Document:

Exhibit 4.19

 

ISIS PHARMACEUTICALS, INC.

and

WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION

as
Trustee

INDENTURE

Dated as of May 1, 2002

 

 

$125,000,000 Principal Amount

(Plus Over-allotment Option)

5 1⁄2% CONVERTIBLE
SUBORDINATED NOTES DUE 2009

 

 

 

 

CROSS-REFERENCE TABLE

 

	
  TIA

  Section

  	
   

  	
  Indenture

  Section

  
	
   

  	
   

  	
   

  	
   

  
	
  310

  	
  (a)(1)

  	
   

  	
  7.10

  
	
   

  	
  (a)(2)

  	
   

  	
  7.10

  
	
   

  	
  (a)(3)

  	
   

  	
  N.A.

  
	
   

  	
  (a)(4)

  	
   

  	
  N.A.

  
	
   

  	
  (b)

  	
   

  	
  7.08;
  7.10; 12.02

  
	
   

  	
  (c)

  	
   

  	
  N.A.

  
	
  311

  	
  (a)

  	
   

  	
  7.11

  
	
   

  	
  (b)

  	
   

  	
  7.11

  
	
   

  	
  (c)

  	
   

  	
  N.A.

  
	
  312

  	
  (a)

  	
   

  	
  2.05

  
	
   

  	
  (b)

  	
   

  	
  12.03

  
	
   

  	
  (c)

  	
   

  	
  12.03

  
	
  313

  	
  (a)

  	
   

  	
  7.06

  
	
   

  	
  (b)(1)

  	
   

  	
  N.A.

  
	
   

  	
  (b)(2)

  	
   

  	
  7.06

  
	
   

  	
  (c)

  	
   

  	
  7.06;
  12.02

  
	
   

  	
  (d)

  	
   

  	
  7.06

  
	
  314

  	
  (a)

  	
   

  	
  4.03

  
	
   

  	
  (b)

  	
   

  	
  N.A.

  
	
   

  	
  (c)(1)

  	
   

  	
  12.04

  
	
   

  	
  (c)(2)

  	
   

  	
  12.04

  
	
   

  	
  (c)(3)

  	
   

  	
  N.A.

  
	
   

  	
  (d)

  	
   

  	
  N.A.

  
	
   

  	
  (e)

  	
   

  	
  12.05

  
	
   

  	
  (f)

  	
   

  	
  N.A.

  
	
  315

  	
  (a)

  	
   

  	
  7.01(B)

  
	
   

  	
  (b)

  	
   

  	
  7.05;
  12.02

  
	
   

  	
  (c)

  	
   

  	
  7.01(A)

  
	
   

  	
  (d)

  	
   

  	
  7.01(C)

  
	
   

  	
  (e)

  	
   

  	
  6.11

  
	
  316

  	
  (a)(last
  sentence)

  	
   

  	
  2.09

  
	
   

  	
  (a)(1)(A)

  	
   

  	
  6.05

  
	
   

  	
  (a)(1)(B)

  	
   

  	
  6.04

  
	
   

  	
  (a)(2)

  	
   

  	
  N.A.

  
	
   

  	
  (b)

  	
   

  	
  6.07

  
	
  317

  	
  (a)(1)

  	
   

  	
  6.08

  
	
   

  	
  (a)(2)

  	
   

  	
  6.09

  
	
   

  	
  (b)

  	
   

  	
  2.04

  
	
  318

  	
  (a)

  	
   

  	
  12.01

  

 

N.A.
means Not Applicable

Note:                   This Cross-Reference Table
shall npt, for any purpose, be deemed to be a part of the Indenture

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  
	
  I.              DEFINITIONS AND INCORPORATION BY
  REFERENCE

  
	
   

  
	
  1.01 Definitions.

  	
   

  	
   

  
	
  1.02 Other Definitions.

  	
   

  	
   

  
	
  1.03
  Incorporation by Reference of Trust Indenture Act.

  	
   

  	
   

  
	
  1.04
  Rules of Construction.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  II.            THE
  SECURITIES

  
	
   

  	
   

  	
   

  
	
  2.01 Form and Dating.

  	
   

  	
   

  
	
  2.02 Execution and
  Authentication.

  	
   

  	
   

  
	
  2.03 Registrar, Paying Agent and Conversion
  Agent.

  	
   

  	
   

  
	
  2.04 Paying Agent
  To Hold Money in Trust.

  	
   

  	
   

  
	
  2.05
  Securityholder Lists.

  	
   

  	
   

  
	
  2.06
  Transfer and Exchange.

  	
   

  	
   

  
	
  2.07
  Replacement Securities.

  	
   

  	
   

  
	
  2.08
  Outstanding Securities.

  	
   

  	
   

  
	
  2.09
  Securities Held by the Company or an Affiliate.

  	
   

  	
   

  
	
  2.10
  Temporary Securities.

  	
   

  	
   

  
	
  2.11 Cancellation.

  	
   

  	
   

  
	
  2.12
  Defaulted Interest.

  	
   

  	
   

  
	
  2.13 CUSIP Numbers.

  	
   

  	
   

  
	
  2.14 Deposit of Moneys.

  	
   

  	
   

  
	
  2.15
  Book-Entry Provisions for Global Securities.

  	
   

  	
   

  
	
  2.16 Special Transfer
  Provisions.

  	
   

  	
   

  
	
  2.17 Restrictive
  Legends.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  III.           REDEMPTION

  
	
   

  	
   

  	
   

  
	
  3.01
  Right of Redemption.

  	
   

  	
   

  
	
  3.02 Notices to Trustee.

  	
   

  	
   

  
	
  3.03 Selection
  of Securities to Be Redeemed.

  	
   

  	
   

  
	
  3.04
  Notice of Redemption.

  	
   

  	
   

  
	
  3.05 Effect of Notice of
  Redemption.

  	
   

  	
   

  
	
  3.06 Deposit of Redemption
  Price.

  	
   

  	
   

  
	
  3.07 Securities Redeemed in
  Part.

  	
   

  	
   

  
	
  3.08
  Repurchase at Option of Holder upon a Change in Control.

  	
   

  	
   

  
	
  3.09
  Conversion Arrangement on Call for Redemption.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IV.           COVENANTS

  
	
   

  	
   

  	
   

  
	
  4.01
  Payment of Securities.

  	
   

  	
   

  

 

i

 

	
  4.02 Maintenance of
  Office or Agency.

  	
   

  	
   

  
	
  4.03 Reports.

  	
   

  	
   

  
	
  4.04
  Compliance Certificate.

  	
   

  	
   

  
	
  4.05 Stay, Extension and
  Usury Laws.

  	
   

  	
   

  
	
  4.06
  Corporate Existence.

  	
   

  	
   

  
	
  4.07 Notice of Default.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  V.            SUCCESSORS

  
	
   

  	
   

  	
   

  
	
  5.01
  When Company May Merge, etc.

  	
   

  	
   

  
	
  5.02
  Successor Substituted.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  VI.           DEFAULTS AND REMEDIES

  
	
   

  
	
  6.01 Events of Default.

  	
   

  	
   

  
	
  6.02 Acceleration.

  	
   

  	
   

  
	
  6.03 Other Remedies.

  	
   

  	
   

  
	
  6.04
  Waiver of Past Defaults.

  	
   

  	
   

  
	
  6.05
  Control by Majority.

  	
   

  	
   

  
	
  6.06
  Limitation on Suits.

  	
   

  	
   

  
	
  6.07 Rights of
  Holders to Receive Payment.

  	
   

  	
   

  
	
  6.08 Collection Suit by
  Trustee.

  	
   

  	
   

  
	
  6.09 Trustee May File
  Proofs of Claim.

  	
   

  	
   

  
	
  6.10 Priorities.

  	
   

  	
   

  
	
  6.11
  Undertaking for Costs.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  VII.          TRUSTEE

  
	
   

  
	
  7.01 Duties of Trustee.

  	
   

  	
   

  
	
  7.02 Rights of Trustee.

  	
   

  	
   

  
	
  7.03 Individual Rights of
  Trustee.

  	
   

  	
   

  
	
  7.04 Trustee’s
  Disclaimer.

  	
   

  	
   

  
	
  7.05 Notice of Defaults.

  	
   

  	
   

  
	
  7.06 Reports by Trustee
  to Holders.

  	
   

  	
   

  
	
  7.07 Compensation and
  Indemnity.

  	
   

  	
   

  
	
  7.08
  Replacement of Trustee.

  	
   

  	
   

  
	
  7.09 Successor Trustee by
  Merger, etc.

  	
   

  	
   

  
	
  7.10 Eligibility; Disqualification.

  	
   

  	
   

  
	
  7.11
  Preferential Collection of Claims Against Company.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  VIII.        DISCHARGE OF INDENTURE

  
	
   

  
	
  8.01
  Termination of the Obligations of the Company.

  	
   

  	
   

  
	
  8.02 Application of Trust
  Money.

  	
   

  	
   

  
	
  8.03
  Repayment to Company.

  	
   

  	
   

  
	
  8.04 Reinstatement.

  	
   

  	
   

  

 

ii

 

	
   

  	
   

  	
   

  
	
  IX.           AMENDMENTS

  
	
   

  
	
  9.01 Without Consent of
  Holders.

  	
   

  	
   

  
	
  9.02
  With Consent of Holders.

  	
   

  	
   

  
	
  9.03 Compliance
  with Trust Indenture Act.

  	
   

  	
   

  
	
  9.04 Revocation and
  Effect of Consents.

  	
   

  	
   

  
	
  9.05 Notation on
  or Exchange of Securities.

  	
   

  	
   

  
	
  9.06 Trustee Protected.

  	
   

  	
   

  
	
  9.07 Effect of
  Supplemental Indenture

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  X.            CONVERSION

  
	
   

  
	
  10.01
  Conversion Privilege; Restrictive Legends.

  	
   

  	
   

  
	
  10.02
  Conversion Procedure.

  	
   

  	
   

  
	
  10.03 Fractional Shares.

  	
   

  	
   

  
	
  10.04
  Taxes on Conversion.

  	
   

  	
   

  
	
  10.05
  Company to Provide Stock.

  	
   

  	
   

  
	
  10.06 Adjustment of
  Conversion Rate.

  	
   

  	
   

  
	
  10.07 No Adjustment.

  	
   

  	
   

  
	
  10.08 Other Adjustments.

  	
   

  	
   

  
	
  10.09 Adjustments for Tax
  Purposes.

  	
   

  	
   

  
	
  10.10
  Notice of Adjustment.

  	
   

  	
   

  
	
  10.11 Notice of Certain
  Transactions.

  	
   

  	
   

  
	
  10.12 Effect of
  Reclassifications, Consolidations, Mergers, Binding Share Exhanges or Sales
  on Conversion Privilege.

  	
   

  	
   

  
	
  10.13 Trustee’s
  Disclaimer.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  XI.           SUBORDINATION

  
	
   

  
	
  11.01
  Agreement to Subordinate.

  	
   

  	
   

  
	
  11.02
  Certain Definitions.

  	
   

  	
   

  
	
  11.03 Liquidation; Dissolution; Bankruptcy.

  	
   

  	
   

  
	
  11.04
  Company Not To Make Payments with Respect to Securities in Certain
  Circumstances.

  	
   

  	
   

  
	
  11.05 Acceleration of Securities.

  	
   

  	
   

