and the Trustee may deem necessary
or desirable, provided such action pursuant to this clause (9) shall not
adversely affect the interests of the Holders of Securities in any material
respect.

     Upon Company Request, accompanied by a Board Resolution authorizing the
execution of any such supplemental indenture, and subject to and upon receipt by
the Trustee of the documents described in Section 8.3 hereof, the Trustee shall
join with the Company in the execution of any supplemental indenture authorized
or permitted by the terms of this Indenture and to make any further appropriate
agreements and stipulations which may be therein contained.

SECTION 8.2  Supplemental Indentures with Consent of Holders of Securities.
             -------------------------------------------------------------

     With either (i) the written consent of the Holders of not less than a
majority in principal amount of the Outstanding Securities, by the Act of said
Holders delivered to the Company and the Trustee, or (ii) by the adoption of a
resolution, at a meeting of Holders of the Outstanding Securities at which a
quorum is present, by the Holders of at least 66-2/3% in principal amount of the
Outstanding Securities represented at such meeting, the Company, when authorized
by a Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders of Securities under this
Indenture; provided, however, that no such supplemental indenture shall, without
the consent or affirmative vote of the Holder of each Outstanding Security
affected thereby,

     (1)  change the Stated Maturity of the principal of, or any installment of
interest on, any Security, or reduce the principal amount of, or the premium, if
any, or the rate of interest payable thereon, or reduce the amount payable upon
a redemption or mandatory repurchase, or change the place or currency of payment
of the principal of, premium, if any, or interest on any Security (including any
payment of Liquidated Damages or Redemption Price or Repurchase Price in respect
of such Security) or impair the right to institute suit for the enforcement of
any payment in respect of any Security on or after the Stated Maturity thereof
(or, in the case of redemption or any repurchase, on or after the Redemption
Date or Repurchase Date, as the case may be) or, except as permitted by Section
12.11, adversely affect the right of Holders to convert any Security as provided
in Article XII, or modify the provisions of this Indenture with respect to the
subordination of the Securities in a manner adverse to the Holders; or

     (2)  reduce the requirements of Section 9.4 for quorum or voting, or reduce
the percentage in principal amount of the Outstanding Securities the consent of
whose Holders is required for any such supplemental indenture or the consent of
whose Holders is required for any waiver (of compliance with certain provisions
of this Indenture or certain defaults hereunder and their consequences) provided
for in this Indenture; or

     (3)  modify the obligation of the Company to maintain an office or agency
in the Borough of Manhattan, The City of New York, pursuant to Section 10.2; or

                                                                            -60-
<PAGE>

     (4)  modify any of the provisions of this Section or Section 5.13 or 10.12,
except to increase any percentage contained herein or therein or to provide that
certain other provisions of this Indenture cannot be modified or waived without
the consent of the Holder of each Outstanding Security affected thereby; or

     (5)  modify the provisions of Article XIV in a manner adverse to the
Holders; or

     (6)  modify any of the provisions of Section 10.9.

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

SECTION 8.3  Execution of Supplemental Indentures.
             ------------------------------------

     In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Sections 6.1 and 6.3) shall be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such supplemental indenture
is authorized or permitted by this Indenture, and that such supplemental
indenture has been duly authorized, executed and delivered by the Company and
constitutes a valid and legally binding obligation of the Company enforceable
against the Company in accordance with its terms. The Trustee may, but shall not
be obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.

SECTION 8.4  Effect of Supplemental Indentures.
             ---------------------------------

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

SECTION 8.5  Reference in Securities to Supplemental Indentures.
             --------------------------------------------------

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

SECTION 8.6  Notice of Supplemental Indentures.
             ---------------------------------

     Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 8.2, the Company
shall give notice to all Holders of Securities

                                                                            -61-
<PAGE>

of such fact, setting forth in general terms the substance of such supplemental
indenture, in the manner provided in Section 1.6. Any failure of the Company to
give such notice, or any defect therein, shall not in any way impair or affect
the validity of any such supplemental indenture.

                                  ARTICLE IX
                       MEETINGS OF HOLDERS OF SECURITIES

SECTION 9.1  Purposes for Which Meetings May Be Called.
             -----------------------------------------

     A meeting of Holders of Securities may be called at any time and from time
to time pursuant to this Article to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders of Securities.

SECTION 9.2  Call, Notice and Place of Meetings.
             ----------------------------------

     (1)  The Trustee may at any time call a meeting of Holders of Securities
for any purpose specified in Section 9.1, to be held at such time and at such
place in the Borough of Manhattan, The City of New York, as the Trustee shall
determine. Notice of every meeting of Holders of Securities, setting forth the
time and the place of such meeting and in general terms the action proposed to
be taken at such meeting, shall be given, in the manner provided in Section 1.6,
not less than 21 nor more than 180 days prior to the date fixed for the meeting.

     (2)  In case at any time the Company, pursuant to a Board Resolution, or
the Holders of at least 10% in principal amount of the Outstanding Securities
shall have requested the Trustee to call a meeting of the Holders of Securities
for any purpose specified in Section 9.1, by written request setting forth in
reasonable detail the action proposed to be taken at the meeting, and the
Trustee shall not have mailed the notice of such meeting within 21 days after
receipt of such request or shall not thereafter proceed to cause the meeting to
be held as provided herein, then the Company or the Holders of Securities in the
amount specified, as the case may be, may determine the time and the place in
the Borough of Manhattan, The City of New York, for such meeting and may call
such meeting for such purposes by giving notice thereof as provided in paragraph
(1) of this Section.

SECTION 9.3  Persons Entitled to Vote at Meetings.
             ------------------------------------

     To be entitled to vote at any meeting of Holders of Securities, a Person
shall be (i) a Holder of one or more Outstanding Securities, or (ii) a Person
appointed by an instrument in writing as proxy for a Holder or Holders of one or
more Outstanding Securities by such Holder or Holders. The only Persons who
shall be entitled to be present or to speak at any meeting of Holders shall be
the Persons entitled to vote at such meeting and their counsel, any
representatives of the Trustee and its counsel and any representatives of the
Company and its counsel.

SECTION 9.4  Quorum; Action.
             --------------

                                                                            -62-
<PAGE>

     The Persons entitled to vote a majority in principal amount of the
Outstanding Securities shall constitute a quorum. In the absence of a quorum
within 30 minutes of the time appointed for any such meeting, the meeting shall,
if convened at the request of Holders of Securities, be dissolved. In any other
case, the meeting may be adjourned for a period of not less than 10 days as
determined by the chairman of the meeting prior to the adjournment of such
meeting. In the absence of a quorum at any such adjourned meeting, such
adjourned meeting may be further adjourned for a period not less than 10 days as
determined by the chairman of the meeting prior to the adjournment of such
adjourned meeting (subject to repeated applications of this sentence). Notice of
the reconvening of any adjourned meeting shall be given as provided in Section
9.2(1), except that such notice need be given only once not less than five days
prior to the date on which the meeting is scheduled to be reconvened. Notice of
the reconvening of an adjourned meeting shall state expressly the percentage of
the principal amount of the Outstanding Securities which shall constitute a
quorum.

     Subject to the foregoing, at the reconvening of any meeting adjourned for a
lack of a quorum, the Persons entitled to vote 25% in principal amount of the
Outstanding Securities at the time shall constitute a quorum for the taking of
any action set forth in the notice of the original meeting.

     At a meeting or an adjourned meeting duly reconvened and at which a quorum
is present as aforesaid, any resolution and all matters (except as limited by
the proviso to Section 8.2 and except to the extent Section 10.12 requires a
different vote) shall be effectively passed and decided if passed or decided by
the lesser of (i) the Holders of not less than a majority in principal amount of
Outstanding Securities and (ii) the Persons entitled to vote not less than
66-2/3% in principal amount of Outstanding Securities represented and entitled
to vote at such meeting.

     Any resolution passed or decisions taken at any meeting of Holders of
Securities duly held in accordance with this Section shall be binding on all the
Holders of Securities whether or not present or represented at the meeting. The
Trustee shall, in the name and at the expense of the Company, notify all the
Holders of Securities of any such resolutions or decisions pursuant to Section
1.6.

SECTION 9.5 Determination of Voting Rights; Conduct and Adjournment of Meetings.
            -------------------------------------------------------------------

     (1)  Notwithstanding any other provisions of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any meeting of
Holders of Securities in regard to proof of the holding of Securities and of the
appointment of proxies and in regard to the appointment and duties of inspectors
of votes, the submission and examination of proxies, certificates and other
evidence of the right to vote, and such other matters concerning the conduct of
the meeting as it shall deem appropriate. Except as otherwise permitted or
required by any such regulations, the holding of Securities shall be proved in
the manner specified in Section 1.4 and the appointment of any proxy shall be
proved in the manner specified in Section 1.4 or by having the signature of the
Person executing the proxy guaranteed by any bank, broker or other eligible
institution participating in a recognized medallion signature guarantee program.

     (2)  The Trustee shall, by an instrument in writing, appoint a temporary
chairman (which may be the Trustee) of the meeting, unless the meeting shall
have been called by the Company or by

                                                                            -63-
<PAGE>

Holders of Securities as provided in Section 9.2(1), in which case the Company
or the Holders of Securities calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the Persons entitled to
vote a majority in principal amount of the Outstanding Securities represented at
the meeting.

     (3)  At any meeting, each Holder of a Security or proxy shall be entitled
to one vote for each U.S. $1,000 principal amount of Securities held or
represented by him; provided, however, that no vote shall be cast or counted at
any meeting in respect of any Security challenged as not Outstanding and ruled
by the chairman of the meeting to be not Outstanding. The chairman of the
meeting shall have no right to vote, except as a Holder of a Security or proxy.

     (4)  Any meeting of Holders of Securities duly called pursuant to Section
9.2 at which a quorum is present may be adjourned from time to time by Persons
entitled to vote a majority in principal amount of the Outstanding Securities
represented at the meeting, and the meeting may be held as so adjourned without
further notice.

SECTION 9.6  Counting Votes and Recording Action of Meetings.
             -----------------------------------------------

     The vote upon any resolution submitted to any meeting of Holders of
Securities shall be by written ballots on which shall be subscribed the
signatures of the Holders of Securities or of their representatives by proxy and
the principal amounts at Stated Maturity and serial numbers of the Outstanding
Securities held or represented by them. The permanent chairman of the meeting
shall appoint two inspectors of votes who shall count all votes cast at the
meeting for or against any resolution and who shall make and file with the
secretary of the meeting their verified written reports in duplicate of all
votes cast at the meeting. A record, at least in duplicate, of the proceedings
of each meeting of Holders of Securities shall be prepared by the secretary of
the meeting and there shall be attached to said record the original reports of
the inspectors of votes on any vote by ballot taken thereat and affidavits by
one or more Persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was given as provided in
Section 9.2 and, if applicable, Section 9.4. Each copy shall be signed and
verified by the affidavits of the permanent chairman and secretary of the
meeting and one such copy shall be delivered to the Company and another to the
Trustee to be preserved by the Trustee, the latter to have attached thereto the
ballots voted at the meeting. Any record so signed and verified shall be
conclusive evidence of the matters therein stated.

                                    ARTICLE X
                                    COVENANTS

SECTION 10.1  Payment of Principal, Premium and Interest.
              ------------------------------------------

     The Company covenants and agrees that it will duly and punctually pay the
principal of and premium, if any, and interest (including Liquidated Damages, if
any) on the Securities in accordance with the terms of the Securities and this
Indenture. The Company will deposit or cause to be deposited with the Trustee,
no later than the opening of business on the date of the Stated Maturity

                                                                            -64-
<PAGE>

of any Security or no later than the opening of business on the due date for any
installment of interest, all payments so due, which payments shall be in
immediately available funds on the date of such Stated Maturity or due date, as
the case may be.

SECTION 10.2  Maintenance of Offices or Agencies.
              ----------------------------------

     The Company will maintain in the Borough of Manhattan, The City of New
York, an office or agency where the Securities 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 Securities and this Indenture may be served. The
Company will give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency not designated or appointed by
the Trustee. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office or the office or agency of the Trustee in the Borough of
Manhattan, The City of New York.

     The Company may at any time and from time to time vary or terminate the
appointment of any such agent or appoint any additional agents for any or all of
such purposes; provided, however, that until all of the Securities have been
delivered to the Trustee for cancellation, or moneys sufficient to pay the
principal of, premium, if any, and interest on the Securities have been made
available for payment and either paid or returned to the Company pursuant to the
provisions of Section 10.3, the Company will maintain in the Borough of
Manhattan, The City of New York, an office or agency where Securities may be
presented or surrendered for payment and conversion, which shall initially be
State Street Bank and Trust Company, N.A., an Affiliate of the Trustee, where
Securities may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company will give prompt written notice to the
Trustee, and notice to the Holders in accordance with Section 1.6, of the
appointment or termination of any such agents and of the location and any change
in the location of any such office or agency.

     The Company hereby initially designates the Trustee as Paying Agent,
Security Registrar and Conversion Agent, and each of the Corporate Trust Office
of the Trustee and the office or agency of the Trustee in the Borough of
Manhattan, The City of New York, located at 61 Broadway, 15th Floor, New York,
New York 10006 attention: Corporate Trust Administration (RATIONAL SOFTWARE
CORPORATION 5% Convertible Subordinated Notes due February 1, 2007) as one such
office or agency of the Company for each of the aforesaid purposes.

SECTION 10.3  Money for Security Payments to Be Held in Trust.
              -----------------------------------------------

     If the Company shall act as its own Paying Agent, it will, on or before
each due date of the principal of, premium, if any, or interest on any of the
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal, premium, if any, or interest so
becoming due until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and the Company will promptly notify the Trustee of its
action or failure so to act.

                                                                            -65-
<PAGE>

     Whenever the Company shall have one or more Paying Agents, it will, no
later than the opening of business on each due date of the principal of,
premium, if any, or interest on any Securities, deposit with the Trustee a sum
in funds immediately payable on the payment date sufficient to pay the
principal, premium, if any, or interest so becoming due, such sum to be held for
the benefit of the Persons entitled to such principal, premium, if any, or
interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of any failure so to act.

     The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:

     (1)  hold all sums held by it for the payment of the principal of, premium,
if any, or interest on Securities for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed of
as herein provided;

     (2)  give the Trustee notice of any default by the Company (or any other
obligor upon the Securities) in the making of any payment of principal, premium,
if any, or interest; and

     (3)  at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held by
such Paying Agent.

     The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.

     Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any, or
interest on any Security and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company on Company Request, or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease.

SECTION 10.4  Existence.
              ---------

     Subject to Article VII, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
(charter and statutory) and franchises; provided, however, that the Company
shall not be required to preserve any such right or franchise 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 Holders.

                                                                            -66-
<PAGE>

SECTION 10.5  Maintenance of Properties.
              -------------------------

     The Company will cause all properties used or useful in the conduct of its
business or the business of any Significant Subsidiary to be maintained and kept
in good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, in the judgment of the Company, desirable in the conduct of
its business or the business of any Significant Subsidiary and not
disadvantageous in any material respect to the Holders.

SECTION 10.6  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 any Significant
Subsidiary or upon the income, profits or property of the Company or any
Significant Subsidiary, (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
or any Significant Subsidiary, and (iii) all stamps 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 or conversion of
any Securities or with respect to this Indenture; provided, however, 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 10.7  Registration and Listing.
              ------------------------

     The Company (i) will effect all registrations with, and obtain all
approvals by, all governmental authorities that may be necessary under any
United States Federal or state law (including the Securities Act, the Exchange
Act and state securities and Blue Sky laws) before the shares of Common Stock
issuable upon conversion of Securities are issued and delivered, and qualified
or listed as contemplated by clause (ii) (it being understood that the Company
shall not be required to register the Securities under the Securities Act,
except pursuant to the Registration Rights Agreement referred to in Section
10.11); and (ii) will qualify the shares of Common Stock required to be issued
and delivered upon conversion of Securities, prior to such issuance or delivery,
for quotation on the Nasdaq National Market or, if the Common Stock is not then
quoted on the Nasdaq National Market, list the Common Stock on each national
securities exchange or quotation system on which outstanding Common Stock is
listed or quoted at the time of such delivery.

     Nothing in this Section will limit the application of Section 10.11.

SECTION 10.8  Statement by Officers as to Default.
              -----------------------------------

                                                                            -67-
<PAGE>

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

     The Company will deliver to the Trustee, forthwith upon becoming aware of
any default or any Event of Default under the Indenture, an Officers'
Certificate specifying with particularity such default or Event of Default and
further stating what action the Company has taken, is taking or proposes to take
with respect thereto. For the purpose of this Section, the term "default" means
any event which is, or after notice or lapse of time or both would become, an
Event of Default.

     Any notice required to be given under this Section 10.8 shall be delivered
to the Trustee at its Corporate Trust Office.

SECTION 10.9   Delivery of Certain Information.
               -------------------------------

     At any time when the Company is not subject to Section 13 or 15(d) of the
Exchange Act, upon the request of a Holder of a Restricted Security or the
holder of shares of Common Stock issued upon conversion thereof, the Company
will promptly furnish or cause to be furnished Rule 144A Information (as defined
below) to such Holder of Restricted Securities or such holder of shares of
Common Stock issued upon conversion of Restricted Securities, or to a
prospective purchaser of any such security designated by any such Holder or
holder, as the case may be, to the extent required to permit compliance by such
Holder or holder with Rule 144A under the Securities Act (or any successor
provision thereto) in connection with the resale of any such security; provided,
however, that the Company shall not be required to furnish such information in
connection with any request made on or after the date which is two years from
the later of (i) the date such a security (or any such predecessor security) was
last acquired from the Company or (ii) the date such a security (or any such
predecessor security) was last acquired from an "affiliate" of the Company
within the meaning of Rule 144 under the Securities Act (or any successor
provision thereto). "Rule 144A Information" shall be such information as is
specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor
provision thereto).

SECTION 10.10  Resale of Certain Securities.
               ----------------------------

     During the period beginning on the last date of original issuance of the
Securities and ending on the date that is two years from such date (or such
shortened period under Rule 144(k) under the Securities Act or any successor
rule), the Company will not, and will not permit any of its subsidiaries or
other "affiliates" (as defined under Rule 144 under the Securities Act or any
successor provision thereto) to, resell (i) any Securities which constitute
"restricted securities" under Rule 144 or (ii) any securities into which the
Securities have been converted under this Indenture which constitute "restricted
securities" under Rule 144, that in either case have been reacquired by any of
them. The Trustee shall have no responsibility in respect of the Company's
performance of its agreement in the preceding sentence.

                                                                            -68-
<PAGE>

SECTION 10.11  Registration Rights.
               -------------------

     The Company agrees that the Holders from time to time of Registrable
Securities (as defined below) are entitled to the benefits of a Registration
Rights Agreement, dated as of February 2, 2000 (the "Registration Rights
Agreement"), executed by the Company. Pursuant to the Registration Rights
Agreement, the Company has agreed for the benefit of the holders from time to
time of the Registrable Securities that it will, at its expense, (i) within 90
calendar days after the Issue Date (as defined below) of the Securities, file a
shelf registration statement (the "Shelf Registration Statement") with the
Commission with respect to resales of the Registrable Securities, (ii) use all
reasonable efforts to cause such Shelf Registration Statement to be declared
effective by the Commission within 180 calendar days after the Issue Date of the
Securities, provided, however that the Company may, upon written notice to all
the Holders, postpone having the Shelf Registration Statement declared effective
if the Company possesses material non-public information, the disclosure of
which would have a material adverse effect on the Company and its subsidiaries
taken as a whole and (iii) use all reasonable efforts to maintain such Shelf
Registration Statement effective under the Securities Act until the second
annual anniversary of the date it is declared effective or such earlier date as
is provided in the Registration Rights Agreement (the "Effectiveness Period").
The Company will be permitted to suspend the use of the prospectus which is a
part of the Shelf Registration Statement during certain periods of time as
provided in the Registration Rights Agreement.

     If (i) on or prior to 90 calendar days following the Issue Date of the
Securities, a Shelf Registration Statement has not been filed with the
Commission, or (ii) on or prior to the 180th calendar day following the Issue
Date of the Securities, such Shelf Registration Statement is not declared
effective (each, a "Registration Default"), additional interest ("Liquidated
Damages") will accrue on the Restricted Securities from and including the day
following such Registration Default to but excluding the day on which such
Registration Default has been cured. Liquidated Damages will be paid
semi-annually in arrears, with the first semi-annual payment due on the first
Interest Payment Date, as applicable, in respect of the Restricted Securities
following the date on which such Liquidated Damages begin to accrue, and will
accrue at a rate per annum equal to an additional one-quarter of one percent
(0.25%) of the principal amount of the Restricted Securities to and including
the 90th calendar day following such Registration Default and at a rate per
annum equal to one-half of one percent (0.50%) thereof from and after the 91st
calendar day following such Registration Default. Pursuant to the Registration
Rights Agreement, in the event that the Shelf Registration Statement ceases to
be effective (or the Holders of Registrable Securities are otherwise prevented
or restricted by the Company from effecting sales pursuant thereto) (an
"Effective Failure") during the Effectiveness Period for more than 45 days,
whether or not consecutive, during any 90-day period or for more than 90 days,
whether or not consecutive, during any 12-month period, then the interest rate
borne by the Restricted Securities shall increase by an additional one-half of
one percent (0.50%) per annum from the 46th day of the applicable 90-day period
or the 91st calendar day of the applicable 12-month period until the earlier of
(A) such time as the Effective Failure is cured or (B) the Effectiveness Period
expires.

                                                                            -69-
<PAGE>

     Whenever in this Indenture there is mentioned, in any context, the payment
of the principal of, premium, if any, or interest on, or in respect of, any
Security, such mention shall be deemed to include mention of the payment of
Liquidated Damages provided for in this Section to the extent that, in such
context, Liquidated Damages are, were or would be payable in respect thereof
pursuant to the provisions of this Section and express mention of the payment of
Liquidated Damages (if applicable) in any provisions hereof shall not be
construed as excluding Liquidated Damages in those provisions hereof where such
express mention is not made.

     For the purposes of the Registration Rights Agreement, "Registrable
Securities" means all or any portion of the Restricted Securities issued from
time to time under this Indenture and the shares of Common Stock issuable upon
conversion or repurchase of such Restricted Securities, except any such
Restricted Security or share of Common Stock issuable upon conversion or
repurchase thereof which (i) has been effectively registered under the
Securities Act and sold in a manner contemplated by the Shelf Registration
Statement, (ii) has been transferred in compliance with Rule 144 under the
Securities Act (or any successor provision thereto) or is transferable pursuant
to paragraph (k) of such Rule 144 (or any successor provision thereto) or (iii)
otherwise has been transferred and a new Security or share of Common Stock not
subject to transfer restrictions under the Securities Act has been delivered by
or on behalf of the Company in accordance with Section 3.5 of this Indenture.

     If a Security, or the shares of Common Stock issuable upon conversion of a
Security, is a Registrable Security, and the Holder thereof elects to sell such
Registrable Security pursuant to the Shelf Registration Statement then, by its
acceptance thereof, the Holder of such Registrable Security will have agreed to
be bound by the terms of the Registration Rights Agreement relating to the
Registrable Securities which are the subject of such election.

     For the purposes of the Registration Rights Agreement, the term "Holder"
includes any Person that has a beneficial interest in any Restricted Global
Security or any beneficial interest in a global security representing shares of
Common Stock issuable upon conversion of a Security.

     If Liquidated Damages are payable under the Registration Rights Agreement,
the Company shall deliver to the Trustee a certificate to that effect stating
(i) the amount of Liquidated Damages that is payable and (ii) the date on which
Liquidated Damages are payable. Unless and until a Responsible Officer of the
Trustee receives at the Corporate Trust Office such a certificate, the Trustee
may assume without inquiry that no Liquidated Damages are payable. If Liquidated
Damages have been paid by the Company directly to the persons entitled to them,
the Company shall deliver to the Trustee a certificate setting forth the
particulars of such payment.