  
	
  11.06 When
  Distribution Must Be Paid Over.

  	
   

  	
   

  
	
  11.07 Notice by Company.

  	
   

  	
   

  
	
  11.08 Subrogation.

  	
   

  	
   

  
	
  11.09 Relative Rights.

  	
   

  	
   

  
	
  11.10
  Subordination May Not Be Impaired by Company.

  	
   

  	
   

  
	
  11.11
  Distribution or Notice to Representative.

  	
   

  	
   

  
	
  11.12 Rights of
  Trustee and Paying Agent.

  	
   

  	
   

  
	
  11.13 Officers’ Certificate.

  	
   

  	
   

  
	
  11.14 Obligation of
  Company Unconditional.

  	
   

  	
   

  
	
  11.15 Not to Prevent
  Events of Default.

  	
   

  	
   

  

 

iii

 

	
   

  	
   

  	
   

  
	
  XII.         MISCELLANEOUS

  
	
   

  	
   

  	
   

  
	
  12.01 Trust Indenture Act
  Controls.

  	
   

  	
   

  
	
  12.02 Notices.

  	
   

  	
   

  
	
  12.03
  Communication by Holders with Other Holders.

  	
   

  	
   

  
	
  12.04
  Certificate and Opinion as to Conditions Precedent.

  	
   

  	
   

  
	
  12.05
  Statements Required in Certificate or Opinion.

  	
   

  	
   

  
	
  12.06 Rules by Trustee and Agents.

  	
   

  	
   

  
	
  12.07 Legal Holidays.

  	
   

  	
   

  
	
  12.08 No Recourse Against
  Others.

  	
   

  	
   

  
	
  12.09
  Duplicate Originals.

  	
   

  	
   

  
	
  12.10 Governing Law.

  	
   

  	
   

  
	
  12.11 No
  Adverse Interpretation of Other Agreements.

  	
   

  	
   

  
	
  12.12 Successors.

  	
   

  	
   

  
	
  12.13 Separability.

  	
   

  	
   

  
	
  12.14 Table of Contents, Headings,
  etc.

  	
   

  	
   

  

 

 

Exhibit A                —            Form of Global Security

Exhibit B                —            Form of Legends

Exhibit C                —            Form of Transfer Certificate
—Regulation S

Exhibit D                —            Form of Transfer Certificate —
Registration Statement

 

iv

 

INDENTURE, dated as of
May 1, 2002 between ISIS PHARMACEUTICALS, INC., a Delaware corporation
(the “Company”),
and WELLS
FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, as trustee (the “Trustee”).

Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the Holders of the Company’s 5 1⁄2%
Convertible Subordinated Notes due 2009 (the “Securities”).

I.              DEFINITIONS AND INCORPORATION BY REFERENCE

 

1.01         DEFINITIONS.

 

“Affiliate”
means any person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company.  For this purpose, “control” shall mean the power to direct the
management and policies of a person through the ownership of securities, by contract
or otherwise.

“Agent”
means any Registrar, Paying Agent, Conversion Agent or co-registrar.

“Board
of Directors” means the board of directors of the Company or any
committee thereof authorized to act for it hereunder.

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

“Capital
Stock” means any and all shares, interests, participations or other
equivalents (however designated) of capital stock of the Company and all
warrants or options to acquire such capital stock.

“Common
Stock” means the common stock, par value $0.001 per share, of the
Company.

“Company”
means the party named as such above until a successor replaces it pursuant to
the applicable provision hereof and thereafter means the successor.

“Company
Request” or “Company Order” means a written request or
order signed on behalf of the Company by its chairman of the board, its
president, any vice president, its treasurer or an assistant treasurer, its
chief financial officer, its chief legal officer, its chief executive officer,
its comptroller, its secretary or an assistant secretary, and delivered to the
Trustee.

“conversion price” means, at a given point
in time, a fraction which numerator is one thousand (1,000) and which
denominator is the conversion rate, in effect at such time, as provided herein.

 

1

 

“Corporate
Trust Office of the Trustee” shall be at the address of the Trustee
specified in Section 12.02 or such other address as the Trustee may
give notice of to the Company.

“Daily
Market Price” means the price of a share of Common Stock on the
relevant date, determined (a) on the basis of the last reported sale price
regular way of the Common Stock as reported on the Nasdaq National Market (the
“NNM”),
or if the Common Stock is not then listed on the NNM, as reported on such
national securities exchange upon which the Common Stock is listed, or (b) if
there is no such reported sale on the day in question, on the basis of the
average of the closing bid and asked quotations regular way as so reported, or
(c) if the Common Stock is not listed on the NNM or on any national securities
exchange or automated quotation system, on the basis of the average of the high
bid and low asked quotations regular way on the day in question in the
over-the-counter market as reported by the National Association of Securities
Dealers Automated Quotation System, or if not so quoted, as reported by
National Quotation Bureau, Incorporated, or a similar organization.

“Default”
means any event which is, or after notice or passage of time or both would be,
an Event of Default.

“Depositary”
means The Depository Trust Company, its nominees and successors.

“Exchange
Act” means the Securities Exchange Act of 1934, as amended.

“Holder”
or “Securityholder”
means a person in whose name a Security is registered on the Registrar’s books.

“Indenture”
means this Indenture as amended, amended and restated, modified or supplemented
from time to time.

“Initial
Purchasers” means UBS Warburg LLC, Robertson Stephens, Inc., Needham
& Company, Inc. and Roth Capital Partners, LLC.

“interest”
includes liquidated damages, unless the context otherwise requires.

“liquidated
damages” has the meaning provided in the Registration Rights
Agreement.

“Maturity
Date” means May 1, 2009.

“Non-U.S.
Person” means a person who is not a U.S. person (as defined in
Regulation S pursuant to the Securities Act).

“Officer”
means the chairman of the board, the president, any vice president, the
treasurer, the chief financial officer, the chief legal officer, the chief executive
officer or the secretary of the Company.

“Officers’
Certificate” means a certificate signed by two Officers or by an
Officer and an Assistant Treasurer or an Assistant Secretary of the Company and
delivered to the Trustee.

 

2

 

“Opinion
of Counsel” means a written opinion from legal counsel who may be an
employee of or counsel for the Company, or other counsel reasonably acceptable
to the Trustee.

“person”
means any individual, corporation, partnership, limited liability company,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or other agency or political subdivision thereof.

“Physical
Securities” means permanent certificated Securities in registered
form in substantially the form set forth in Exhibit A which, if
applicable, bears any legends required by Section 2.17.

“Purchase
Agreement” means the Purchase Agreement dated as of April 26, 2002
between the Company and the Initial Purchasers.

“QIB”
means a “qualified institutional buyer” within the meaning of Rule 144A under
the Securities Act.

“Redemption
Price” means, with respect to a Security to be redeemed by the
Company in accordance with Section 3.01, the percentage of the
outstanding principal amount of such Security payable by the Company upon such
redemption.

“Registration
Rights Agreement” means the Registration Rights Agreement dated as
of May 1, 2002 between the Company and the Initial Purchasers.

“Regulation S”
means Regulation S under the Securities Act.

“Repurchase
Price” means, with respect to a Security duly tendered for purchase
by the Company in accordance with Section 3.08, 100% of the outstanding
principal amount of such Security so tendered.

“Restricted
Security” means a Security required to bear the restrictive legend
in the form set forth in Exhibit B-1 and Exhibit B-2 of this Indenture
that constitutes a “restricted security” within the meaning of
Rule 144(a)(3) under the Securities Act; provided, however,
that the Trustee shall be entitled to request and conclusively rely on an
Opinion of Counsel with respect to whether any Security constitutes a
Restricted Security.

“Rule 144A”
means Rule 144A under the Securities Act.

“Rule 144A
Global Security” means a permanent Global Security in the form of
the Security attached hereto as Exhibit A and that is deposited with the
Depositary and registered in the name of the Depositary representing the
aggregate principal amount of Securities sold in reliance on Rule 144A.

“SEC”
means the Securities and Exchange Commission.

“Securities”
means the 5 1⁄2% Convertible Subordinated Notes due 2009 or any of them (each, a
“Security”) issued by the Company pursuant to this Indenture, as amended or
supplemented from time to time.

 

3

 

“Securities
Act” means the Securities Act of 1933, as amended.

“Securityholder”
has the meaning given to such term in the Registration Rights Agreement.

“subsidiary”
means (i) a corporation a majority of whose capital stock with voting
power, under ordinary circumstances, to elect directors is at the time owned by
the Company, one or more of its subsidiaries or the Company and one or more of
its subsidiaries, directly or indirectly, or (ii) any other person (other
than a corporation) in which the Company, one or more of its subsidiaries or
the Company and one or more its subsidiaries, directly or indirectly, at the
date of determination thereof, have at least majority ownership interest.

“tender
offer” means both tender offers and exchange offers, all references
to “purchases” of shares in tender offers (and all similar references) mean
both the purchase of shares in tender offers and the acquisition of shares
pursuant to exchange offers and all references to “tendered shares” (and all similar
references) mean shares tendered in both tender offers and exchange offers.

“TIA”
means the Trust Indenture Act of 1939 (15 U.S. Code §§ 77aaa-77bbbb) as in
effect on the date of this Indenture, except as provided in Section 9.03.

“Trustee”
means the party named as such in this Indenture until a successor replaces it
in accordance with the provisions hereof and thereafter means the successor.

“Trust
Officer” means any officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.

1.02         OTHER DEFINITIONS.

 

	
  Term

  	
   

  	
  Defined in
  Section

  	
   

  
	
  “Additional Securities”

  	
   

  	
  2.01

  	
   

  
	
  “Bankruptcy Law”

  	
   

  	
  6.01

  	
   

  
	
  “business day”

  	
   

  	
  12.07

  	
   

  
	
  “Change in Control”

  	
   

  	
  3.08

  	
   

  
	
  “Change in Control Notice”

  	
   

  	
  3.08

  	
   

  
	
  “Combined Amount”

  	
   

  	
  10.06

  	
   

  
	
  “Commencement
  Date”

  	
   

  	
  10.06

  	
   

  
	
  “Conversion Agent”

  	
   

  	
  2.03

  	
   

  
	
  “conversion date”

  	
   

  	
  10.02

  	
   

  
	
  “Custodian”

  	
   

  	
  6.01

  	
   

  
	
  “Determination Date”

  	
   

  	
  10.06

  	
   

  
	
  “Distribution Declaration Date”

  	
   

  	
  10.06

  	
   

  
	
  “Event of Default”

  	
   

  	
  6.01

  	
   

  
	
  “Expiration Date”

  	
   

  	
  10.06

  	
   

  
	
  “Expiration Time”

  	
   

  	
  10.06

  	
   

  
	
  “Global Security”

  	
   

  	
  2.01

  	
   

  
	
  “Incumbent Board”

  	
   

  	
  3.08

  	
   

  
					

 

4

 

	
  “Indebtedness”

  	
   

  	
  11.02

  	
   

  
	
  “Legal Holiday”

  	
   

  	
  12.07

  	
   

  
	
  “Make-Whole Payment”

  	
   

  	
  3.01

  	
   

  
	
  “NNM”

  	
   

  	
  1.01

  	
   

  
	
  “Notice Date”

  	
   

  	
  3.01

  	
   

  
	
  “Participants”

  	
   

  	
  2.15

  	
   

  
	
  “Paying Agent”

  	
   

  	
  2.03

  	
   

  
	
  “Payment Blockage”

  	
   

  	
  11.04

  	
   

  
	
  “Payment Blockage Notice”

  	
   

  	
  11.04

  	
   

  
	
  “Private Placement Legend”

  	
   

  	
  2.17

  	
   

  
	
  “Provisional Redemption”

  	
   

  	
  3.01

  	
   

  
	
  “Provisional Redemption Date”

  	
   

  	
  3.01

  	
   

  
	
  “Provisional Redemption Price”

  	
   

  	
  3.01

  	
   

  
	
  “Purchased Shares”

  	
   

  	
  10.06

  	
   

  
	
  “Registrar”

  	
   

  	
  2.03

  	
   

  
	
  “Representative”

  	
   

  	
  11.02

  	
   

  
	
  “Repurchase Date”

  	
   

  	
  3.08

  	
   

  
	
  “Repurchase Right”

  	
   

  	
  3.08

  	
   

  
	
  “Senior Indebtedness”

  	
   

  	
  11.02

  	
   

  
	
  “Triggering Distribution”

  	
   

  	
  10.06

  	
   

  
	
  “U.S. Government Obligations”

  	
   

  	
  8.01

  	
   

  

 

1.03         INCORPORATION BY
REFERENCE OF TRUST INDENTURE ACT.

 

Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.