SECTION 10.12 Waiver of Certain Covenants.
              ---------------------------

     The Company may omit in any particular instance to comply with any covenant
or condition set forth in Sections 10.4 (other than with respect to the
existence of the Company (subject to Article VII)), 10.5 and 10. 6, inclusive
(other than a covenant or condition which under Article VIII cannot be modified
or amended without the consent of the Holder of each Outstanding Security
affected), if before the time for such compliance the Holders shall, through the
written consent of, or the adoption of a resolution at a meeting of Holders of
the Outstanding Securities at which a quorum is

                                                                            -70-
<PAGE>

present by, not less than a majority in principal amount of the Outstanding
Securities, either waive such compliance in such instance or generally waive
compliance with such covenant or condition, but no such waiver shall extend to
or affect such covenant or condition except to the extent so expressly waived,
and, until such waiver shall become effective, the obligations of the Company
and the duties of the Trustee or any Paying or Conversion Agent in respect of
any such covenant or condition shall remain in full force and effect.

                                  ARTICLE XI

                           REDEMPTION OF SECURITIES

SECTION 11.1 Right of Redemption.
             -------------------

     The Securities may be redeemed in accordance with the provisions of the
form of Securities set forth in Section 2.2.

SECTION 11.2 Applicability of Article.
             ------------------------

     Redemption of Securities at the election of the Company or otherwise, as
permitted or required by any provision of the Securities or this Indenture,
shall be made in accordance with such provision and this Article XI.

SECTION 11.3 Election to Redeem; Notice to Trustee.
             -------------------------------------

     The election of the Company to redeem any Securities shall be evidenced by
a Board Resolution. In case of any redemption at the election of the Company of
any of the Securities, the Company shall, at least 45 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee in writing of such Redemption
Date.

SECTION 11.4 Selection by Trustee of Securities to Be Redeemed.
             -------------------------------------------------

     If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected by the Trustee within five Business
Days after it receives the notice described in 11.3, from the Outstanding
Securities not previously called for redemption, by lot or by such other method
as the Trustee may deem fair and appropriate.

     If any Security selected for partial redemption is converted in part before
termination of the conversion right with respect to the portion of the Security
so selected, the converted portion of such Security shall be deemed (so far as
may be) to be the portion selected for redemption. Securities which have been
converted during a selection of Securities to be redeemed may be treated by the
Trustee as Outstanding for the purpose of such selection. The Trustee shall
promptly notify the Company and each Security Registrar in writing of the
securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.

                                                                            -71-
<PAGE>

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

SECTION 11.5 Notice of Redemption.
             --------------------

     Notice of redemption shall be given in the manner provided in Section 1.6
to the Holders of Securities to be redeemed not less than 30 nor more than 60
days prior to the Redemption Date, and such notice shall be irrevocable.

     All notices of redemption shall state:

     (1) the Redemption Date,

     (2) the Redemption Price, and accrued interest (including Liquidated
Damages, if any), if any, to the Redemption Date,

     (3) if less than all Outstanding Securities are to be redeemed, the
aggregate principal amount of Securities to be redeemed and the aggregate
principal amount of Securities which will be outstanding after such partial
redemption,

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

     (5) the Conversion Rate, the date on which the right to convert the
Securities to be redeemed will terminate and the places where such Securities
may be surrendered for conversion, and

     (6) the place or places where such Securities are to be surrendered for
payment of the Redemption Price and accrued interest (including Liquidated
Damages, if any), if any, to the Redemption Date.

     In case of a partial redemption, the notice shall specify the serial and
CUSIP numbers (if any) and the portions thereof called for redemption and that
transfers and exchanges may occur on or prior to the Redemption Date.

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

                                                                            -72-
<PAGE>

SECTION 11.6 Deposit of Redemption Price.
             ---------------------------

     On or prior to the Redemption Date, the Company shall deposit with the
Trustee (or, if the Company is acting as its own Paying Agent, segregate and
hold in trust as provided in Section 10.3) an amount of money (which shall be in
immediately available funds on such Redemption Date) sufficient to pay the
Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date) accrued interest (including Liquidated Damages, if any) to the
Redemption Date on, all the Securities which are to be redeemed on that date
other than any Securities called for redemption on that date which have been
converted prior to the date of such deposit.

     If any Security called for redemption is converted, any money deposited
with the Trustee or so segregated and held in trust for the redemption of such
Security shall (subject to any right of the Holder of such Security or any
Predecessor Security to receive interest as provided in the last paragraph of
Section 3.7) be paid to the Company on Company Request or, if then held by the
Company, shall be discharged from such trust.

SECTION 11.6 Securities Payable on Redemption Date.
             -------------------------------------

     Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified and from and after such date (unless the
Company shall default in the payment of the Redemption Price, including accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
Security for redemption in accordance with said notice such Security shall be
paid by the Company at the Redemption Price together with accrued and unpaid
interest (including Liquidated Damages, if any) to the Redemption Date;
provided, however, that installments of interest on Securities whose Stated
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as such on
the relevant Record Date according to their terms and the provisions of Section
3.7.

     If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal amount of, premium, if any, and, to the
extent permitted by applicable law, accrued interest on such Security shall,
until paid, bear interest from the Redemption Date at a rate of 5% per annum and
such Security shall remain convertible until the Redemption Price of such
Security (or portion thereof, as the case may be) shall have been paid or duly
provided for.

     Any Security which is to be redeemed only in part shall be surrendered at
the Corporate Trust Office or an office or agency of the Company designated for
that purpose pursuant to Section 10.2 (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing), and the Company shall execute, and
the Trustee shall authenticate and make available for delivery to the Holder of
such Security without service charge, a new Security or Securities, of any
authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Security so surrendered.

                                                                            -73-
<PAGE>

SECTION 11.8 Conversion Arrangement on Call for Redemption.
             ---------------------------------------------

     In connection with any redemption of Securities, the Company may arrange
for the purchase and conversion of any Securities by an agreement with one or
more investment bankers or other purchasers (the "Purchasers") to purchase such
securities by paying to the Trustee in trust for the Holders, on or before the
Redemption Date, an amount not less than the applicable Redemption Price,
together with interest accrued to the Redemption Date, of such Securities.
Notwithstanding anything to the contrary contained in this Article XI, the
obligation of the Company to pay the Redemption Price, together with interest
accrued to the Redemption Date, shall be deemed to be satisfied and discharged
to the extent such amount is so paid by such Purchasers. If such an agreement is
entered into (a copy of which shall be filed with the Trustee prior to the close
of business on the Business Day immediately prior to the Redemption Date), any
Securities called for redemption that are not duly surrendered for conversion by
the Holders thereof may, at the option of the Company, be deemed, to the fullest
extent permitted by law, and consistent with any agreement or agreements with
such Purchasers, to be acquired by such Purchasers from such Holders and
(notwithstanding anything to the contrary contained in Article XII) surrendered
by such Purchasers for conversion, all as of immediately prior to the close of
business on the Redemption Date (and the right to convert any such Securities
shall be extended through such time), subject to payment of the above amount as
aforesaid. At the direction of the Company, the Trustee shall hold and dispose
of any such amount paid to it by the Purchasers to the Holders in the same
manner as it would monies deposited with it by the Company for the redemption of
Securities. Without the Trustee's prior written consent, no arrangement between
the Company and such Purchasers for the purchase and conversion of any
Securities shall increase or otherwise affect any of the powers, duties,
responsibilities or obligations of the Trustee as set forth in this Indenture,
and the Company agrees to indemnify the Trustee from, and hold it harmless
against, any loss, liability or expense arising out of or in connection with any
such arrangement for the purchase and conversion of any Securities between the
Company and such Purchasers, including the costs and expenses, including
reasonable legal fees, incurred by the Trustee in the defense of any claim or
liability arising out of or in connection with the exercise or performance of
any of its powers, duties, responsibilities or obligations under this Indenture.

                                  ARTICLE XII
                           CONVERSION OF SECURITIES

SECTION 12.1 Conversion Privilege and Conversion Rate.
             ----------------------------------------

     Subject to and upon compliance with the provisions of this Article, at the
option of the Holder thereof, any Security may be converted into fully paid and
nonassessable shares (calculated as to each conversion to the nearest 1/100th of
a share) of Common Stock of the Company at the Conversion Rate, determined as
hereinafter provided, in effect at the time of conversion. Such conversion right
shall commence on the initial issuance date of the Securities and expire at the
close of business on the date of Maturity, subject, in the case of conversion of
any Global Security, to any Applicable Procedures. In case a Security or portion
thereof is called for redemption at the election of the Company or the Holder
thereof exercises his right to require the Company to repurchase the

                                                                            -74-
<PAGE>

Security, such conversion right in respect of the Security, or portion thereof
so called, shall expire at the close of business on the Redemption Date or the
Repurchase Date, as the case may be, unless the Company defaults in making the
payment due upon redemption or repurchase, as the case may be (in each case
subject as aforesaid to any Applicable Procedures with respect to any Global
Security).

     The rate at which shares of Common Stock shall be delivered upon conversion
(herein called the "Conversion Rate") shall be initially 13.9983 shares of
Common Stock for each U.S.$1,000 principal amount of Securities. The Conversion
Rate shall be adjusted in certain instances as provided in this Article XII.

SECTION 12.1 Exercise of Conversion Priviledg.
             --------------------------------

     In order to exercise the conversion privilege, the Holder of any Security
to be converted shall surrender such Security, duly endorsed in blank, at any
office or agency of the Company maintained for that purpose pursuant to Section
10.2, accompanied by a duly signed conversion notice substantially in the form
set forth in Section 2.4 stating that the Holder elects to convert such Security
or, if less than the entire principal amount thereof is to be converted, the
portion thereof to be converted. Each Security surrendered for conversion (in
whole or in part) during the Record Date Period shall (except in the case of any
Security or portion thereof which has been called for redemption on a Redemption
Date, or is repurchasable on a Repurchase Date, occurring, in either case,
within such Record Date Period and, as a result, the right to convert would
terminate in such period) be accompanied by payment in New York Clearing House
funds or other funds acceptable to the Company of an amount equal to the
interest payable on such Interest Payment Date on the principal amount of such
Security (or part thereof, as the case may be) being surrendered for conversion.
The interest so payable on such Interest Payment Date with respect to any
Security (or portion thereof, if applicable) which is surrendered for conversion
during the Record Date Period shall be paid to the Holder of such Security as of
such Regular Record Date in an amount equal to the interest that would have been
payable on such Security if such Security had been converted as of the close of
business on such Interest Payment Date. Interest payable in respect of any
Security surrendered for conversion on or after an Interest Payment Date shall
be paid to the Holder of such Security as of the next preceding Regular Record
Date, notwithstanding the exercise of the right of conversion. Except as
provided in this paragraph and subject to the last paragraph of Section 3.7, no
cash payment or adjustment shall be made upon any conversion on account of any
interest accrued from the Interest Payment Date next preceding the conversion
date, in respect of any Security (or part thereof, as the case may be)
surrendered for conversion, or on account of any dividends on the Common Stock
issued upon conversion. The Company's delivery to the Holder of the number of
shares of Common Stock (and cash in lieu of fractions thereof, as provided in
this Indenture) into which a Security is convertible will be deemed to satisfy
the Company's obligation to pay the principal amount of the Security.

     Securities shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such Securities for conversion in
accordance with the foregoing provisions, and at such time the rights of the
Holders of such Securities as Holders shall cease, and the Person or Persons
entitled to receive the Common Stock issuable upon conversion shall be

                                                                            -75-
<PAGE>

treated for all purposes as the record holder or holders of such Common Stock at
such time. As promptly as practicable on or after the conversion date, the
Company shall issue and deliver to the Trustee, for delivery to the Holder, a
certificate or certificates for the number of full shares of Common Stock
issuable upon conversion, together with payment in lieu of any fraction of a
share, as provided in Section 12.3.

     All shares of Common Stock delivered upon such conversion of Restricted
Securities shall bear restrictive legends substantially in the form of the
legends required to be set forth on the Restricted Securities pursuant to
Section 3.5 and shall be subject to the restrictions on transfer provided in
such legends. Neither the Trustee nor any agent maintained for the purpose of
such conversion shall have any responsibility for the inclusion or content of
any such restrictive legends on such Common Stock; provided, however, that the
Trustee or any agent maintained for the purpose of such conversion shall have
provided, to the Company or to the Company's transfer agent for such Common
Stock, prior to or concurrently with a request to the Company to deliver such
Common Stock, written notice that the Securities delivered for conversion are
Restricted Securities.

     In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations in an aggregate principal amount equal to
the unconverted portion of the principal amount of such Security. A Security may
be converted in part, but only if the principal amount of such Security to be
converted is any integral multiple of U.S. $1,000 and the principal amount of
such security to remain Outstanding after such conversion is equal to U.S.
$1,000 or any integral multiple of $1,000 in excess thereof.

     If shares of Common Stock to be issued upon conversion of a Restricted
Security, or Securities to be issued upon conversion of a Restricted Security in
part only, are to be registered in a name other than that of the beneficial
owner of such Restricted Security, then such Holder must deliver to the
Conversion Agent a Surrender Certificate, dated the date of surrender of such
Restricted Security and signed by such beneficial owner, as to compliance with
the restrictions on transfer applicable to such Restricted Security. Neither the
Trustee nor any Conversion Agent, Registrar or Transfer Agent shall be required
to register in a name other than that of the beneficial owner, shares of Common
Stock or Securities issued upon conversion of any such Restricted Security not
so accompanied by a properly completed Surrender Certificate.

SECTION 12.3 Fractions of Shares.
             -------------------

     No fractional shares of Common Stock shall be issued upon conversion of any
Security or Securities. If more than one Security shall be surrendered for
conversion at one time by the same Holder, the number of full shares which shall
be issuable upon conversion thereof shall be computed on the basis of the
aggregate principal amount of the Securities (or specified portions thereof) so
surrendered. Instead of any fractional share of Common Stock which would
otherwise be issuable upon conversion of any Security or Securities (or
specified portions thereof), the Company shall calculate and pay a cash
adjustment in respect of such fraction (calculated to the nearest 1/100th of a

                                                                            -76-
<PAGE>

share) in an amount equal to the same fraction of the Closing Price Per Share at
the close of business on the day of conversion.

SECTION 12.4 Adjustment of Conversion Rate.
             -----------------------------

     The Conversion Rate shall be subject to adjustments from time to time as
follows:

     (1)  In case the Company shall pay or make a dividend or other
distribution on shares of any class of capital stock payable in shares of Common
Stock, the Conversion Rate in effect at the opening of business on the day
following the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution shall be increased by dividing such
Conversion Rate by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such increase to become effective immediately after the opening of
business on the day following the date fixed for such determination. If, after
any such date fixed for determination, any dividend or distribution is not in
fact paid, the Conversion Rate shall be immediately readjusted, effective as of
the date the Board of Directors determines not to pay such dividend or
distribution, to the Conversion Rate that would have been in effect if such
determination date had not been fixed. For the purposes of this paragraph (1),
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.

     (2)  In case the Company shall issue rights, options or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the current market price per
share (determined as provided in paragraph (8) of this Section 12.4) of the
Common Stock on the date fixed for the determination of stockholders entitled to
receive such rights, options or warrants (other than any rights, options or
warrants that by their terms will also be issued to any Holder upon conversion
of a Security into shares of Common Stock without any action required by the
Company or any other Person), the Conversion Rate in effect at the opening of
business on the day following the date fixed for such determination shall be
increased by dividing such Conversion Rate by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of shares of
Common Stock which the aggregate of the offering price of the total number of
shares of Common Stock so offered for subscription or purchase would purchase at
such current market price and the denominator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such increase to become effective immediately after
the opening of business on the day following the date fixed for such
determination. If, after any such date fixed for determination, any such rights,
options or warrants are not in fact issued, or are not exercised prior to the
expiration thereof, the Conversion Rate shall be immediately readjusted,
effective as of the date such rights, options or warrants expire, or the date
the Board of Directors

                                                                            -77-
<PAGE>

determines not to issue such rights, options or warrants, to the Conversion Rate
that would have been in effect if the unexercised rights, options or warrants
had never been granted or such determination date had not been fixed, as the
case may be. For the purposes of this paragraph (2), 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 issue any rights, options or warrants in respect of shares of Common
Stock held in the treasury of the Company.

     (3)  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 subdivision or 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.

     (4)  In case the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock evidences of its indebtedness, shares of any class
of capital stock or other property (including cash or assets or securities, but
excluding (i) any rights, options or warrants referred to in paragraph (2) of
this Section, (ii) any dividend or distribution paid exclusively in cash, (iii)
any dividend or distribution referred to in paragraph (1) of this Section and
(iv) mergers or consolidations to which Section 12.11 applies), the Conversion
Rate shall be adjusted so that the same shall equal the rate determined by
dividing the Conversion Rate in effect immediately prior to the close of
business on the date fixed for the determination of stockholders entitled to
receive such distribution by a fraction of which the numerator shall be the
current market price per share (determined as provided in paragraph (8) of this
Section 12.4) of the Common Stock on the date fixed for such determination less
the then fair market value (as determined by the Board of directors, whose
determination shall be conclusive and described in a Board Resolution filed with
the Trustee) of the portion of the assets, shares or evidences of indebtedness
so distributed applicable to one share of Common Stock and the denominator shall
be such current market price per share of the Common Stock, such adjustment to
become effective immediately prior to the opening of business on the day
following the date fixed for the determination of stockholders entitled to
receive such distribution. If after any such date fixed for determination, any
such distribution is not in fact made, the Conversion Rate shall be immediately
readjusted, effective as of the date of the Board of Directors determines not to
make such distribution, to the Conversion Rate that would have been in effect if
such determination date had not been fixed.

     (5)  In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock cash (excluding any cash that is distributed as
part of a distribution referred to in paragraph (4) of this Section or cash
distributed upon a merger or consolidation to which Section 12.11 applies) in an
aggregate amount that, combined together with (I) the aggregate amount of any
other all-cash distributions to all holders of its Common Stock made exclusively
in cash within the

                                                                            -78-
<PAGE>

365-day period preceding the date of payment of such distribution and in respect
of which no adjustment pursuant to this paragraph (5) has been made and (II) the
aggregate of any cash plus the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution) of consideration payable in respect of any tender offer by the
Company or any of its Subsidiaries for all or any portion of the Common Stock
concluded within the 365-day period preceding the date of payment of such
distribution and in respect of which no adjustment pursuant to paragraph (6) of
this Section 12.4 has been made (the "combined cash and tender amount") exceeds
10% of the product of the current market price per share (determined as provided
in paragraph (8) of this Section 12.4) of the Common Stock on the date for the
determination of holders of shares of Common Stock entitled to receive such
distribution times the number of shares of Common Stock outstanding on such date
(the "aggregate current market price"), then, and in each such case, immediately
after the close of business on such date for determination, the Conversion Rate
shall be adjusted so that the same shall equal the rate determined by dividing
the Conversion Rate in effect immediately prior to the close of business on the
date fixed for determination of the stockholders entitled to receive such
distribution by a fraction (i) the numerator of which shall be equal to the
current market price per share (determined as provided in paragraph (8) of this
Section) of the Common Stock on the date fixed for such determination less an
amount equal to the quotient of (x) the excess of such combined cash and tender
amount over such aggregate current market price divided by (y) the number of
shares of Common Stock outstanding on such date for determination and (ii) the
denominator of which shall be equal to the current market price per share
(determined as provided in paragraph (8) of this Section 12.4) of the Common
Stock on such date fixed for determination.

     (6)  In case a tender offer made by the Company or any Subsidiary for all
or any portion of the Common Stock shall expire and such tender offer (as
amended upon the expiration thereof) shall require the payment to stockholders
(based on the acceptance (up to any maximum specified in the terms of the tender
offer) of Purchased Shares (as defined below)) of an aggregate consideration
having a fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution) that
combined together with (I) the aggregate of the cash plus the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution), as of the expiration of such
tender offer, of consideration payable in respect of any other tender offer by
the Company or any Subsidiary for all or any portion of the Common Stock
expiring within the 365-day period preceding the expiration of such tender offer
and in respect of which no adjustment pursuant to this paragraph (6) has been
made and (II) the aggregate amount of any cash distributions to all holders of
the Common Stock within 365-day period preceding the expiration of such tender
offer and in respect of which no adjustment pursuant to paragraph (5) of this
Section has been made (the "combined tender and cash amount") exceeds 10% of the
product of the current market price per share of the Common Stock (determined as
provided in paragraph (8) of this Section 12.4) as of the last time (the
"Expiration Time") tenders could have been made pursuant to such tender offer
(as it may be amended) times the number of shares of Common Stock outstanding
(including any tendered shares) as of the Expiration Time, then, and in each
such case immediately prior to the opening of business on the day after the date
of the Expiration Time, the Conversion Rate shall be adjusted so that the same
shall equal the rate determined by dividing the Conversion Rate immediately
prior to close of business on the date of the

                                                                            -79-
<PAGE>

Expiration Time by a fraction (i) the numerator of which shall be equal to (A)
the product of (I) the current market price per share of the Common Stock
(determined as provided in paragraph (8) of this Section 12.4) on the date of
the Expiration Time multiplied by (II) the number of shares of Common Stock
outstanding (including any tendered shares) on the Expiration Time less (B) the
combined tender and cash amount, and (ii) the denominator of which shall be
equal to the product of (A) the current market price per share of the Common
Stock (determined as provided in paragraph (8) of this Section 12.4) as of the
Expiration Time multiplied by (B) the number of shares of Common Stock
outstanding (including any tendered shares) as of the Expiration Time less the
number of all shares validly tendered and not withdrawn as of the Expiration
Time (the shares deemed so accepted up to any such maximum, being referred to as
the "Purchased Shares").

         (7) The reclassification of Common Stock into securities other than
Common Stock (other than any reclassification upon a consolidation or merger to
which Section 12.11 applies) shall be deemed to involve (a) a distribution of
such securities other than Common Stock to all holders of Common Stock (and the
effective date of such reclassification shall be deemed to be "the date fixed
for the determination of stockholders entitled to receive such distribution" and
"the date fixed for such determination" within the meaning of paragraph (4) of
this Section), and (b) a subdivision or combination, as the case may be, of the
number of shares of Common Stock outstanding immediately prior to such
reclassification into the number of shares of Common Stock outstanding
immediately thereafter (and the effective date of such reclassification shall be
deemed to be "the day upon which such subdivision becomes effective" or "the day
upon which such combination becomes effective", as the case may be, and "the day
upon which such subdivision or combination becomes effective" within the meaning
of paragraph (3) of this Section 12.4).

         (8) For the purpose of any computation under paragraphs (2), (4), (5)
or (6) of this Section 12.4, the current market price per share of Common Stock
on any date shall be calculated by the Company and be the average of the daily
Closing Prices Per Share for the five consecutive Trading Days selected by the
Company commencing not more than 10 Trading Days before, and ending not later
than the earlier of the day in question and the day before the "ex" date with
respect to the issuance or distribution requiring such computation. For purposes
of this paragraph, the term "'ex' date", when used with respect to any issuance
or distribution, means the first date on which the Common Stock trades regular
way in the applicable securities market or on the applicable securities exchange
without the right to receive such issuance or distribution.

         (9) No adjustment in the Conversion Rate shall be required unless such
adjustment (plus any adjustments not previously made by reason of this paragraph
(9)) would require an increase or decrease of at least one percent in such rate;
provided, however, that any adjustments which by reason of this paragraph (9)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Article shall be made to
the nearest cent or to the nearest one-hundredth of a share, as the case may be.

         (10) The Company may make such increases in the Conversion Rate, for
the remaining term of the Securities or any shorter term, in addition to those
required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 12.4, as
it considers to be advisable in order to avoid or diminish any

                                                                            -80-

<PAGE>

income tax to any holders of shares of Common Stock resulting from any dividend
or distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such for income tax purposes.
The Company shall have the power to resolve any ambiguity or correct any error
in this paragraph (10) and its actions in so doing shall, absent manifest error,
be final and conclusive.

         (11) Notwithstanding the foregoing provisions of this Section, no
adjustment of the Conversion Rate shall be required to be made (a) upon the
issuance of shares of Common Stock pursuant to any present or future plan for
the reinvestment of dividends or (b) because of a tender or exchange offer of
the character described in Rule 13e-4(h)(5) under the Exchange Act or any
successor rule thereto.

         (12) To the extent permitted by applicable law, 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 twenty (20) days, the increase is irrevocable during such
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; provided, however, that no such increase shall be taken
into account for purposes of determining whether the Closing Price Per Share of
the Common Stock equals or exceeds 105% of the Conversion Price in connection
with an event which would otherwise be a Change of Control pursuant to Section
14.4. Whenever the Conversion Rate is increased pursuant to the preceding
sentence, the Company shall give notice of the increase to the Holders in the
manner provided in Section 1.6 at least fifteen (15) days prior to the date the
increased Conversion Rate takes effect, and such notice shall state the
increased Conversion Rate and the period during which it will be in effect.