The following TIA terms used in this Indenture have the following
meanings:

“Commission” means the SEC;

“indenture securities” means
the Securities;

“indenture security holder”
means a Securityholder or a Holder;

“indenture to be qualified”
means this Indenture;

“indenture trustee” or “institutional
trustee” means the Trustee; and

“obligor”
on the indenture securities means the Company or any successor.

All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA and not otherwise defined herein have the meanings so assigned to them.

1.04         RULES OF
CONSTRUCTION.

 

Unless the context otherwise requires:

(i)            a
term has the meaning assigned to it;

 

5

 

(ii)           an
accounting term not otherwise defined has the meaning assigned to it in
accordance with generally accepted accounting principles in effect on the date
hereof;

(iii)          “or”
is not exclusive;

(iv)          words
in the singular include the plural and in the plural include the singular;

(v)           provisions
apply to successive events and transactions; and

(vi)          “herein,”
“hereof” and other words of similar import refer to this Indenture as a whole
and not to any particular Article, Section or other subdivision.

II.            THE
SECURITIES

 

2.01         FORM AND DATING.

 

The Securities and the Trustee’s certificate of authentication shall be
substantially in the form set forth in Exhibit A, which is incorporated in and
forms a part of this Indenture.  The Securities
may have notations, legends or endorsements required by law, stock exchange
rule or usage.  Each Security shall be
dated the date of its authentication.

The Securities are being offered and sold in reliance on Regulation S
under the Securities Act or to QIBs in reliance on Rule 144A under the
Securities Act and shall be issued initially in the form of one or more Global
Securities, substantially in the form set forth in Exhibit A (the “Global
Security”), deposited with the Trustee, as custodian for the
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided and bearing the legends set forth in Exhibits B-1 and B-2.  The aggregate principal amount of the Global
Security may from time to time be increased or decreased by adjustments made on
the records of the Trustee, as custodian for the Depositary, as hereinafter
provided; provided,
that in no event shall the aggregate principal amount of the Global Security or
Securities exceed $125,000,000, or $143,750,000 if the Initial Purchasers elect
to purchase Additional Securities pursuant to the over-allotment option
provided for in Section 1 of the Purchase Agreement (“Additional Securities”).

All Notes offered and sold in reliance on Regulation S shall remain in
the form of a Global Security for at least one year after the issue date of the
Securities.

2.02         EXECUTION AND AUTHENTICATION.

 

One Officer shall sign the Securities for the Company by manual or
facsimile signature.

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

 

6

 

A Security shall not be valid until authenticated by the manual
signature of the Trustee.  The signature
shall be conclusive evidence that the Security has been authenticated under
this Indenture.

Upon a written order of the Company signed by one Officer of the
Company, the Trustee shall authenticate Securities for original issue in the
principal amount of $125,000,000 and such additional principal amount, if any,
as shall be determined pursuant to the next sentence of this Section 2.02.  Upon receipt by the Trustee of an Officers’
Certificate stating that the Initial Purchasers have elected to purchase from
the Company a specified principal amount of Additional Securities, not to
exceed $18,750,000, pursuant to Section l of the Purchase Agreement,
the Trustee shall authenticate and deliver such specified principal amount of
Additional Securities to or upon the written order of the Company signed as
provided in the immediately preceding sentence.  Such Officers’ Certificate must be received by the Trustee not
later than the proposed date for delivery of such Additional Securities.  The aggregate principal amount of Securities
outstanding at any time may not exceed $143,750,000 except as provided in Section 2.07.

Upon a written order of the Company signed by two Officers or by an
Officer and an Assistant Treasurer of the Company, the Trustee shall
authenticate Securities not bearing the Private Placement Legend to be issued
to the transferee when sold pursuant to an effective registration statement
under the Securities Act as set forth in Section 2.16(D)

The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities.  An
authenticating agent may authenticate Securities whenever the Trustee may do
so.  Each reference in this Indenture to
authentication by the Trustee includes authentication by such Agent.  An authenticating agent has the same rights
as an Agent to deal with the Company and its Affiliates.

The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 principal amount and any positive
integral multiple thereof.

2.03         REGISTRAR, PAYING AGENT AND CONVERSION
AGENT.

 

The Company shall maintain an office or agency where Securities may be
presented for registration of transfer or for exchange (“Registrar”), an office or
agency where Securities may be presented for payment (“Paying Agent”) and an office
or agency where Securities may be presented for conversion (“Conversion Agent”).  The Registrar shall keep a register of the
Securities and of their transfer and exchange. 
The Company may appoint or change one or more co-registrars, one or more
additional paying agents and one or more additional conversion agents without
notice and may act in any such capacity on its own behalf.  The term “Registrar” includes any
co-registrar; the term “Paying Agent” includes any additional
paying agent; and the term “Conversion Agent” includes any additional
conversion agent.

The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. 
The agreement shall implement the provisions of this Indenture that
relate to such Agent.  The Company shall
notify the Trustee of the name and address of any 

7

 

Agent not a party to this Indenture.  If the Company fails to maintain a
Registrar, Paying Agent or Conversion Agent, the Trustee shall act as such.

The Company initially appoints the Trustee as Paying Agent, Registrar
and Conversion Agent.

2.04         PAYING AGENT TO HOLD MONEY IN TRUST.

 

Each Paying Agent shall hold in trust for the benefit of the
Securityholders or the Trustee all moneys held by the Paying Agent for the
payment of the Securities, and shall notify the Trustee of any default by the
Company in making any such payment. 
While any such default continues, the Trustee may require a Paying Agent
to pay all money held by it to the Trustee. 
The Company at any time may require a Paying Agent to pay all money held
by it to the Trustee.  Upon payment over
to the Trustee, the Paying Agent shall have no further liability for the
money.  If the Company acts as Paying
Agent, it shall segregate and hold as a separate trust fund all money held by
it as Paying Agent.

2.05         SECURITYHOLDER
LISTS.

 

The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders.  If the Trustee is not
the Registrar, the Company shall furnish to the Trustee on or before each
interest payment date and at such other times as the Trustee may request in
writing a list, in such form and as of such date as the Trustee may reasonably
require, of the names and addresses of Securityholders.

2.06         TRANSFER AND
EXCHANGE.

 

Subject to Sections 2.15 and 2.16 hereof, where Securities
are presented to the Registrar with a request to register their transfer or to
exchange them for an equal principal amount of Securities of other authorized
denominations, the Registrar shall register the transfer or make the exchange
if its requirements for such transaction are met.  To permit registrations of transfer and exchanges, the Trustee
shall authenticate Securities at the Registrar’s request.  The Company or the Trustee, as the case may
be, shall not be required (a) to issue, authenticate, register the transfer of
or exchange any Security during a period beginning at the opening of business
15 days before the mailing of a notice of redemption of the Securities selected
for redemption under Section 3.04 and ending at the close
of business on the day of such mailing or (b) to register the transfer of or
exchange any Security so selected for redemption in whole or in part, except
the unredeemed portion of Securities being redeemed in part.

No service charge shall be made for any transfer, exchange or conversion
of Securities, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
transfer, exchange or conversion of Securities, other than exchanges pursuant
to Sections 2.10, 3.07,
3.08, 9.05 or 10.02 not involving any transfer.

 

8

 

2.07         REPLACEMENT
SECURITIES.

 

If the Holder of a Security claims that the Security has been
mutilated, lost, destroyed or wrongfully taken, the Company shall issue and the
Trustee shall authenticate a replacement Security if the Trustee’s requirements
are met and, in the case of a mutilated Security, such mutilated Security is
surrendered to the Trustee.  In the case
of lost, destroyed or wrongfully taken Securities, if required by the Trustee,
an indemnity bond must be provided by the Holder that is sufficient in the
judgment of the Trustee to protect the Company, the Trustee or any Agent from
any loss which any of them may suffer if a Security is replaced.  The Trustee may charge for its expenses in
replacing a Security.

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

Every replacement Security is an additional obligation of the Company
only as provided in Section 2.08.

The provisions of this Section 2.07 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.

2.08         OUTSTANDING
SECURITIES.

 

Securities outstanding at any time are all the Securities authenticated
by the Trustee except for those converted, those cancelled by it, those
delivered to it for cancellation and those described in this Section 2.08
as not outstanding.  A Security does not
cease to be outstanding because the Company or one of its subsidiaries or
Affiliates holds the Security.

If a Security is replaced pursuant to Section 2.07,
it ceases to be outstanding unless the Trustee receives proof satisfactory to
it, or a court holds, that the replaced Security is held by a protected
purchaser.

If the Paying Agent (other than the Company) holds on a redemption date
or Maturity Date money sufficient to pay Securities payable on that date, then
on and after that date, such Securities shall be deemed to be no longer
outstanding and interest on them shall cease to accrue.  If a security is converted in accordance
with Article
X, then from and after the time of conversion, such Security shall
cease to be outstanding and interest on such Security shall cease to accrue.

2.09         SECURITIES HELD BY THE COMPANY OR AN AFFILIATE.

 

In determining whether the Holders of the required aggregate principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by the Company or any of its subsidiaries or an Affiliate
shall be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities which the Trustee knows are so
owned shall be so disregarded.

 

9

 

2.10         TEMPORARY SECURITIES.

 

Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate upon Company Order temporary
Securities.  Temporary Securities shall
be substantially in the form of definitive Securities but may have variations
that the Company considers appropriate for temporary Securities.  Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate upon Company Order definitive
Securities in exchange for temporary Securities.

2.11         CANCELLATION.

 

The Company at any time may deliver Securities to the Trustee for
cancellation.  The Registrar, Paying
Agent and Conversion Agent shall forward to the Trustee any Securities surrendered
to them for transfer, exchange, payment or conversion.  The Trustee shall cancel all Securities
surrendered for transfer, exchange, payment, conversion or cancellation and all
cancelled Securities held by the Trustee shall be disposed of by the Trustee in
accordance with the Trustee’s customary procedure.  The Company may not issue new Securities to replace Securities
that it has paid or delivered to the Trustee for cancellation or that any
Securityholder has converted pursuant to Article X.

2.12         DEFAULTED
INTEREST.

 

If and to the extent the Company defaults in a payment of interest on
the Securities, the Company shall pay the defaulted interest in any lawful
manner plus, to the extent not prohibited by applicable statute or case law, interest
payable on the defaulted interest at the rate provided in the Securities.  The Company may pay the defaulted interest
to the persons who are Securityholders on a subsequent special record date.  The Company shall fix such record date and
payment date.  At least 15 days before
the record date, the Company shall mail to Securityholders a notice that states
the record date, payment date and amount of interest to be paid.

2.13         CUSIP NUMBERS.

 

The Company in issuing the Securities may use one or more “CUSIP”
numbers, and if so, the Trustee shall use the CUSIP numbers in notices of
redemption or exchange as a convenience to Holders; provided, however,
that no representation is hereby deemed to be made by the Trustee as to the
correctness or accuracy of the CUSIP numbers printed in the notice or on the
Securities, and that reliance may be placed only on the other identification
numbers printed on the Securities.  The
Company shall promptly notify the Trustee of any change in the CUSIP numbers.

2.14         DEPOSIT OF MONEYS.

 

Prior to 11:00 A.M., New York City time, on each interest payment date,
Maturity Date, redemption date and Repurchase Date, the Company shall have
deposited with the Paying Agent in immediately available funds money or Common
Stock or a combination thereof, if applicable, sufficient to make such
payments, if any, due on such interest payment date, Maturity Date, redemption
date and Repurchase Date, as the case may be, in a timely manner which permits
the 

 

10

 

Paying Agent to remit payment to the Holders
on such interest payment date, Maturity Date, redemption date and Repurchase
Date, as the case may be.

2.15         BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES.

 

(A)          The Global Securities initially shall (i) be
registered in the name of the Depositary or the nominee of such Depositary,
(ii) be delivered to the Trustee as custodian for such Depositary and
(iii) bear legends as set forth in Section 2.17.

 

Members of, or participants in, the Depositary (“Participants”) shall have no
rights under this Indenture with respect to any Global Security held on their
behalf by the Depositary, or the Trustee as its custodian, or under the Global
Security, and the Depositary may be treated by the Company, the Trustee and any
agent of the Company or the Trustee as the absolute owner of the Global Security
for all purposes whatsoever. 
Notwithstanding the foregoing, nothing herein shall prevent the Company,
the Trustee or any agent of the Company or the Trustee from giving effect to
any written certification, proxy or other authorization furnished by the
Depositary or impair, as between the Depositary and Participants, the operation
of customary practices governing the exercise of the rights of a Holder of any
Security.

(B)           Transfers of Global Securities shall be limited to
transfers in whole, but not in part, to the Depositary, its successors or their
respective nominees.  Physical Securities
shall be transferred to all beneficial owners in exchange for their beneficial
interests in Global Securities if (i) the Depositary notifies the Company
that it is unwilling or unable to continue as Depositary for any Global
Security and a successor Depositary is not appointed by the Company within 90
days of such notice or (ii) an Event of Default has occurred and is
continuing and the Registrar has received a written request from the Depositary
to issue Physical Securities.

(C)           In connection with any transfer or exchange of a portion
of the beneficial interest in a Global Security to beneficial owners pursuant
to Section 2.15(B),
the Registrar shall (if one or more Physical Securities are to be issued)
reflect on its books and records the date and a decrease in the aggregate
principal amount of such Global Security in an amount equal to the aggregate
principal amount of the beneficial interest in the Global Security to be
transferred, and the Company shall execute and the Trustee shall authenticate
and deliver, one or more Physical Securities of authorized denominations in an
aggregate principal amount equal to the aggregate principal amount of the
beneficial interest in the Global Security so transferred.

(D)          In connection with the transfer of a Global Security in its
entirety to beneficial owners pursuant to Section 2.15(B), such Global Security
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall upon Company Order authenticate
and deliver, to each beneficial owner identified by the Depositary in exchange
for its beneficial interest in such Global Security, an equal aggregate
principal amount of Physical Securities of authorized denominations.

(E)           Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to Section 2.15(B)
or (C) shall, except as otherwise provided by Section 2.16,
bear the Private Placement Legend (as defined herein).

 

11

 

(F)           The Holder of any Global Security may grant proxies and
otherwise authorize any Person, including Participants and Persons that may
hold interests through Participants, to take any action which a Holder is
entitled to take under this Indenture or the Securities.

2.16         SPECIAL TRANSFER PROVISIONS.

 

(A)          Transfers to Non-U.S. Persons.  The following provisions shall apply with
respect to the registration of any proposed transfer of a Restricted Security
to any Non-U.S. Person:

(i)            the Registrar shall
register the transfer of any Restricted Security, whether or not such Security
bears the Private Placement Legend, if (x) the requested transfer is after
the second anniversary of the issue date for the Securities; provided,
however,
that neither the Company nor any of its Affiliates has held any beneficial
interest in such Security, or portion thereof, at any time on or prior to the
second anniversary of the issue date for the Securities or (y) in the case
of a transfer to a Non-U.S. Person, the proposed transferor has delivered to
the Registrar certificates substantially in the form of Exhibit C-1 and Exhibit C-2 hereto;

(ii)           if the proposed
transferee is a Participant and the Notes to be transferred consist of Physical
Securities which after transfer are to be evidenced by an interest in the
Global Security, upon receipt by the Registrar of (x) written instructions
given in accordance with the Depositary’s and the Registrar’s procedures and
(y) the appropriate certificates and other documents, if any, required by
clause (y) of paragraph (i) above, the Registrar shall register the transfer
and reflect on its books and records the date and an increase in the aggregate
principal amount of the Global Security in an amount equal to the aggregate
principal amount of Physical Securities to be transferred, and the Trustee
shall cancel the Physical Securities so transferred; and

(iii)          if the proposed
transferor is a Participant seeking to transfer an interest in one Global
Security to a transferee who will hold such interest in another Global
Security, upon receipt by the Registrar of (x) written instructions given
in accordance with the Depositary’s and the Registrar’s procedures and
(y) the appropriate certificates and other documents, if any, required by
clause (y) of paragraph (i) above, the Registrar shall register the transfer
and reflect on its books and records the date and (A) a decrease in the
aggregate principal amount of the Global Security through which the transferor
held such interest in an amount equal to the aggregate principal amount of the
Securities to be transferred and (B) an increase in the aggregate
principal amount of the Global Security through which the transferee proposes
to hold such interest, in an amount equal to the aggregate principal amount of
the Securities to be transferred.

(B)           Transfers to QIBs.  The following provisions shall apply with
respect to the registration of any proposed transfer of a Restricted Security
to a QIB:

 

12

 

(i)            the Registrar shall
register the transfer of any Restricted Security, whether or not such Security
bears the Private Placement Legend, if (x) the requested transfer is after
the second anniversary of the issue date for the Securities; provided,
however,
that neither the Company nor any of its Affiliates has held any beneficial
interest in such Security, or portion thereof, at any time on or prior to the
second anniversary of the issue date for the Securities or (y) such
transfer is being made by a proposed transferor who has checked the box
provided for on the form of Security stating, or has otherwise advised the
Company and the Registrar in writing, that the sale has been made in compliance
with the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Security stating, or has otherwise
advised the Company and the Registrar in writing, that it is purchasing the
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a QIB within the
meaning of Rule 144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding the Company as it has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A;

(ii)           if the proposed
transferee is a Participant and the Securities to be transferred consist of
Physical Securities which after transfer are to be evidenced by an interest in
the Global Security, upon receipt by the Registrar of written instructions
given in accordance with the Depositary’s and Registrar’s procedures, the
Registrar shall register the transfer and reflect on its books and records the
date and an increase in the principal amount of the Global Security in an
amount equal to the principal amount of Physical Securities to be transferred,
and the Trustee shall cancel the Physical Securities so transferred; and

(iii)          if the proposed
transferor is a Participant seeking to transfer an interest in one Global
Security to a transferee who will hold such interest in another Global
Security, upon receipt by the Registrar of (x) written instructions given
in accordance with the Depositary’s and the Registrar’s procedures and
(y) the appropriate certificates and other documents, if any, required by
clause (y) of paragraph (i) above, the Registrar shall register the transfer
and reflect on its books and records the date and (A) a decrease in the
aggregate principal amount of the Global Security through which the transferor
held such interest in an amount equal to the aggregate principal amount of the
Securities to be transferred and (B) an increase in the aggregate principal
amount of the Global Security through which the transferee proposes to hold
such interest, in an amount equal to the aggregate principal amount of the
Securities to be transferred.

(C)           Restrictions on Transfer and Exchange of Global
Securities.  Notwithstanding
any other provisions of this Indenture, a 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.

 

13

 

(D)          Private Placement Legend.  Upon the transfer, exchange or replacement
of Securities not bearing the Private Placement Legend, the Registrar or
co-Registrar shall deliver Securities that do not bear the Private Placement
Legend.  Upon the transfer, exchange or
replacement of Securities bearing the Private Placement Legend, the Registrar
or co-Registrar shall deliver only Securities that bear the Private Placement
Legend unless (i) the requested transfer is after the second anniversary
of the issue date for the Securities (provided, however, that neither the
Company nor any of its Affiliates has held any beneficial interest in such
Security, or portion thereof, at any time prior to or on the second anniversary
of the issue date) for the Securities, (ii) there is delivered to the
Trustee an opinion of counsel reasonably satisfactory to the Company to the
effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securities
Act or (iii) such Security has been sold pursuant to an effective registration
statement under the Securities Act and the Holder selling such Securities has
delivered to the Registrar or co-Registrar a notice in the form of Exhibit D
hereto.  Upon the effectiveness of the
Shelf Registration Statement (as defined in the Registration Rights Agreement),
the Company shall deliver to the Trustee a notice of effectiveness, a Security
or Securities, an authentication order in accordance with Section 2.02 and, if
required by the Depositary, the Company shall deliver to the Depositary a
letter of representations in a form reasonably acceptable to the Depositary.

(E)           General. 
By its acceptance of any Security bearing the Private Placement Legend,
each Holder of such a Security acknowledges the restrictions on transfer of
such Security set forth in this Indenture and in the Private Placement Legend
and agrees that it will transfer such Security only as provided in this
Indenture.

The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.15 or this Section 2.16.  The Company shall have the right to inspect
and make copies of all such letters, notices or other written communications at
any reasonable time upon the giving of reasonable written notice to the
Registrar.

(F)           Transfers of Securities Held by Affiliates.  Any certificate (i) evidencing a
Security that has been transferred to an Affiliate of the Company within two
years after the issue date for the Securities, as evidenced by a notation on
the assignment form for such transfer or in the representation letter delivered
in respect thereof or (ii) evidencing a Security that has been acquired
from an Affiliate (other than by an Affiliate) in a transaction or a chain of
transactions not involving any public offering, shall, until two years after
the last date on which the Company or any Affiliate of the Company was an owner
of such Security, in each case, bear the Private Placement Legend, unless otherwise
agreed by the Company (with written notice thereof to the Trustee).