SECTION 12.5  Notice of Adjustments of Conversion Rate.
              ----------------------------------------

         Whenever the Conversion Rate is adjusted as herein provided:

         (1)  the Company shall compute the adjusted Conversion Rate in
accordance with Section 12.4 and shall prepare a certificate signed by the Chief
Financial Officer of the Company setting forth the adjusted Conversion Rate and
showing in reasonable detail the facts upon which such adjustment is based, and
such certificate shall promptly be filed with the Trustee and with each
Conversion Agent; and

         (2)  upon each such adjustment, a notice stating that the Conversion
Rate has been adjusted and setting forth the adjusted Conversion Rate shall be
required, and as soon as practicable after it is required, such notice shall be
provided by the Company to all Holders in accordance with Section 1.6.

         Neither the Trustee nor any Conversion Agent shall be under any duty or
responsibility with respect to any such certificate or the information and
calculations contained therein, except to exhibit the same to any Holder of
Securities desiring inspection thereof at its office during normal business
hours, and shall not be deemed to have knowledge of any adjustment in the
Conversion Rate unless and until a

                                                                            -81-
<PAGE>

Responsible Officer of the Trustee shall have received such a certificate. Until
a Responsible Officer of the Trustee receives such a certificate, the Trustee
and each Conversion Agent may assume without inquiry that the last Conversion
Rate of which the Trustee has knowledge of remains in effect.

SECTION 12.6  Notice of Certain Corporate Action.
              ----------------------------------

     In case:

         (1) the Company shall declare a dividend (or any other distribution) on
its Common Stock payable (i) otherwise than exclusively in cash or (ii)
exclusively in cash in an amount that would require any adjustment pursuant to
Section 12.4; or

         (2) the Company shall authorize the granting to all or substantially
all of the holders of its Common Stock of rights, options or warrants to
subscribe for or purchase any shares of capital stock of any class or of any
other rights; or

         (3) of any reclassification of the Common Stock, or of any
consolidation, merger or share exchange to which the Company is a party and for
which approval of any stockholders of the Company is required, or of the
conveyance, sale, transfer or lease of all or substantially all of the assets of
the Company; or

         (4) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company; then the Company shall cause to be filed at each office or
agency maintained for the purpose of conversion of Securities pursuant to
Section 10.2, and shall cause to be provided to all Holders in accordance with
Section 1.6, at least 20 days (or 10 days in any case specified in clause (1) or
(2) above) prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, rights, options or warrants, or, if
a record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights, options or
warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, conveyance, transfer, sale, lease, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, sale, lease, dissolution, liquidation or winding up. Neither the
failure to give such notice or the notice referred to in the following paragraph
nor any defect therein shall affect the legality or validity of the proceedings
described in clauses (1) through (4) of this Section 12.6. If at the time the
Trustee shall not be the conversion agent, a copy of such notice shall also
forthwith be filed by the Company with the Trustee.

         The Company shall cause to be filed at the Corporate Trust Office and
each office or agency maintained for the purpose of conversion of Securities
pursuant to Section 10.2, and shall cause to be provided to all Holders in
accordance with Section 1.6, notice of any tender offer by the Company or any
Subsidiary for all or any portion of the Common Stock at or about the time that
such notice of tender offer is provided to the public generally.

                                                                            -82-
<PAGE>

SECTION 12.7   Company to Reserve Common Stock.
               -------------------------------

     The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of Securities, the full number of shares of
Common Stock then issuable upon the conversion of all Outstanding Securities.

SECTION 12.8   Taxes on Conversions.
               --------------------

     Except as provided in the next sentence, the Company will pay any and all
taxes and duties that may be payable in respect of the issue or delivery of
shares of Common Stock on conversion of Securities pursuant hereto. The Company
shall not, however, be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue and delivery of shares of Common
Stock in a name other than that of the Holder of the Security or Securities to
be converted, and no such issue or delivery shall be made unless and until the
Person requesting such issue has paid to the Company the amount of any such tax
or duty, or has established to the satisfaction of the Company that such tax or
duty has been paid.

SECTION 12.9   Covenant as to Common Stock.
               ---------------------------

     The Company agrees that all shares of Common Stock which may be delivered
upon conversion of Securities, upon such delivery, will have been duly
authorized and validly issued and will be fully paid and nonassessable and,
except as provided in Section 12.8, the Company will pay all taxes, liens and
charges with respect to the issue thereof.

SECTION 12.10   Cancellation of Converted Securities.
                ------------------------------------

     All Securities delivered for conversion shall be delivered to the Trustee
or its agent to be canceled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 3.9.

SECTION 12.11   Provision in Case of Consolidation, Merger or Sale of Assets.
                ------------------------------------------------------------

     In case of any consolidation or merger of the Company with or into any
other Person, any merger of another Person with or into the Company (other than
a merger which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the Company) or any
conveyance, sale, transfer or lease of all or substantially all of the assets of
the Company, the Person formed by such consolidation or resulting from such
merger or which acquires such assets, as the case may be, shall execute and
deliver to the Trustee a supplemental indenture providing that the Holder of
each Security then Outstanding shall have the right thereafter, during the
period such Security shall be convertible as specified in Section 12.1, to
convert such Security only into the kind and amount of securities, cash and
other property receivable upon such consolidation, merger, conveyance, sale,
transfer or lease by a holder of the number of shares of Common Stock of the
Company into which such Security might have been converted immediately prior to
such consolidation, merger, conveyance, sale, transfer or lease, assuming such
holder of

                                                                            -83-
<PAGE>

Common Stock of the Company (i) is not (A) a Person with which the
Company consolidated or merged with or into or which merged into or with the
Company or to which such conveyance, sale, transfer or lease was made, as the
case may be (a "Constituent Person"), or (B) an Affiliate of a Constituent
Person and (ii) failed to exercise his rights of election, if any, as to the
kind or amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer or lease (provided that if the
kind or amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer, or lease is not the same for
each share of Common Stock of the Company held immediately prior to such
consolidation, merger, conveyance, sale, transfer or lease by others than a
Constituent Person or an Affiliate thereof and in respect of which such rights
of election shall not have been exercised ("Non-electing Share"), then for the
purpose of this Section 12.11 the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance, sale, transfer
or lease by the holders of each Non-electing Share shall be deemed to be the
kind and amount so receivable per share by a plurality of the Non-electing
Shares). Such supplemental indenture shall provide for adjustments which, for
events subsequent to the effective date of such supplemental indenture, shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Article. The above provisions of this Section 12.11 shall similarly apply
to successive consolidations, mergers, conveyances, sales, transfers or leases.
Notice of the execution of such a supplemental indenture shall be given by the
Company to the Holder of each Security as provided in Section 1.6 promptly upon
such execution.

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

SECTION 12.12   Rights Issued in Respect of Common Stock.
                ----------------------------------------

     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 not be deemed distributed for purposes of Section 12.4(2) until the
occurrence of the earliest Trigger Event. In addition, in the event of any
distribution of rights or warrants, or any Trigger Event with respect thereto,
that shall have resulted in an adjustment to the Conversion Rate under

                                                                            -84-
<PAGE>

Section 12.4(2), (1) in the case of any such rights or warrants which shall all
have been redeemed or repurchased without exercise by any holders thereof, the
Conversion 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 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 any such rights or warrants all of which shall have expired
without exercise by any holder thereof, the Conversion Price shall be readjusted
as if such issuance had not occurred.

SECTION 12.13   Responsibility of Trustee for Conversion Provisions.
                ---------------------------------------------------

     The Trustee, subject to the provisions of Section 6.1, and any Conversion
Agent shall not at any time be under any duty or responsibility to any Holder of
Securities to determine whether any facts exist which may require any adjustment
of the Conversion Rate, or with respect to the nature or extent of any such
adjustment when made, or with respect to the method employed, herein or in any
supplemental indenture provided to be employed, in making the same, or whether a
supplemental indenture need be entered into. Neither the Trustee, subject to the
provisions of Section 6.1, nor any Conversion Agent shall be accountable with
respect to the validity or value (or the kind or amount) of any Common Stock, or
of any other securities or property or cash, which may at any time be issued or
delivered upon the conversion of any Security; and it or they do not make any
representation with respect thereto. Neither the Trustee, subject to the
provisions of Section 6.1, nor any Conversion Agent shall be responsible for any
failure of the Company to make or calculate any cash payment or to issue,
transfer or deliver any shares of Common Stock or share certificates or other
securities or property or cash upon the surrender of any Security for the
purpose of conversion; and the Trustee, subject to the provisions of Section
6.1, and any Conversion Agent shall not be responsible for any failure of the
Company to comply with any of the covenants of the Company contained in this
Article.

                                 ARTICLE XIII
                          SUBORDINATION OF SECURITIES

SECTION 13.1   Securities Subordinate to Senior Debt.
               -------------------------------------

     The Company covenants and agrees, and each Holder of a Security, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article (subject to the provisions of
Article IV), the indebtedness represented by the Securities and the payment of
the principal of, or premium, if any, or interest (including Liquidated Damages,
if any) on, each and all of the Securities (including, but not limited to, the
Redemption Price with respect to the Securities to be called for redemption in
accordance with Article XI or the Repurchase Price with respect to Securities
submitted for repurchase in accordance with Article XIV), are hereby expressly
made subordinate and subject in right of payment to the prior payment in full of
all Senior Debt.

                                                                            -85-
<PAGE>

SECTION 13.2   No Payment in Certain Circumstances, Payment over of Proceeds
               -------------------------------------------------------------
upon Dissolution, Etc.
---------------------

     No payment shall be made with respect to the principal of, or premium, if
any, or interest (including Liquidated Damages, if any) on the Securities
(including, but not limited to, the Redemption Price with respect to the
Securities to be called for redemption in accordance with Article XI or the
Repurchase Price with respect to Securities submitted for repurchase in
accordance with Article XIV), except payments and distributions made by the
Trustee as permitted by Section 13.9, if:

          (i)  a default in the payment of principal, premium, if any, or
interest (including a default under any repurchase or redemption obligation) or
other amounts with respect to any Senior Debt occurs and is continuing (or, in
the case of Senior Debt for which there is a period of grace, in the event of
such a default that continues beyond the period of grace, if any, specified in
the instrument or lease evidencing such Senior Debt) unless and until such
default shall have been cured or waived or shall have ceased to exist; or

          (ii) any other event of default occurs and is continuing with respect
to Designated Senior Debt that then permits holders of such Designated Senior
Debt to accelerate its maturity and the Trustee receives a notice of the default
(a "Payment Blockage Notice") from a Representative or holder of Designated
Senior Debt or the Company.

     If the Trustee receives any Payment Blockage Notice pursuant to clause (ii)
above, no subsequent Payment Blockage Notice shall be effective for purposes of
this Section 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 on the
Securities that have come due have been paid in full in cash. No nonpayment
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 Securities upon the earlier of:

         (1) in the case of a default referred to in clause (i) above, the date
upon which the default is cured or waived or ceases to exist, or

         (2) in the case of a default referred to in clause (ii) above, the date
upon which the default is cured or waived or ceases to exist or 179 days pass
after notice is received if the maturity of such Designated Senior Debt has not
been accelerated, unless this Article XIII otherwise prohibits the payment or
distribution at the time of such payment or distribution.

     In the event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to the Company or to its creditors, as such, or
to its assets, or (b) any liquidation, dissolution or other

                                                                            -86-
<PAGE>

winding up of the Company, whether voluntary or involuntary and whether or not
involving insolvency or bankruptcy, or (c) any assignment for the benefit of
creditors or any other marshaling of assets and liabilities of the Company, then
and in any such event the holders of Senior Debt shall be entitled to receive
payment in full of all amounts due or to become due on or in respect of all
Senior Debt in cash before the Holders of the Securities are entitled to receive
any payment on account of principal of (or premium, if any) or interest
(including any Liquidated Damages) on the Securities or on account of the
purchase, redemption or other acquisition of Securities, and to that end the
holders of Senior Debt shall be entitled to receive, for application to the
payment thereof, any payment or distribution of any kind or character, whether
in cash, property or securities, which may be payable or deliverable in respect
of the Securities in any such case, proceeding, dissolution, liquidation or
other winding up or event.