2.17         RESTRICTIVE
LEGENDS.

 

Each Global Security and Physical Security that constitutes a
Restricted Security shall bear the legend (the “Private Placement Legend”) as
set forth in Exhibit B-1 on the face thereof until after the second
anniversary of the later of (i) the issue date for the Securities and (ii) the
last date on which the Company or any Affiliate of the Company was the owner of
such Security (or any predecessor security) (or such shorter period of time as
permitted by Rule 144(k) under the Securities Act or any successor provision
thereunder) (or such longer period of 

 

14

 

time as may be required under the Securities
Act or applicable state securities laws in the opinion of counsel for the
Company, unless otherwise agreed between the Company and the Holder thereof).

Each Global Security shall also bear the legend as set forth in Exhibit B-2.

III.           REDEMPTION

 

3.01         RIGHT OF
REDEMPTION.

 

Redemption
of the Securities, as permitted by any provision of this Indenture, shall be
made in accordance with paragraph 6 of the Securities and this Article III.

(A)          The Securities may be redeemed at the
election of the Company, as a whole or in parts from time to time, at any time
prior to May 3, 2005 (a “Provisional Redemption”), at a redemption
price equal to $1,000 per $1,000 principal amount of the Securities redeemed
(such amount, together with the Make-Whole Payment (as defined below) the “Provisional
Redemption Price”), on the date of redemption (the “Provisional
Redemption Date”) specified in the notice of Provisional Redemption
if (1) the closing price of the Common Stock on the NNM (or other United States
national securities exchange where the Company’s Common Stock is traded) has
exceeded 150% of the then current conversion price for at least 20 trading days
within a period of any 30 consecutive trading days ending on the trading day
prior to the date of mailing of the notice of Provisional Redemption (the “Notice Date”),
and (2) a shelf registration statement covering resales of the Securities and
the Common Stock issuable upon conversion thereof is effective and available
for use and is expected to remain effective and available for use for the 30
days following the Provisional Redemption Date, unless registration is no
longer required.

Upon any such Provisional Redemption, the
Company shall make an additional payment (the “Make-Whole Payment”) with
respect to the Securities called for redemption to holders on the Provisional
Redemption Date in an amount equal to the total value of the aggregate amount
of interest that would have been payable on the Securities from the last day
through which interest was paid on the Securities (or May 1, 2002 if no
interest has been paid) through May 1, 2005 (or May 2005 if the Provisional
Redemption Date is May 2, 2005).  The
Company may make the Make-Whole Payment, at its option, either in cash or
Common Stock or a combination thereof. 
Payments made in Common Stock will be valued at 95% of the average
closing sales prices of the Common Stock on the NNM (or other United States
national securities exchange where the Common Stock is traded) for the five
trading days ending on the day prior to the Provisional Redemption Date.  The Company shall make the Make-Whole Payment
on all Securities called for Provisional Redemption, including those Securities
converted into Common Stock between the Notice Date and the Provisional
Redemption Date.

 

The
Company will comply with all federal and state securities laws in connection
with any offer to sell or solicitations of offers to buy Common Stock pursuant
to this Section
3.01(A).

(B)           On or after May 3, 2005, the Company
will have the right to redeem all or any part of the Securities at the
Redemption Prices specified in paragraph 6 therein under the 

 

15

 

caption “Redemption Price,” in cash, in each
case including accrued and unpaid interest, if any, to, but excluding, the
redemption date.

3.02         NOTICES TO TRUSTEE.

 

If the Company elects to redeem Securities pursuant to paragraph 6
of the Securities, it shall notify the Trustee by a Company Order at least 45
days prior to the redemption date (unless a shorter notice period shall be
satisfactory to the Trustee) of the redemption date, the aggregate principal
amount of Securities to be redeemed, the Redemption Price and the Provisional
Redemption Price, if applicable, per $1,000 principal of Securities.

3.03         SELECTION OF SECURITIES TO BE REDEEMED.

 

If less than all the Securities are to be redeemed, the Trustee shall
select the Securities to be redeemed in compliance with the requirements of the
principal exchange or market, if any, on which the Securities are listed, or,
if the Securities are not so listed, on a pro rata basis or by such other method as
the Trustee shall deem fair and equitable. 
The Trustee shall make the selection from Securities outstanding not
previously called for redemption.  The
Trustee may select for redemption portions of the principal of Securities that
have denominations larger than $1,000 principal amount.  Securities and portions of them it selects
shall be in amounts of $1,000 principal amount or positive integral multiples
of $1,000 principal amount.  The Trustee
shall promptly notify the Company in writing of the Securities selected for
redemption and the principal amount thereof to be redeemed.

The Registrar need not transfer or exchange any Securities selected for
redemption, except the unredeemed portion of the Securities redeemed in
part.  Also, the Registrar need not
transfer or exchange any Securities for a period of 15 days before selecting
Securities to be redeemed.

3.04         NOTICE OF
REDEMPTION.

 

At least 30 days but not more than 60 days before a redemption date,
the Company shall mail by first-class mail a notice of redemption to each Holder
whose Securities are to be redeemed.

The notice shall identify the Securities and the aggregate principal
amount thereof to be redeemed and shall state:

(i)            the
redemption date;

(ii)           the
Redemption Price or the Provisional Redemption Price, if applicable, plus the
amount of accrued and unpaid interest to be paid on the Securities called for
redemption;

(iii)          the
then current conversion rate and conversion price and any adjustments to the
conversion price;

 

16

 

(iv)          the
name and address of the Paying Agent and the Conversion Agent;

(v)           the
date on which the right to convert the principal of the Securities called for
redemption will terminate and the place or places where such Securities may be
surrendered for conversion;

(vi)          that
Holders who want to convert Securities must satisfy the requirements in Article X;

(vii)         the
paragraph of the Securities pursuant to which the Securities are to be redeemed;

(viii)        that
Securities called for redemption must be surrendered to the Paying Agent to
collect the Redemption Price or the Provisional Redemption Price, if
applicable;

(ix)           that
unless the Company shall default in the payment of the Redemption Price or the
Provisional Redemption Price, if applicable, interest on Securities called for
redemption ceases to accrue on and after the redemption date and that the
Securities will cease to be convertible after the close of business on the
business day immediately preceding the redemption date;

(x)            if
fewer than all of the outstanding Securities are to be redeemed, the
certificate numbers, if any, and principal amount of the particular Securities
to be redeemed;

(xi)           the
type of consideration for the Make-Whole Payment, if applicable; and

(xii)          the
CUSIP number or numbers, as the case may be, of the Securities.

The date on which the right to convert the principal of the Securities
called for redemption will terminate shall be at the close of business on the
business day immediately preceding the redemption date.

At the Company’s request, upon reasonable prior notice, the Trustee
shall give the notice of redemption in the Company’s name and at the Company’s
expense; provided that the form and content of such notice shall be prepared by
the Company.

3.05         EFFECT OF NOTICE OF REDEMPTION.

 

Once notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date at the Redemption Price or the
Provisional Redemption Price, if applicable, per $1,000 principal amount stated
in the notice plus accrued and unpaid interest to the date of redemption, and,
on and after such date (unless the Company shall default in the payment of the
Redemption Price or the Provisional Redemption Price, if applicable), such 

 

17

 

Securities shall cease to bear interest.  Upon surrender to the Paying Agent, such
Securities shall be paid at the Redemption Price or the Provisional Redemption
Price, if applicable, per $1,000 principal amount stated in the notice plus
accrued interest to the redemption date, unless the redemption date is an
interest payment date, in which case the accrued interest will be paid in the
ordinary course.

3.06         DEPOSIT OF REDEMPTION PRICE.

 

On or before 11:00 a.m. New York City time on the redemption date, the
Company shall deposit with the Paying Agent money or with respect to the
Make-Whole Payment, at the Company’s option, money or Common Stock or a
combination thereof, in funds immediately available on the redemption date
sufficient to pay the Redemption Price or the Provisional Redemption Price, if
applicable, of and accrued interest on all Securities to be redeemed on that
date other than Securities or portions of Securities called for redemption
which on or prior thereto have been delivered by the Company to the Trustee for
cancellation or have been converted. 
The Paying Agent shall return to the Company, as soon as practicable,
any money not required for that purpose.

3.07         SECURITIES REDEEMED IN PART.

 

Upon surrender of a Security that is redeemed in part, the Company
shall execute and the Trustee shall authenticate for the Holder a new Security
or Securities in an aggregate principal amount equal to the unredeemed portion
of the Security surrendered.

If any Security selected for partial redemption is converted in part,
the converted portion of such Security shall be deemed (so far as may be) to be
the portion selected for redemption.

3.08         REPURCHASE AT OPTION OF HOLDER UPON A CHANGE IN CONTROL.

 

Upon any Change in Control (as defined below) with respect to the
Company, each Holder of Securities shall have the right (the “Repurchase
Right”), at the Holder’s option, to require the Company to
repurchase all of such Holder’s Securities, or a portion thereof which is
$1,000 or any positive integral multiple thereof, on the date (the “Repurchase
Date”) specified in the Change in Control Notice (as defined below),
which date shall be no later than 30 business days after the date of such
Change in Control Notice, at the Repurchase Price plus accrued and unpaid
interest, if any, to the Repurchase Date.

Within 30 business days after the occurrence of a Change in Control of
the Company, the Company is obligated to mail to all Holders of record of the
Securities a notice (the “Change in Control Notice”) of the
occurrence of such Change in Control and the Repurchase Right arising as a
result thereof.  The Company shall
deliver a copy of the Change in Control Notice to the Trustee and shall cause a
copy to be published at the expense of the Company in THE NEW YORK
TIMES and in THE WALL STREET JOURNAL  or another newspaper of national
circulation.

Each Change in Control Notice shall state:

(i)            the
events causing the Change in Control;

 

18

 

(ii)           the
date of such Change in Control;

(iii)          the
Repurchase Date;

(iv)          the
date by which the Repurchase Right must be exercised;

(v)           the
Repurchase Price, plus the amount of accrued interest to be paid on the
Securities to be repurchased;

(vi)          the
name and address of the Paying Agent and the Conversion Agent;

(vii)         a
description of the procedure which a Holder must follow to exercise a Repurchase
Right;

(viii)        that,
in order to exercise the Repurchase Right, the Securities must be surrendered
to the Paying Agent to collect payment of the Repurchase Price;

(ix)           that
Holders will be entitled to withdraw their election if the Company (if acting
as its own Paying Agent), or the Paying Agent receives, not later than the
close of business on the second business day prior to the Repurchase Date, or
such longer period as may be required by law, a letter or telegram, telex or
facsimile transmission (receipt of which is confirmed and promptly followed by
a letter) setting forth the name of the Holder, the principal amount of
Securities the Holder delivered for purchase and a statement that such Holder
is withdrawing his election to have such Securities repurchased, the
certificate numbers of such Securities being withdrawn, if applicable, and the
principal amount, if any, of the Securities that remain subject to a Change in
Control Notice;

(x)            the
then existing conversion rate and conversion price for conversion of
Securities, any adjustments to the conversion rate and the place or places
where such Securities may be surrendered for conversion;

(xi)           the
CUSIP number or numbers, as the case may be, of the Securities; and

(xii)          that
Securities with respect to which the Holder thereof has duly delivered an
Option of Holder To Elect Purchase Notice in accordance with this Section 3.08
may be converted into Common Stock, if otherwise so convertible as provided
herein, only if such Holder duly withdraws its election in accordance with this
Section
3.08.

No failure of the Company to give the foregoing notice shall limit any
Holder’s right to exercise a Repurchase Right.

To exercise a Repurchase Right, a Holder shall deliver to the Company
(if it is acting as its own Paying Agent), or to a Paying Agent designated by
the Company for such purpose in the Change in Control Notice (i) no later than
the close of business on the third business day 

 

19

 

immediately preceding the Repurchase Date,
the Option of Holder To Elect Purchase Notice on the back of the Securities
with respect to which the Repurchase Right is being exercised, duly completed
and signed, with appropriate signature guarantee, and (ii) at any time after
such delivery of such Option of Holder to Elect Purchase Notice, such
Securities with respect to which the Repurchase Right is being exercised, duly
endorsed for transfer to the Company. 
Upon so delivering such Option of Holder To Elect Purchase Notice and
such Securities, the Holder of such Securities shall be entitled to receive
from the Company (if it is acting as its own Paying Agent), or such Paying
Agent, a nontransferable receipt of deposit evidencing such deposit.

In the event a Repurchase Right shall be exercised in accordance with
the terms hereof, the Company shall pay or cause to be paid the applicable
Repurchase Price (plus accrued and unpaid interest) with respect to the
Securities as to which the Repurchase Right shall have been exercised to the
Holder on the later of (i) the Repurchase Date and (ii) the time such Holder
has duly delivered the Securities with respect to which the Repurchase Right is
being exercised in accordance with the immediately preceding paragraph.

On or prior to 11:00 a.m. New York City time on a Repurchase Date, the
Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust in
accordance with Section 2.04) an amount of money (to be available on the
Repurchase Date) sufficient to pay the aggregate Repurchase Price (plus accrued
and unpaid interest) of all of the Securities which are to be repurchased on
that date.

Both the Change in Control Notice and the Option of Holder To Elect
Purchase Notice having been given as specified in this Section 3.08, the
Securities so to be repurchased shall, on the Repurchase Date, become due and payable
at the Repurchase Price applicable thereto (plus accrued and unpaid interest)
and from and after such date (unless there shall be a default in the payment of
the Repurchase Price plus accrued and unpaid interest to the Repurchase Date)
such Securities shall cease to bear interest and shall cease to be
convertible.  Upon surrender of any such
Security for repurchase in accordance with said notice, such Security shall be
paid by the Company at the Repurchase Price (plus accrued and unpaid interest).

If any Security shall not be paid upon surrender thereof for
repurchase, the principal shall, until paid, bear interest from the Repurchase
Date at the rate borne by such Security on the principal amount of such
Security and shall continue to be convertible.

Any Security which is to be submitted for repurchase only in part shall
be delivered pursuant to this Section 3.08 (with, if the Company or
the Trustee so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Company and the Trustee duly executed by
the Holder thereof or its attorney duly authorized in writing), and the Company
shall execute, and the Trustee shall upon Company Order 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, of the same tenor and in aggregate principal amount equal to the
portion of such Security not submitted for repurchase.

Notwithstanding anything herein to the contrary, if the option granted
to Securityholders to require the repurchase of the Securities upon the
occurrence of a Change in Control is 

 

20

 

determined to constitute a tender offer, the
Company will comply with all applicable tender offer rules, including Rules
13e-4 and 14e-1 under the Exchange Act, and file Schedule TO or any other
schedules required under the Exchange Act.

As used in this Section 3.08 of the Indenture and in
the Securities:

A “Change in Control” of the Company means:

                (i)            the acquisition by any “person,” entity or “group” within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 50% or more of the voting power of the total outstanding
Common Stock or other capital stock into which the Common Stock is hereafter
reclassified or changed;

                (ii)           persons who constitute the Board of Directors (the “Incumbent
Board”) as of the date of the Indenture, cease for any reason to
constitute at least a majority of the Board of Directors, provided that any
person subsequently becoming a director whose election by the Board of
Directors, or nomination for election by stockholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such person were a member of the Incumbent Board;
or

                (iii)          the sale, lease or transfer of all or substantially all of
the assets and property of the Company to any “person,” entity or “group”
within the meaning of Section 13(d) or 14(d) of the Exchange Act,
including any group acting for the purpose of acquiring, holding or disposing
of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act.

Notwithstanding
anything to the contrary set forth in this Section 3.08, a Change in Control will not
be deemed to have occurred if either:

                (i)            the last sale price of the Common Stock for any five
trading days during the ten trading days immediately preceding the Change in
Control is at least equal to 105% of the conversion price in effect on such
trading day; or

                (ii)           in the case of a merger or consolidation, all or
substantially all of the consideration (excluding cash payments for fractional
shares and cash payments pursuant to dissenters’ appraisal rights) in the
merger or consolidation constituting the Change in Control consists of common
stock quoted traded on a United States national securities exchange or on the
NNM (or which will be so traded or quoted when issued or exchanged in
connection with such Change in Control) and as a result of such transaction or
transactions the Securities become convertible solely into such common stock.

3.09         CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION.

 

In connection with any redemption of Securities, the Company may
arrange, in lieu of redemption, for the purchase and conversion of any
Securities called for redemption by an agreement with one or more investment
bankers or other purchasers to purchase all or a portion 

 

21

 

of such Securities by paying to the Trustee
in trust for the Holders whose Securities are to be so purchased, on or before
the close of business on the redemption date, an amount that, together with any
amounts deposited with the Trustee by the Company for redemption of such
Securities, is not less than the Redemption Price or the Provisional Redemption
Price, if applicable, together with interest, if any, accrued to the redemption
date, of such Securities. 
Notwithstanding anything to the contrary contained in this Article III,
the obligation of the Company to pay the Redemption Price or the Provisional
Redemption Price, if applicable, of such Securities, including all accrued interest,
if any, shall be deemed to be satisfied and discharged to the extent such
amount is so paid by such purchasers, but no such agreement shall relieve the
Company of its obligation to pay such Redemption Price or the Provisional
Redemption Price, if applicable, and such accrued interest, if any.  If such an agreement is entered into, any
Securities not duly surrendered for conversion by the Holders thereof may, at
the option of the Company, be deemed, to the fullest extent permitted by law,
acquired by such purchasers from such Holders and (notwithstanding anything to
the contrary contained in Article X) surrendered by such purchasers
for conversion, all as of immediately prior to the close of business on the
redemption date, subject to payment of the above amount as aforesaid.  The Trustee shall hold and pay to the
Holders whose Securities are selected for redemption any such amount paid to it
for purchase and conversion in the same manner as it would moneys 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 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 except to
the extent arising from its bad faith, willful misconduct or negligence.

IV.           COVENANTS

 

4.01         PAYMENT OF
SECURITIES.

 

The Company shall pay all amounts due with respect to the Securities on
the dates and in the manner provided in the Securities.  Any amount of cash or shares of Common Stock
to be given to the Trustee or Paying Agent shall be deposited by the Company
with the Trustee or Paying Agent prior to 11:00 a.m. New York City time.  All such amounts shall be considered paid on
the date due if the Paying Agent holds (or, if the Company is acting as Paying
Agent, if the Company has segregated and holds in trust in accordance with Section 2.04)
on that date money or Common Stock, as the case may be in accordance with this
Indenture, sufficient to pay the amount then due with respect to the
Securities.

The Company shall pay interest on any overdue amount (including, to the
extent permitted by applicable law, overdue interest) at the rate borne by the
Securities.

 

22

 

4.02         MAINTENANCE OF OFFICE OR AGENCY.

 

The Company will maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-Registrar) where Securities may be surrendered
for registration of transfer or exchange or conversion 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.  If
at any time the Company shall fail to maintain any such required office or
agency or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.

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

The Company hereby designates the Corporate Trust Office of the Trustee
as an agency of the Company in accordance with Section 2.03.

4.03         REPORTS.

 

(A)          The Company (at its
own expense) will deliver to the Trustee within 15 days after the filing of the
same with the Commission, copies of the quarterly and annual reports and of the
information, documents and other reports, if any, which the Company may be
required to file with the Commission pursuant to Section 13 or 15(d) of
the Exchange Act or which the Company furnishes to its stockholders.  In the event the Company is at any time no
longer subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, it shall continue to provide the Trustee with reports containing
substantially the same information as would have been required to be filed with
the SEC had the Company continued to have been subject to such reporting
requirements.  In such event, such
reports shall be provided at the times the Company would have been required to
provide reports had it continued to have been subject to such reporting
requirements.  Delivery of such reports,
information and documents to the Trustee is for informational purposes only and
the Trustee’s receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Company’s compliance with any of its covenants hereunder
(as to which the Trustee is entitled to rely exclusively on the Officers’
Certificate).

(B)           Notwithstanding that
the Company may not be subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act, for so long as any Securities remain outstanding
the Company will promptly provide the information required by Rule 144A(d)(4)
to any Holder or beneficial owner of Securities that so requests.

 

23

 

(C)           In addition, if and
when this Indenture becomes subject to the TIA, the Company will file a copy of
all such information required by clauses (A) and (B) of this Section 4.03
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to investors who
request it in writing.

(D)          The Company will
comply with the provisions of TIA § 314(a).

4.04         COMPLIANCE
CERTIFICATE.

 

The Company shall deliver to the Trustee within 120 days after the end
of each fiscal year of the Company an Officers’ Certificate stating whether or
not the signers know of any Default or Event of Default by the Company in
performing any of its obligations under this Indenture or the Securities.  If they do know of any such Default or Event
of Default, the certificate shall describe the Default or Event of Default and
its status.

4.05         STAY, EXTENSION AND USURY LAWS.

 

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

4.06         CORPORATE
EXISTENCE.

 

Subject to Article V, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate existence of each of its
subsidiaries in accordance with the respective organizational documents of each
subsidiary and the rights (charter and statutory), licenses and franchises of
the Company and its subsidiaries; provided, however, that Company shall
not be required to preserve any such right, license or franchise, or the
corporate existence of any subsidiary, if in the judgment of the Board of
Directors (i) the failure to preserve such right, license or franchise, or
maintain such corporate existence, would not have a material adverse impact on
the conduct of business of the Company and (ii) the loss of such right, license
or franchise or the dissolution of such subsidiary does not have a material
adverse impact on the Holders.

4.07         NOTICE OF
DEFAULT.

 

In the event that any Default under Section 6.01 hereof
shall occur, the Company will give prompt written notice of such Default to the
Trustee.

 

24

 

V.            SUCCESSORS

 

5.01         WHEN
COMPANY MAY MERGE, ETC.

 

The Company shall not consolidate with or merge into, or convey,
transfer or lease all or substantially all of its properties and assets to,
another person unless such other person is a corporation, a limited liability
company or other limited liability entity organized and existing under the laws
of the United States, any State thereof or the District of Columbia, provided,
that this condition will not apply if independent tax counsel experienced in
such matters delivers an Opinion of Counsel stating that, under then existing
laws, there would be no adverse tax consequences to the Holders in the event
that this condition is not satisfied, and such person assumes by supplemental
indenture all the obligations of the Company, under the Securities and this
Indenture, and immediately after giving effect to the transaction, no Default
or Event of Default shall exist.

The Company shall deliver to the Trustee prior to the consummation of
the proposed transaction an Officers’ Certificate to the foregoing effect and
an Opinion of Counsel, which may rely upon such Officers’ Certificate as to the
absence of Defaults and Events of Default, stating that the proposed
transaction and such supplemental indenture will, upon consummation of the
proposed transaction, comply with this Indenture.