     In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, securities or other property, before all Senior Debt is paid in
full, and if such fact shall, at or prior to the time of such payment or
distribution, have been made known to the Trustee or, as the case may be, such
Holder, then and in such event such payment or distribution shall be paid over
or delivered forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other Person making payment or
distribution of assets of the Company for application to the payment of all
Senior Debt remaining unpaid, to the extent necessary to pay all Senior Debt in
full, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Debt.

     For purposes of this Article only, the words "cash, securities or other
property" shall not be deemed to include shares of capital stock of the Company
as reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, which
shares of stock or securities are subordinated in right of payment to all then
outstanding Senior Debt to substantially the same extent as, or to a greater
extent than, the Securities are so subordinated as provided in this Article. The
consolidation of the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company following the conveyance
or transfer of its properties and assets substantially as an entirety to another
Person upon the terms and conditions set forth in Article VII shall not be
deemed a dissolution, winding up, liquidation, reorganization, assignment for
the benefit of creditors or marshaling of assets and liabilities of the Company
for the purposes of this Section if the Person formed by such consolidation or
into which the Company is merged or which acquires by conveyance or transfer
such properties and assets substantially as an entirety, as the case may be,
shall, as a part of such consolidation, merger, conveyance or transfer, comply
with the conditions set forth in Article VII.

     In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Company, in the case of the Trustee, or the Trustee,
in the case of such Holder.

                                                                            -87-
<PAGE>

SECTION 13.3   Prior Payment to Senior Debt upon Acceleration of Securities.
               ------------------------------------------------------------

     In the event of the acceleration of the Securities because of an Event of
Default, no payment or distribution shall be made to the Trustee or any holder
of Securities in respect of the principal of, premium, if any, or interest
(including Liquidated Damages, if any) on the Securities (including, but not
limited to, the Redemption Price with respect to the Securities called for
redemption in accordance with Article XI or the Repurchase Price with respect to
the Securities submitted for repurchase in accordance with Article XIV), except
payments and distributions made by the Trustee as permitted by Section 13.9,
until all Senior Debt has been paid in full in cash or other payment
satisfactory to the holders of Senior Debt or such acceleration is rescinded in
accordance with the terms of this Indenture. If payment of the Securities is
accelerated because of an Event of Default, the Company shall promptly notify
holders of Senior Debt of the acceleration.

SECTION 13.4   Payment Permitted If No Default.
               -------------------------------

     Nothing contained in this Article or elsewhere in this Indenture or in any
of the Securities shall prevent (a) the Company, at any time except during the
pendency of any case, proceeding, dissolution, liquidation or other winding up,
assignment for the benefit of creditors or other marshaling of assets and
liabilities of the Company referred to in Section 13.2, or during the
circumstances referred to in the first paragraph of Section 13.2, or under the
conditions described in Section 13.3, from making payments at any time of
principal of (and premium, if any) or interest on the Securities, or (b) the
application by the Trustee of any money deposited with it hereunder to the
payment of or on account of the principal of (and premium, if any) or interest
on the Securities or the retention of such payment by the Holders, if, at the
time of such application by the Trustee, it did not have knowledge that such
payment would have been prohibited by the provisions of this Article.

SECTION 13.5   Subrogation to Rights of Holders Of Senior Debt.
               -----------------------------------------------

     Subject to the payment in full of all Senior Debt, the Holders of the
Securities shall be subrogated to the extent of the payments or distributions
made to the holders of such Senior Debt pursuant to the provisions of this
Article to the rights of the holders of such Senior Debt to receive payments and
distributions of cash, property and securities applicable to the Senior Debt
until the principal of (and premium, if any) and interest on the Securities
shall be paid in full. For purposes of such subrogation, no payments or
distributions to the holders of the Senior Debt of any cash, property or
securities to which the Holders of the Securities or the Trustee would be
entitled except for the provisions of this Article, and no payments over
pursuant to the provisions of this Article to the holders of Senior Debt by
Holders of the Securities or the Trustee, shall, as among the Company, its
creditors other than holders of Senior Debt and the Holders of the Securities,
be deemed to be a payment or distribution by the Company to or on account of the
Senior Debt.

SECTION 13.6   Provisions Solely to Define Relative Rights.
               -------------------------------------------

                                                                            -88-
<PAGE>

     The provisions of this Article are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities on the one hand
and the holders of Senior Debt on the other hand. Nothing contained in this
Article or elsewhere in this Indenture or in the Securities is intended to or
shall (i) impair, as among the Company, its creditors other than holders of
Senior Debt and the Holders of the Securities, the obligation of the Company,
which is absolute and unconditional, to pay to the Holders of the Securities the
principal of (and premium, if any) and interest (including Liquidated Damages,
if any) on the Securities as and when the same shall become due and payable in
accordance with their terms; or (ii) affect the relative rights against the
Company of the Holders of the Securities and creditors of the Company other than
the holders of Senior Debt; or (iii) prevent the Trustee or the Holder of any
Security from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
of the holders of Senior Debt to receive cash, property and securities otherwise
payable or deliverable to the Trustee or such Holder.

SECTION 13.7   Trustee to Effectuate Subordination.
               -----------------------------------

     Each Holder of a Security by its acceptance thereof authorizes and directs
the Trustee on its behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article and appoints the
Trustee its attorney-in-fact for any and all such purposes.

SECTION 13.8    No Waiver of Subordination Provisions.
                -------------------------------------

     No right of any present or future holder of any Senior Debt to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company, or by any
non-compliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.

     Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the Trustee or the Holders of the Securities, without
incurring responsibility to the Holders of the Securities and without impairing
or releasing the subordination provided in this Article or the obligations
hereunder of the Holders of the Securities to the holders of Senior Debt, do any
one or more of the following: (i) change the manner, place or terms of payment
or extend the time of payment of, or renew or alter, Senior Debt, or otherwise
amend or supplement in any manner Senior Debt or any instrument evidencing the
same or any agreement under which Senior Debt is outstanding; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Debt; (iii) release any Person liable in any manner
for the collection of Senior Debt; and (iv) exercise or refrain from exercising
any rights against the Company and any other Person.

SECTION 13.9    Notice to Trustee.
                -----------------

     The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Securities. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the

                                                                            -89-
<PAGE>

Trustee shall not be charged with knowledge of the existence of any facts which
would prohibit the making of any payment to or by the Trustee in respect of the
Securities, unless and until a Responsible Officer of the Trustee shall have
received written notice thereof from the Company or a Representative or a holder
of Senior Debt (including, without limitation, a holder of Designated Senior
Debt) and, prior to the receipt of any such written notice, the Trustee, subject
to the provisions of Section 6.1, shall be entitled in all respects to assume
that no such facts exist; provided, however, that if the Trustee shall not have
received the notice provided for in this Section 13.9 at least two Business Days
prior to the date upon which by the terms hereof any money may become payable
for any purpose (including, without limitation, the payment of the principal of
(and premium, if any) or interest (including Liquidated Damages, if any) on any
Security), then, anything herein contained to the contrary notwithstanding, the
Trustee shall have full power and authority to receive such money and to apply
the same to the purpose for which such money was received and shall not be
affected by any notice to the contrary which may be received by it within one
Business Day prior to such date.

     Notwithstanding anything in this Article XIII to the contrary, nothing
shall prevent any payment by the Trustee to the Holders of monies deposited with
it pursuant to Section 4.1, and any such payment shall not be subject to the
provisions of Section 13.2 or 13.3.

     Subject to the provisions of Section 6.1, the Trustee shall be entitled to
rely on the delivery to it of a written notice by a Person representing himself
to be a Representative or a holder of Senior Debt (including, without
limitation, a holder of Designated Senior Debt) to establish that such notice
has been given by a Representative or a holder of Senior Debt (including,
without limitation, a holder of Designated Senior Debt). In the event that the
Trustee determines in good faith that further evidence is required with respect
to the right of any Person as a holder of Senior Debt to participate in any
payment or distribution pursuant to this Article, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of Senior Debt held by such Person, the extent to which such Person
is entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.

SECTION 13.10  Reliance on Judicial Order or Certificate of Liquidation Agent.
               --------------------------------------------------------------

     Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee, subject to the provisions of Section 6.1, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders of Securities, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Debt 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.

                                                                            -90-
<PAGE>

SECTION 13.11  Trustee Not Fiduciary for holders of Senior Debt.
               ------------------------------------------------

     The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Debt and shall not be liable to any such holders if it shall in good
faith mistakenly pay over or distribute to Holders of Securities or to the
Company or to any other Person cash, property or securities to which any holders
of Senior Debt shall be entitled by virtue of this Article or otherwise.

SECTION 13.12  Reliance by Holders of Senior Debt on Subordination Provisions.
               --------------------------------------------------------------

     Each Holder by accepting a Security 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 Debt, whether such Senior Debt
was created or acquired before or after the issuance of the Securities, to
acquire and continue to hold, or to continue to hold, such Senior Debt and such
holder of Senior Debt shall be deemed conclusively to have relied on such
subordination provisions in acquiring and continuing to hold, or in continuing
to hold, such Senior Debt, and no amendment or modification of the provisions
contained herein shall diminish the rights of such holders of Senior Debt unless
such holders shall have agreed in writing thereto.

SECTION 13.13  Rights of Trustee as Holder of Senior Debt; Preservations of
               ------------------------------------------------------------
Trustee's Rights.
----------------

     The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article with respect to any Senior Debt which may at any time
be held by it, to the same extent as any other holder of Senior Debt, and
nothing in this Indenture shall deprive the Trustee of any of its rights as such
holder.

     Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 6.7.

SECTION 13.14  Article Applicable to Paying Agents.
               -----------------------------------

     In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article shall in such case (unless the context otherwise requires)
be construed as extending to and including such Paying Agent within its meaning
as fully for all intents and purposes as if such Paying Agent were named in this
Article in addition to or in place of the Trustee; provided, however, that
Section 13.13 shall not apply to the Company or any Affiliate of the Company if
it or such Affiliate acts as Paying Agent.

SECTION 13.15  Certain Conversions and Repurchases Deemed Payment.
               --------------------------------------------------

     For the purposes of this Article only, (i) the issuance and delivery of
junior securities upon conversion of Securities in accordance with Article XII
or upon the repurchase of Securities in

                                                                            -91-
<PAGE>

accordance with Article XIV shall not be deemed to constitute a payment or
distribution on account of the principal of or premium or interest (including
Liquidated Damages, if any) on Securities or on account of the purchase or other
acquisition of Securities, and (ii) the payment, issuance or delivery of cash
(except in satisfaction of fractional shares pursuant to Section 12.3 or
14.3(7)), property or securities (other than junior securities) upon conversion
of a Security shall be deemed to constitute payment on account of the principal
of such Security. For the purposes of this Section, the term "junior securities"
means (a) shares of any stock of any class of the Company and securities into
which the Securities are convertible pursuant to Article XII and (b) securities
of the Company which are subordinated in right of payment to all Senior Debt
which may be outstanding at the time of issuance or delivery of such securities
to substantially the same extent as, or to a greater extent than, the Securities
are so subordinated as provided in this Article. Nothing contained in this
Article or elsewhere in this Indenture or in the Securities is intended to or
shall impair, as among the Company, its creditors other than holders of Senior
Debt and the Holders of the Securities, the right, which is absolute and
unconditional, of the Holder of any Security to convert such Security in
accordance with Article XII or to exchange such Security for Common Stock in
accordance with Article XIV if the Company elects to satisfy the obligations
under Article XIV by the delivery of Common Stock.