5.02         SUCCESSOR
SUBSTITUTED.

 

Upon any consolidation or merger or transfer or lease of all or substantially
all of the assets of the Company in accordance with Section 5.01, the
successor person formed by such consolidation or into which the Company is
merged or to which such transfer or lease is made shall succeed to, and, except
in the case of a lease, be substituted for, and may exercise every right and
power of, and shall assume every duty and obligation of, the Company under this
Indenture with the same effect as if such successor had been named as the
Company herein.  When the successor
assumes all obligations of the Company hereunder, except in the case of a
lease, all obligations of the predecessor shall terminate.

VI.           DEFAULTS AND
REMEDIES

 

6.01         EVENTS OF DEFAULT.

 

An “Event of Default” occurs if:

(i)            the Company
defaults in the payment of interest or liquidated damages on any Security when
the same becomes due and payable and the default continues for a period of 30
days, whether or not such payment shall be prohibited by the provisions of Article XI
hereof;

(ii)           the Company
defaults in the payment of the principal or Repurchase Price or Redemption
Price or Provisional Redemption Price, if applicable, of any Security when the
same becomes due and payable on the 

 

25

 

Maturity Date, upon redemption or otherwise,
whether or not such payment shall be prohibited by the provisions of Article XI
hereof;

 

(iii)          the Company fails
to comply with any of its other agreements in the Securities or this Indenture
and the default continues for the period and after the Notice of Default
specified below;

(iv)          the Company pursuant
to or within the meaning of any Bankruptcy Law:

(A)          commences a voluntary
case,

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

(C)           consents to the appointment
of a Custodian of it or for all or substantially all of its property, or

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

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

(A)          is for relief against
the Company in an involuntary case or proceeding, or adjudicates the Company
insolvent or bankrupt,

(B)           appoints a Custodian
of the Company for all or substantially all of the property of the Company, or

(C)           orders the winding
up or liquidation of the Company,

and the order or decree remains unstayed and in effect for 90
consecutive days.

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

A default under clause (iii) is not an Event of Default
until the Trustee or the Holders of at least 25% in aggregate principal amount
of the Securities then outstanding notify the Company and the Trustee of the
default and the default is not cured within 60 days after receipt of the
notice.  The notice must specify the
default, demand that it be remedied and state that the notice is a “Notice of
Default”.  If the Holders of
25% in aggregate principal amount of the outstanding Securities request the
Trustee to give such notice on their behalf, the Trustee shall do so.  When a default is cured, it ceases.

 

26

 

6.02         ACCELERATION.

 

If an Event of Default (other than an Event of Default specified in Section 6.01(iv)
or (v) with respect to the Company) as to which the Trustee has
received notice pursuant to Section 4.07 occurs and is continuing,
the Trustee by notice to the Company or the Holders of at least 25% in
principal amount of the Securities then outstanding by notice to the Company
and the Trustee may declare the Securities to be due and payable.  Upon such declaration such principal and
interest shall be due and payable immediately. 
If an Event of Default specified in Section 6.01(iv) or (v)
with respect to the Company occurs, the principal of and accrued interest on
all the Securities shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Securityholder.  The Holders of a
majority in aggregate principal amount of the Securities then outstanding by
written notice to the Trustee may rescind an acceleration and its consequences
if the rescission would not conflict with any order or decree and if all
existing Events of Default have been cured or waived except nonpayment of
principal or interest that has become due solely because of the acceleration
and if all amounts due to the Trustee under Section 7.07 have been
paid.  No such recission shall affect
any subsequent Default or impair any right consequent thereto.

6.03         OTHER REMEDIES.

 

Notwithstanding any other provision of this Indenture, if an Event of
Default occurs and is continuing, the Trustee may pursue any available remedy
by proceeding at law or in equity to collect the payment of amounts due with
respect to the Securities or to enforce the performance of any provision of the
Securities or this Indenture.

The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding.  A delay or omission by the Trustee or any
Securityholder in exercising any right or remedy accruing upon an Event of
Default shall not impair the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. 
All remedies are cumulative.

6.04         WAIVER OF
PAST DEFAULTS.

 

Subject to Sections 6.07 and 9.02, the Holders of a
majority in aggregate principal amount of the Securities then outstanding by
notice to the Trustee may waive any past Default or Event of Default and its
consequences.  When a Default or an
Event of Default is waived, it is cured and ceases for every purpose of this
Indenture, but no such waiver shall extend to a subsequent or other Default or
impair any consequential right.

6.05         CONTROL BY
MAJORITY.

 

The Holders of a majority in aggregate principal amount of the
Securities then outstanding may 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 it.  However, the
Trustee may refuse to follow any direction that conflicts with law or this
Indenture, is unduly prejudicial to the rights of other Securityholders or
would involve the Trustee in personal liability; provided that the Trustee may
take any other action deemed proper by the Trustee which is not 

 

27

 

inconsistent with such direction and, if
required, the Trustee is to be indemnified to its satisfaction pursuant to Section 7.07.

6.06         LIMITATION
ON SUITS.

 

Except as provided in Section 6.07, a Securityholder may
pursue a remedy with respect to this Indenture or the Securities only if:

(i)            the Holder gives to
the Trustee written notice of a continuing Event of Default;

(ii)           the Holders of at
least 25% in aggregate principal amount of the Securities then outstanding make
a written request to the Trustee to pursue the remedy;

(iii)          such Holder or
Holders offer and if requested provide to the Trustee indemnity satisfactory to
the Trustee against any loss, liability or expense;

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

(v)           during such 60-day
period the Holders of a majority in aggregate principal amount of the
Securities then outstanding do not give the Trustee a direction inconsistent
with the request.

 

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

6.07         RIGHTS OF HOLDERS TO RECEIVE PAYMENT.

 

Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of all amounts due with respect to the Securities, on
or after the respective due dates expressed in the Securities, or to bring suit
for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of the Holder.

Notwithstanding any other provision of this Indenture, the right of any
Holder to bring suit for the enforcement of the right to convert the Security
shall not be impaired or affected without the consent of the Holder.

6.08         COLLECTION SUIT BY TRUSTEE.

 

If an Event of Default specified in Section 6.01(i) or (ii)
occurs and is continuing, the Trustee may recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount due
with respect to the Securities including any unpaid and accrued interest and
the amounts provided for in Section 7.07.

 

28

 

6.09         TRUSTEE MAY FILE PROOFS OF CLAIM.

 

The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee,
any predecessor Trustee and the Securityholders allowed in any judicial
proceedings relative to the Company or its creditors or properties.

The Trustee may collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same, and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or similar
official in any judicial proceeding is hereby authorized by each Holder to make
such payments to the Trustee and, in the event that the Trustee shall consent
to the making of such payments directly to the Holders, to pay the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07.

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

6.10         PRIORITIES.

 

If the Trustee collects any money pursuant to this Article VI, it shall pay out
the money in the following order:

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

Second:                             to holders of
Senior Indebtedness to the extent required by Article XI;

Third:                                        to
Securityholders for all amounts due and unpaid on the Securities, without
preference or priority of any kind, according to the amounts due and payable on
the Securities; and

Fourth:                                 to the Company.

The Trustee, upon prior written notice to the Company may fix a record
date and payment date for any payment by it to Securityholders pursuant to this
Section 6.10.

6.11         UNDERTAKING
FOR COSTS.

 

In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit other than the Trustee of an undertaking to pay the costs
of the suit, and the court in its discretion may assess reasonable costs,
including reasonable attorneys’ fees, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made
by the party litigant.  This Section 6.11
does not 

 

29

 

apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 6.07 or a suit by Holders of
more than 10% in aggregate principal amount of the outstanding Securities.

VII.          TRUSTEE

 

7.01         DUTIES OF TRUSTEE.

 

(A)          If 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 person would exercise or use
under the circumstances in the conduct of his or her own affairs.

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

(i)            the
Trustee need perform only those duties that are specifically set forth in this
Indenture and no others; and

(ii)           in
the absence of bad faith, willful misconduct or negligence 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 examine
the certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.

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

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

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

(D)          The Trustee may
refuse to perform any duty or exercise any right or power unless it receives
indemnity reasonably satisfactory to it against any loss, liability or expense.

(E)           Every provision of
this Indenture that in any way relates to the Trustee is subject to the
provisions of this Section 7.01.

(F)           The Trustee shall
not be liable for interest on any money received by it except as the Trustee
may agree in writing with the Company. 
Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.

 

30

 

7.02         RIGHTS OF TRUSTEE.

 

(A)          The Trustee may rely
and shall be protected in acting or refraining from acting upon any written
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent order, bond, debenture, note, other evidence of
indebtedness or other prepared document believed by it to be genuine and to
have been signed or presented by the proper person.  The Trustee need not investigate any fact or matter stated in the
document; if, however, the Trustee shall determine to make such further inquiry
or investigation, it shall be entitled during normal business hours to examine
the relevant books, records and premises of the Company, personally or by agent
or attorney upon reasonable prior notice.

(B)           Before the Trustee
acts or refrains from acting, it may require an Officers’ Certificate and/or an
Opinion of Counsel.  The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on such Officers’ Certificate or Opinion of Counsel.

(C)           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.

(D)          The Trustee may
consult with counsel selected by it (such counsel to be reasonably acceptable
to the Company) and the written 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.

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

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

(G)          Except with respect to Section 6.01,
the Trustee shall have no duty to inquire as to the performance of the Company
with respect to the covenants contained in Article IV or make any investigation
into the facts or matters stated in any written resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent
order, bond, debenture, note, other evidence of indebtedness or other prepared
document.  In addition, the Trustee
shall not be deemed to have knowledge of an Event of Default except (i) any Default
or Event of Default occurring pursuant to Sections 6.01(i) and 6.01(ii)
or (ii) any Default or Event of Default of which the Trustee shall have
received written notification or obtained actual knowledge.  Delivery of reports, information and
documents to the Trustee under Article IV (other than Sections 4.04
and 4.07)
is for informational purposes only and the Trustee’s receipt of the foregoing
shall not constitute constructive notice of any information contained therein
or determinable from information contained therein, including the Company’s
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely conclusively on Officers’ Certificates).

 

31

 

7.03         INDIVIDUAL RIGHTS OF TRUSTEE.

 

The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or any
of its Affiliates with the same rights it would have if it were not
Trustee.  Any Agent may do the same with
like rights.  The Trustee, however, must
comply with Sections 7.10 and 7.11.

7.04         TRUSTEE’S DISCLAIMER.

 

The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities; it shall not be accountable for the Company’s
use of the proceeds from the Securities; and it shall not be responsible for
any statement in the Securities (other than its certificate of authentication),
in any offering statement or in the Indenture or in the determination as to
which beneficial owners are entitled to receive any notices hereunder.

7.05         NOTICE OF DEFAULTS.

 

If a Default or Event of Default occurs and is continuing as to which
the Trustee has received notice pursuant to Section 4.07, the
Trustee shall mail to each Securityholder a notice of the Default or Event of
Default within 30 days after it is known to the Trustee unless such Default or
Event of Default has been cured or waived. 
Except in the case of a Default or Event of Default in payment of any
amounts due with respect to any Security, the Trustee may withhold the notice
if and so long as it in good faith determines that withholding the notice is in
the interests of Securityholders.  The
Trustee shall not be deemed to have knowledge of a Default or Event of Default
unless an officer of the Trustee has received written notice or obtained actual
knowledge of such Default or Event of Default.