                                  ARTICLE XIV
                 REPURCHASE OF SECURITIES AT THE OPTION OF THE
                        HOLDER UPON A CHANGE IN CONTROL

SECTION 14.1   Right to Require Repurchase.
               ---------------------------

     In the event that a Change in Control (as hereinafter defined) shall occur,
then each Holder shall have the right, at the Holder's option, but subject to
the provisions of Section 14.2, to require the Company to repurchase, and upon
the exercise of such right the Company shall repurchase, all of such Holder's
Securities not theretofore called for redemption, or any portion of the
principal amount thereof that is equal to U.S. $1,000 or any integral multiple
of U.S. $1,000 in excess thereof (provided that no single Security may be
repurchased in part unless the portion of the principal amount of such Security
to be Outstanding after such repurchase is equal to U.S. $1,000 or integral
multiples of U.S. $1,000 in excess thereof), on the date (the "Repurchase Date")
that is 45 days after the date of the Company Notice (as defined in Section
14.3) at a purchase price equal to 100% of the principal amount of the
Securities to be repurchased plus interest accrued to the Repurchase Date (the
"Repurchase Price"); provided, however, that installments of interest on
Securities whose Stated Maturity is on or prior to the Repurchase Date shall be
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such on the relevant Record Date according to their
terms and the provisions of Section 3.7. Such right to require the repurchase of
the Securities shall not continue after a discharge of the Company from its
obligations with respect to the Securities in accordance with Article IV, unless
a Change in Control shall have occurred prior to such discharge. At the option
of the Company, the Repurchase Price may be paid in cash or, subject to the
fulfillment by the Company of the conditions set forth Section 14.2, by delivery
of shares of Common Stock having a fair market value equal to the Repurchase
Price. Whenever in this Indenture (including Sections 2.2, 3.1, 5.1(1) and 5.8)
there is a reference, in any context, to the principal of any Security as of any
time, such reference shall be deemed to include reference to the

                                                                            -92-
<PAGE>

Repurchase Price payable in respect of such Security to the extent that such
Repurchase Price is, was or would be so payable at such time, and express
mention of the Repurchase Price in any provision of this Indenture shall not be
construed as excluding the Repurchase Price in those provisions of this
Indenture when such express mention is not made; provided, however, that for the
purposes of Article XIII such reference shall be deemed to include reference to
the Repurchase Price only to the extent the Repurchase Price is payable in cash.

SECTION 14.2   Conditions to the Company's Election to Pay the Repurchase Price
               ----------------------------------------------------------------
in Common Stock.
---------------

     The Company may elect to pay the Repurchase Price by delivery of shares of
Common Stock pursuant to Section 14.1 if and only if the following conditions
shall have been satisfied:

     (1)  The shares of Common Stock deliverable in payment of the Repurchase
Price shall have a fair market value as of the Repurchase Date of not less than
the Repurchase Price. For purposes of Section 14.1 and this Section 14.2, the
fair market value of shares of Common Stock shall be determined by the Company
and shall be equal to 95% of the average of the Closing Prices Per Share of the
Common Stock for the five consecutive Trading Days immediately preceding and
including the third Trading Day prior to the Repurchase Date;

     (2)  The Repurchase Price shall be paid only in cash in the event any
shares of Common Stock to be issued upon repurchase of Securities hereunder (i)
require registration under any federal securities law before such shares may be
freely transferable without being subject to any transfer restrictions under the
Securities Act upon repurchase and if such registration is not completed or does
not become effective prior to the Repurchase Date, and/or (ii) require
registration with or approval of any governmental authority under any state law
or any other federal law before such shares may be validly issued or delivered
upon repurchase and if such registration is not completed or does not become
effective or such approval is not obtained prior to the Repurchase Date;

     (3)  Payment of the Repurchase Price may not be made in Common Stock unless
such stock is, or shall have been, approved for quotation on the Nasdaq National
Market or listed on a national securities exchange, in either case, prior to the
Repurchase Date; and

     (4)  All shares of Common Stock which may be issued upon repurchase of
Securities will be issued out of the Company's authorized but unissued Common
Stock and, will upon issue, be duly and validly issued and fully paid and non-
assessable and free of any preemptive or similar rights.

     If all of the conditions set forth in this Section 14.2 are not satisfied
in accordance with the terms thereof, the Repurchase Price shall be paid by the
Company only in cash.

SECTION 14.3   Notices; Method of Exercising Repurchase Right, Etc.
               ---------------------------------------------------

     (1)  Unless the Company shall have theretofore called for redemption all
of the Outstanding Securities, on or before the 30th day after the occurrence of
a Change in Control, the

                                                                            -93-
<PAGE>

Company or, at the request and expense of the Company on or before the 15th day
after such occurrence, the Trustee, shall give to all Holders of Securities, in
the manner provided in Section 1.6, notice (the "Company Notice") of the
occurrence of the Change of Control and of the repurchase right set forth herein
arising as a result thereof. The Company shall also deliver a copy of such
notice of a repurchase right to the Trustee.

     Each notice of a repurchase right shall state:

             (i)      the Repurchase Date,

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

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

             (iv)     a description of the procedure which a Holder must follow
to exercise a repurchase right, and the place or places where such Securities
are to be surrendered for payment of the Repurchase Price and accrued interest
(including Liquidated Damages, if any), if any to the Repurchase Date,

             (v)      that on the Repurchase Date the Repurchase Price, and
accrued interest (including liquidated Damages, if any), if any to the
Repurchase Date, will become due and payable upon each such Security designated
by the Holder to be repurchased, and that interest thereon shall cease to accrue
on and after said date,

             (vi)     the Conversion Rate then in effect, the date on which the
right to convert the principal amount of the Securities to be repurchased will
terminate and the place or places where such Securities may be surrendered for
conversion, and

             (vii)    the place or places that the Security certificate with the
Election of Holder to Require Repurchase as specified in Section 2.2 shall be
delivered, and if the Security is a Restricted Securities Certificate the place
or places that the Surrender Certificate required by Section 14.3(9) shall be
delivered.

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

     If any of the foregoing provisions or other provisions of this Article XIV
are inconsistent with applicable law, such law shall govern.

     (2)  To exercise a repurchase right, a Holder shall deliver to the Trustee
on or before the 30th day after the date of the Company Notice (i) irrevocable
written notice of the Holder's exercise of such right, which notice shall set
forth the name of the Holder, the principal amount of the Securities to be
repurchased (and, if any Security is to repurchased in part, the serial number
thereof,

                                                                            -94-
<PAGE>

the portion of the principal amount thereof to be repurchased and the name of
the Person in which the portion thereof to remain Outstanding after such
repurchase is to be registered) and a statement that an election to exercise the
repurchase right is being made thereby, and, in the event that the Repurchase
Price shall be paid in shares of Common Stock, the name or names (with
addresses) in which the certificate or certificates for shares of Common Stock
shall be issued, and (ii) the Securities with respect to which the repurchase
right is being exercised. Such written notice shall be irrevocable, except that
the right of the Holder to convert the Securities with respect to which the
repurchase right is being exercised shall continue until the close of business
on the Repurchase Date.

     (3)  In the event a repurchase right shall be exercised in accordance
with the terms hereof, the Company shall pay or cause to be paid to the Trustee
the Repurchase Price in cash or shares of Common Stock, as provided above, for
payment to the Holder on the Repurchase Date or, if shares of Common Stock are
to be paid, as promptly after the Repurchase Date as practicable, together with
accrued and unpaid interest to the Repurchase Date payable with respect to the
Securities as to which the repurchase right has been exercised; provided,
however, that installments of interest that mature on or prior to the Repurchase
Date shall be payable in cash to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Regular Record Date.

     (4)  If any Security (or portion thereof) surrendered for repurchase shall
not be so paid on the Repurchase Date, the principal amount of such Security (or
portion thereof, as the case may be) shall, until paid, bear interest to the
extent permitted by applicable law from the Repurchase Date at the rate of 5%
per annum, and each Security shall remain convertible into Common Stock until
the principal of such Security (or portion thereof, as the case may be) shall
have been paid or duly provided for.

     (5)  Any Security which is to be repurchased only in part shall be
surrendered to the Trustee (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and make available for delivery to the Holder of such
Security without service charge, a new Security or Securities, containing
identical terms and conditions, each in an authorized denomination in aggregate
principal amount equal to and in exchange for the unrepurchased portion of the
principal of the Security so surrendered.

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

                                                                            -95-
<PAGE>

adjustment shall be made for dividends or distributions on any Common Stock
issued upon repurchase of any Security declared prior to the Repurchase Date.

     (7)   No fractions of shares shall be issued upon repurchase of Securities.
If more than one Security shall be repurchased from the same Holder and the
Repurchase Price shall be payable in shares of Common Stock, the number of full
shares which shall be issuable upon such repurchase shall be computed on the
basis of the aggregate principal amount of the Securities so repurchased.
Instead of any fractional share of Common Stock which would otherwise be
issuable on the repurchase of any Security or Securities, the Company will
deliver to the applicable Holder its check for the current market value of such
fractional share. The current market value of a fraction of a share is
determined by multiplying the current market price of a full share by the
fraction, and rounding the result to the nearest cent. For purposes of this
Section, the current market price of a share of Common Stock is the Closing
Price Per Share of the Common Stock on the Trading Day immediately preceding the
Repurchase Date.

     (8)   Any issuance and delivery of certificates for shares of Common Stock
on repurchase of Securities shall be made without charge to the Holder of
Securities being repurchased for such certificates or for any tax or duty in
respect of the issuance or delivery of such certificates or the securities
represented thereby; provided, however, that the Company shall not be required
to pay any tax or duty which may be payable in respect of (i) income of the
Holder or (ii) any transfer involved in the issuance or delivery of certificates
for shares of Common Stock in a name other than that of the Holder of the
Securities being repurchased, and no such issuance or delivery shall be made
unless and until the Person requesting such issuance or delivery has paid to the
Company the amount of any such tax or duty or has established, to the
satisfaction of the Company, that such tax or duty has been paid.

     (9)   If shares of Common Stock to be delivered upon repurchase of a
Security are to be registered in a name other than that of the beneficial owner
of such Security, then such Holder must deliver to the Trustee a Surrender
Certificate, dated the date of surrender of such Restricted Security and signed
by such beneficial owner, as to compliance with the restrictions on transfer
applicable to such Restricted Security. Neither the Trustee nor any Registrar or
Transfer Agent or other agents shall be required to register in a name other
than that of the beneficial owner shares of Common Stock issued upon repurchase
of any such Restricted Security not so accompanied by a properly completed
Surrender Certificate.

     (10)  All Securities delivered for repurchase shall be delivered to the
Trustee to be canceled at the direction of the Trustee, which shall dispose of
the same as provided in Section 3.9.

SECTION 14.4   Certian Definitions.
               -------------------

     For purposes of this Article XIV,

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

                                                                            -96-
<PAGE>

     (2)  a "Change in Control" shall be deemed to have occurred at the time,
after the original issuance of the Securities, of:

           (i)   the acquisition by any Person (including any syndicate or group
deemed to be a "person" under Section 13(d)(3) of the Exchange Act) of
beneficial ownership, directly or indirectly, through a purchase, merger or
other acquisition transaction or series of transactions, of shares of capital
stock of the Company entitling such person to exercise 50% or more of the total
voting power of all shares of capital stock of the Company entitled to vote
generally in the elections of directors, other than any such acquisition by the
Company, any subsidiary of the Company or any employee benefit plan of the
Company; or

           (ii)  any consolidation of the Company with, or merger of the Company
into, any other Person, any merger of another Person into the Company, or any
conveyance, sale, transfer or lease of all or substantially all of the assets of
the Company to another Person (other than (a) any such transaction (x) which
does not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of capital stock of the Company and (y) pursuant to which the
holders of the Common Stock immediately prior to such transaction have the
entitlement to exercise, directly or indirectly, 50% or more of the total voting
power of all shares of capital stock entitled to vote generally in the election
of directors of the continuing or surviving corporation immediately after such
transaction and (b) any merger which is effected solely to change the
jurisdiction of incorporation of the Company and results in a reclassification,
conversion or exchange of outstanding shares of Common Stock into solely shares
of common stock); provided, however, that a Change in Control shall not be
deemed to have occurred if (I) the Closing Price Per Share of the Common Stock
for any five Trading Days within the period of 10 consecutive Trading Days
ending immediately after the later of the Change in Control or the public
announcement of the Change in Control (in the case of a Change in Control under
clause (i) above) or the period of 10 consecutive Trading Days ending
immediately before the Change in Control (in the case of a Change in Control
under clause (ii) above) shall equal or exceed 105% of the Conversion Price of
the Securities in effect on each such Trading Day or (II) all of the
consideration (excluding cash payments for fractional shares and cash payments
made pursuant to dissenters" appraisal rights) in a merger or consolidation
otherwise constituting a Change of Control under clause (i) and/or clause (ii)
above consists of shares of common stock traded on a national securities
exchange or quoted on the Nasdaq National Market (or will be so traded or quoted
immediately following such merger or consolidation) and as a result of such
merger or consolidation the notes become convertible into such common stock.

     (3)  the term "Conversion Price" shall equal U.S.$1,000 divided by the
Conversion Rate (rounded to the nearest cent); and

     (4)  for purposes of Section 14.4(2)(i), the term "person" shall include
any syndicate or group which would be deemed to be a "person" under Section
13(d)(3) of the Exchange Act, as in effect on the date of the original execution
of this Indenture.

SECTION 14.5   Consolidated, Merger, Etc.
               -------------------------

                                                                            -97-
<PAGE>

     In the case of any merger, consolidation, conveyance, sale, transfer or
lease of all or substantially all of the assets of the Company to which Section
12.11 applies, in which the Common Stock of the Company is changed or exchanged
as a result into the right to receive shares of stock and other securities or
property or assets (including cash) which includes shares of Common Stock of the
Company or common stock of another Person that are, or upon issuance will be,
traded on a United States national securities exchange or approved for trading
on an established automated over-the-counter trading market in the United States
and such shares constitute at the time such change or exchange becomes effective
in excess of 50% of the aggregate fair market value of such shares of stock and
other securities, property and assets (including cash) (as determined by the
Company, which determination shall be conclusive and binding), then the Person
formed by such consolidation or resulting from such merger or combination or
which acquires the properties or assets (including cash) of the Company, as the
case may be, shall execute and deliver to 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) modifying the provisions of this
Indenture relating to the right of Holders to cause the Company to repurchase
the Securities following a Change in Control, including without limitation the
applicable provisions of this Article XIV and the definitions of the Common
Stock and Change in Control, as appropriate, and such other related definitions
set forth herein as determined in good faith by the Company (which determination
shall be conclusive and binding), to make such provisions apply in the event of
a subsequent Change in Control to the common stock and the issuer thereof if
different from the Company and Common Stock of the Company (in lieu of the
Company and the Common Stock of the Company).

                                  ARTICLE XV
        HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY; NON-RECOURSE

SECTION 15.1   Company to Furnish Trustee Names and Addresses of Holders.
               ---------------------------------------------------------

     The Company will furnish or cause to be furnished to the Trustee:

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

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

     provided, however, that no such list need be furnished so long as the
Trustee is acting as Security Registrar.

SECTION 15.2   Preservation of Information.
               ---------------------------

     (1)  The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 15.1 and the names and
addresses of Holders received by the Trustee in its capacity as

                                                                            -98-
<PAGE>

Security Registrar. The Trustee may destroy any list, if any, furnished to it as
provided in Section 15.1 upon receipt of a new list so furnished.

     (2)  After this Indenture has been qualified under the Trust Indenture
Act, the rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights ,and duties of the Trustee, shall be as provided by the Trust Indenture
Act.

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

SECTION 15.3   Reserved.
               --------

SECTION 15.4   Reports by Trustee.
               ------------------

     (1)  After this Indenture has been qualified under the Trust Indenture
Act, the Trustee shall transmit to Holders such reports concerning the Trustee
and its actions under this Indenture as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant thereto.

     (2)  After this Indenture has been qualified under the Trust Indenture
Act, a copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when the Securities are listed on any stock exchange.

SECTION 15.5   Reports by Company.
               ------------------

     After this Indenture has been qualified under the Trust Indenture Act, the
Company shall file with the Trustee and the Commission, and transmit to Holders,
such information, documents and other reports, and such summaries thereof, as
may be required pursuant to the Trust Indenture Act at the times and in the
manner provided pursuant to such Act; provided that any such information,
documents or reports required to be filed with the Commission pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with
the Trustee within 15 days after the same is so required to be filed with the
Commission.

                                  ARTICLE XVI
        IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS

SECTION 16.1   Indenture and Securities Solely Corporate Obligations.
               -----------------------------------------------------

     No recourse for the payment of the principal of or premium, if any, or
interest on any Security and no recourse under or upon any obligation, covenant
or agreement of the Company in this Indenture or in any supplemental indenture
or in any Security, or because of the creation of any

                                                                            -99-
<PAGE>

indebtedness represented thereby, shall be had against any incorporator,
stockholder, employee, agent, officer, or director or subsidiary, as such, past,
present or future, of the Company or of any successor corporation, 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 waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issue of the
Securities.

     This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.

                                                                           -100-
<PAGE>

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

                                   RATIONAL SOFTWARE CORPORATION

                                   By:_______________________________
                                   Name:
                                   Title:

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

                                   By:_______________________________
                                   Name:
                                   Title:
<PAGE>

             ANNEX A -- Form of Restricted Securities Certificate

     RESTRICTED SECURITIES CERTIFICATE (For transfers pursuant to Section
3.5(2)(ii) and (iii) of the Indenture)

State Street Bank and Trust Company of California, N.A.
Corporate Trust Department
633 West 5th Street - 12th Floor
Los Angeles, CA  90071

     Re:  5% CONVERTIBLE SUBORDINATED NOTES DUE FEBRUARY 1, 2007 OF RATIONAL
          SOFTWARE CORPORATION (THE "SECURITIES")

          Reference is made to the Indenture, dated as of February 2, 2000 (the
"Indenture"), from Rational Software Corporation (the "Company") to State Street
Bank and Trust Company of California, N.A., as Trustee. Terms used herein and
defined in the Indenture or Rule 144 under the U.S. Securities Act of 1933 (the
"Securities Act") are used herein as so defined.

          This certificate relates to U.S. $________ principal amount of
Securities, which are evidenced by the following certificate(s) (the "Specified
Securities"):

          CUSIP No.  [_____________]

          CERTIFICATE No(s). ________

          The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Depositary or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner. If the Specified Securities are not represented by a
Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.

          The Owner has requested that the Specified Securities be transferred
to a person (the "Transferee") who will take delivery in the form of a
Restricted Security. In connection with such transfer, the Owner hereby
certifies that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, it is being effected in
accordance with Rule 144A, to a institutional "accredited investor" within the
meaning of Rule 501(A)(1), (2), (3) or (7), or pursuant to another exemption
from registration under the Securities Act (if available) or Rule 144 under the
Securities Act and all applicable securities laws of the states of the United
States and other jurisdictions. Accordingly, the Owner hereby further certifies
as:
<PAGE>

     (1)  RULE 144A TRANSFERS. If the transfer is being effected in accordance
with Rule 144A:

          (A)  the Specified Securities are being transferred to a person that
the Owner and any person acting on its behalf reasonably believe is a "qualified
institutional buyer" within the meaning of Rule 144A, acquiring for its own
account or for the account of a qualified institutional buyer; and

          (B)  the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the Owner may be
relying on Rule 144A in connection with the transfer; and

     (2)  RULE 144 TRANSFERS. If the transfer is being effected pursuant to Rule
144:

          (A)  the transfer is occurring after a holding period of at least one
year (computed in accordance with paragraph (d) of Rule 144) has elapsed since
the date the Specified Securities were acquired from the Company or from an
affiliate (as such term is defined in Rule 144) of the Company, whichever is
later, and is being effected in accordance with the applicable amount, manner of
sale and notice requirements of paragraphs (e), (f) and (h) of Rule 144; or

          (B)  the transfer is occurring after a period of at least two years
has elapsed since the date the Specified Securities were acquired from the
Company or from an affiliate (as such term is defined in Rule 144) of the
Company, whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Company.

     (3)  INSTITUTIONAL ACCREDITED INVESTORS. If the transfer is to an
institutional investor that is an accredited investor within the meaning of Rule
501(A)(1), (2), (3) or (7) of Regulation D under the Securities Act, a signed
letter containing certain representations and agreements relating to the
restrictions on transfer of the Securities and, if such transfer is for less
than an aggregate principal amount of $250,000, an opinion of counsel acceptable
to the Company if requested by the Company, that the transfer is exempt from
registration, must be supplied to the Trustee prior to such transfer.

     (4)  TRANSFERS PURSUANT TO OTHER SECURITY ACT EXEMPTIONS. If the transfer
is being effected pursuant to a Security Act Exemption other than ones set forth
in (1) through (3) above, there shall be delivered to the Company an opinion of
counsel with respect to such holders.

          This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Initial Purchasers.

Dated: ___________

          Print the name of the Undersigned, as such term is defined in the
second paragraph of this certificate.)

                                                                             -2-
<PAGE>

By:_______________________________

Name:_____________________________

Title:____________________________

(If the Undersigned is a corporation, partnership or fiduciary, the title of the
person signing on behalf of the Undersigned must be stated.)

                                                                             -3-
<PAGE>

            ANNEX B -- Form of Unrestricted Securities Certificate

                      UNRESTRICTED SECURITIES CERTIFICATE

   (For removal of Restricted Securities Legend pursuant to Section 3.5(3))

State Street Bank and Trust Company of California, N.A.
Corporate Trust Department
633 West 5th Street - 12th Floor
Los Angeles, CA  90071

     RE:  5% CONVERTIBLE SUBORDINATED NOTES DUE FEBRUARY 1, 2007 OF RATIONAL
             SOFTWARE CORPORATION (THE "SECURITIES")

             Reference is made to the Indenture, dated as of February 2, 2000
(the "Indenture"), from Rational Software Corporation (the "Company") to State
Street Bank and Trust Company of California, N.A., as Trustee. Terms used herein
and defined in the Indenture or in Rule 144 under the U.S. Securities Act of
1933 (the "Securities Act") are used herein as so defined.

             This certificate relates to U.S.$_______________ principal amount
of Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):

             CUSIP No.  [_________]

             CERTIFICATE No(s). _________________

             The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Depositary or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner. If the Specified Securities are not represented by a
Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.

             The Owner has requested that the Specified Securities be exchanged
for Securities bearing no Restricted Securities Legend pursuant to Section
3.5(3) of the Indenture. In connection with such exchange, the Owner hereby
certifies that the exchange is occurring after a period of at least two years
has elapsed since the date the Specified Securities were acquired from the
Company or from an "affiliate" (as such term is defined in Rule 144) of the
Company, whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the
<PAGE>

Company. The Owner also acknowledges that any future transfers of the Specified
Securities must comply with all applicable securities laws of the states of the
United States and other jurisdictions.

          This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Initial Purchasers.

Dated: ______________

(Print the name of the Undersigned, as such term is defined in the second
paragraph of this certificate.)

By:_______________________________

Name:_____________________________

Title:____________________________

(If the Undersigned is a corporation, partnership or fiduciary, the title of the
person signing on behalf of the Undersigned must be stated.)

                                                                             -2-
<PAGE>

                   ANNEX C -- Form of Surrender Certificate

          In connection with the certification contemplated by Section 12.2 or
14.3(9) relating to compliance with certain restrictions relating to transfers
of Restricted Securities, such certification shall be provided substantially in
the form of the following certificate, with only such changes thereto as shall
be approved by the Company and Goldman, Sachs & Co.:

                                  CERTIFICATE

                         RATIONAL SOFTWARE CORPORATION

                   5% CONVERTIBLE NOTES DUE FEBRUARY 1, 2007

          This is to certify that as of the date hereof with respect to U.S.
$______ principal amount of the above-captioned securities surrendered on the
date hereof (the "Surrendered Securities") for registration of transfer, or for
conversion or repurchase where the securities issuable upon such conversion or
repurchase are to be registered in a name other than that of the undersigned
Holder (each such transaction being a "transfer"), the undersigned Holder (as
defined in the Indenture) certifies that the transfer of Surrendered Securities
associated with such transfer complies with the restrictive legend set forth on
the face of the Surrendered Securities for the reason checked below:

_________      The transfer of the Surrendered Securities complies with Rule
               144A under the Securities Act; or

_________      The transfer of the Surrendered Securities complies with Rule
               144 under the United States Securities Act of 1933, as amended
               (the "Securities Act"); or

_________      The transfer of the Surrendered Securities has been made to an
               institution that is an "accredited investor" within the meaning
               of Rule 501(a)(1), (2), (3) or (7) under the Securities Act in a
               transaction exempt from the registration requirements of the
               Securities Act and a signed letter containing certain
               representations and agreements relating to restrictions on
               transfer of the Securities (and if such transfer is for an
               aggregate principal amount less than $250,000, an opinion of
               counsel acceptable to the Company if requested by the Company,
               that such transfer is exempt from registration; or

_________      The transfer of the Surrendered Securities has been made pursuant
               to an exemption from registration under the Securities Act and an
               opinion of counsel has been delivered to the Company with respect
               to such transfer.

[to come]

[Name of Holder]

Dated:____________________________
*To be dated the date of surrender

                                                                             -2-

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