7.06         REPORTS BY TRUSTEE TO HOLDERS.

 

Within 60 days after each May 15 beginning with May 15, 2002, the
Trustee shall mail to each Securityholder if required by TIA § 313(a) a
brief report dated as of such May 15 that complies with TIA § 313(c).  In such event, the Trustee also shall comply
with TIA § 313(b).

A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed by the Trustee with the SEC and each
stock exchange, if any, on which the Securities are listed.  The Company shall promptly notify the
Trustee when the Securities are listed on any stock exchange.

7.07         COMPENSATION AND INDEMNITY.

 

The Company shall pay to the Trustee from time to time such
compensation for its services as shall be agreed upon in writing.  The Trustee’s compensation shall not be
limited by any law on compensation of a trustee of an express trust.  The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred by it.  Such expenses shall include the reasonable
compensation and out-of-pocket expenses of the Trustee’s agents and counsel.

 

32

 

The Company shall indemnify the Trustee and hold it harmless against
any loss or liability or expense (including the reasonable fees and expenses of
counsel) incurred by it in connection with the acceptance or administration of
this trust and the performance of its duties hereunder, including the
reasonable costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers
and duties hereunder.  The Company need
not pay for any settlement made without its consent.  The Trustee shall notify the Company promptly of any claim for
which it may seek indemnification.  The
Company need not reimburse any expense or indemnify against any loss or
liability incurred by the Trustee through the Trustee’s negligence, bad faith
or willful misconduct.

To secure the Company’s payment obligations in this Section 7.07,
the Trustee shall have a lien prior to the Securities on all money or property
held or collected by the Trustee, except that held in trust to pay amounts due
on particular Securities.

The indemnity obligations of the Company with respect to the Trustee
provided for in this Section 7.07 shall survive any
resignation or removal of the Trustee and the discharge of this Indenture.

When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(iv) or (v)
occurs, the expenses and the compensation for the services are intended to
constitute expenses of administration under any Bankruptcy Law, insolvency or
similar law now or hereafter in effect.

7.08         REPLACEMENT
OF TRUSTEE.

 

A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee’s acceptance of
appointment as provided in this Section 7.08.

The Trustee may resign by so notifying the Company in writing 30
business days prior to such resignation. 
The Holders of a majority in aggregate principal amount of the Securities
then outstanding may remove the Trustee by so notifying the Trustee and the
Company in writing and may appoint a successor Trustee with the Company’s
consent.  The Company may remove the
Trustee if:

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

(ii)           the
Trustee is adjudged a bankrupt or an insolvent;

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

(iv)          the
Trustee becomes incapable of acting.

If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee.  Within one year
after the successor Trustee takes office, the Holders of a majority in
aggregate principal amount of the 

 

33

 

Securities then outstanding may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.

If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in aggregate principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.

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

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

7.09         SUCCESSOR TRUSTEE BY MERGER, ETC.

 

If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee, if such successor corporation is otherwise eligible hereunder.

7.10         ELIGIBILITY; DISQUALIFICATION.

 

This Indenture shall always have a Trustee who satisfies the requirements
of TIA § 310(a)(1).  The Trustee
shall always have or be a member of a Bank Holding Company having a combined
capital and surplus of at least $50,000,000 as set forth in its most recent
published annual report of condition. 
The Trustee shall comply with TIA § 310(b).

7.11         PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.

 

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

VIII.        DISCHARGE
OF INDENTURE

 

8.01         TERMINATION OF THE OBLIGATIONS OF THE COMPANY.

 

The Company may terminate all of its obligations under this Indenture
if all Securities previously authenticated and delivered (other than mutilated,
destroyed, lost or stolen Securities which have been replaced or paid as
provided in Section 2.07) have been delivered to the Trustee for
cancellation or if:

 

34

 

(i)            the
Securities mature within one year or all of them are to be called for redemption
within one year under arrangements reasonably satisfactory to the Trustee for
giving the notice of redemption;

(ii)           the
Company irrevocably deposits in trust with the Trustee money or U.S. Government
Obligations, or Common Stock with respect to any Make-Whole Payment, sufficient
to pay the principal or Redemption Price or Provisional Redemption Price, if
applicable, of and any unpaid and accrued interest on the Securities to
maturity or redemption, as the case may be. 
Immediately after making the deposit, the Company shall give notice of
such event to the Securityholders;

(iii)          the
Company has paid or caused to be paid all sums then payable by the Company to
the Trustee hereunder as of the date of such deposit; and

(iv)          the
Company has delivered to the Trustee an Opinion of Counsel and an Officers’
Certificate stating that all conditions precedent provided for herein relating
to the satisfaction and discharge of this Indenture have been complied
with.  The Company may make the deposit
only during the one-year period and only if Article XI permits it.

However, the Company’s obligations in Sections 2.02, 2.03, 2.04, 2.05,
2.06, 2.07, 2.08, 2.15, 2.16, 2.17, 4.01, 4.02, 7.07 and 7.08 and
Article VIII and Article X shall survive until the
Securities are no longer outstanding. 
Thereafter the obligations of the Company in Sections 7.07 and 8.03
shall survive.

After a deposit pursuant to this Section 8.01, the Trustee upon request
shall acknowledge in writing the discharge of the obligations of the Company
under the Securities and this Indenture except for those surviving obligations
specified above.

In order to have money available on a payment date to pay the principal
or Redemption Price or Provisional Redemption Price, if applicable, of and any
unpaid and accrued interest on the Securities, the U.S. Government Obligations
shall be payable as to principal and any unpaid and accrued interest on or
before such payment date in such amounts as will provide the necessary money.

“U.S.
Government Obligations” means direct non-callable obligations of, or
non-callable obligations guaranteed by, the United States of America for the
payment of which the full faith and credit of the United States of America is
pledged.

8.02         APPLICATION OF TRUST MONEY.

 

The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01.  It shall apply the deposited money and the
money from U.S. Government Obligations through the Paying Agent and in accordance
with this Indenture to the payment of the principal or Redemption Price or
Provisional Redemption Price, if applicable, of and any unpaid and accrued
interest on the Securities.  Money and
securities so held in trust are not subject to the subordination provisions of Article XI.

 

35

 

8.03         REPAYMENT
TO COMPANY.

 

The Trustee and the Paying Agent shall promptly notify the Company of,
and pay to the Company upon the written request of the Company, any excess
money or securities held by them at any time. 
The Trustee and the Paying Agent shall pay to the Company upon the
written request of the Company any money held by them for the payment of the
principal or Redemption Price or Provisional Redemption Price, if applicable,
of and any unpaid and accrued interest that remains unclaimed for two years or
such shorter period under applicable state escheat laws; provided, however,
that the Trustee or such Paying Agent, before being required to make any such
repayment, may, at the expense and request of the Company, cause to be
published once in a newspaper of general circulation in the City of New York or
cause to be mailed to each Holder, notice stating that such money remains and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication or mailing, any unclaimed balance of such money
then remaining will be repaid to the Company. 
After payment to the Company, Securityholders entitled to the money must
look to the Company for payment as general creditors unless an applicable
abandoned property law designates another person.

8.04         REINSTATEMENT.

 

If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Sections 8.01 and 8.02 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
obligations of the Company under this Indenture and the Securities shall be
revived and reinstated as though no deposit had occurred pursuant to Sections 8.01
and 8.02
until such time as the Trustee or Paying Agent is permitted to apply all such
money or U.S. Government Obligations in accordance with Sections 8.01 and 8.02;
provided,
however,
that if the Company has made any payment of amounts due with respect to any
Securities because of the reinstatement of its obligations, the Company shall
be subrogated to the rights of the Holders of such Securities to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent.

IX.           AMENDMENTS

 

9.01         WITHOUT CONSENT OF HOLDERS.

 

The Company, with the consent of the Trustee, may amend or supplement
this Indenture or the Securities without notice to or the consent of any
Securityholder:

(i)            to
cure any ambiguity, defect, omission or inconsistency that does not adversely
affect the rights of any Securityholder;

(ii)           to
comply with Sections 5.01 and 10.12;

(iii)          to
make any changes or modifications to this Indenture necessary in connection
with the registration of the Securities under the Securities Act and the
qualification of the Indenture under the TIA;

 

36

 

(iv)          to
provide for uncertificated Securities in addition to certificated Securities;

(v)           to
secure the obligations of the Company in respect of the Securities;

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

(vii)         to
make any change that does not adversely affect the rights of any Securityholder.

9.02         WITH
CONSENT OF HOLDERS.

 

The Company, with the consent of the Trustee, may amend or supplement
this Indenture or the Securities without notice to any Securityholder but with
the written consent of the Holders of at least a majority in aggregate
principal amount of the outstanding Securities.  Subject to Section 6.07, the Holders of a
majority in aggregate principal amount of the outstanding Securities may waive
compliance by the Company with any provision of this Indenture or the
Securities without notice to any other Securityholder.  However, without the consent of each
Securityholder affected, an amendment, supplement or waiver, including a waiver
pursuant to Section 6.04, may not:

(i)            reduce
the principal amount of Securities whose Holders must consent to an amendment,
supplement or waiver under this Indenture or to the waiver of defaults or
compliance hereunder;

(ii)           reduce
the rate of accrual of interest or change the time for payment of interest on
any Security;

(iii)          reduce
the principal, Redemption Price, Provisional Redemption Price, if applicable,
or Repurchase Price of or change the fixed maturity of any Security (including,
without limitation, the optional redemption provisions);

(iv)          make
any Security payable in currency or securities other than as stated in such
Security;

(v)           waive
a default in the payment of any amount due with respect to any Security;

(vi)          make
any change in Section 6.04, 6.07 or 9.02; or

(vii)         change
the right to convert, or receive payment with respect to, any Security or the
right to institute suit for the enforcement of any payment with respect to, or
conversion of, any Security or the right to require the Company to repurchase
any of the Securities upon a Change in Control.

 

37

 

An amendment under this Section 9.02 may not make any change
that adversely affects the rights under Article XI of any holder of Senior
Indebtedness unless the holders of such Senior Indebtedness pursuant to its
terms consent to the change.

Promptly after an amendment under this Section 9.02 becomes
effective, the Company shall mail to Securityholders a notice briefly
describing the amendment.  Any failure
of the Company to mail such notice shall not in any way impair or affect the
validity of such amendment, supplement or waiver.

It shall not be necessary for the consent of the Holders under this Section 9.02
to approve the particular form of any proposed amendment or supplement, but it
shall be sufficient if such consent approves the substance thereof.

9.03         COMPLIANCE WITH TRUST INDENTURE ACT.

 

Every amendment, waiver or supplement to this Indenture or the
Securities shall comply with the TIA as then in effect.

9.04         REVOCATION AND EFFECT OF CONSENTS.

 

Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder’s Security, even if notation of the consent is not made
on any Security.  However, any such
Holder or subsequent Holder may revoke the consent as to its Security or
portion of a Security if the Trustee receives the notice of revocation before
the date the amendment, supplement or waiver becomes effective.  An amendment, supplement or waiver becomes
effective in accordance with its terms and thereafter binds every
Securityholder.

After an amendment, supplement or waiver becomes effective with respect
to the Securities, it shall bind every Securityholder unless it makes a change
described in Section 9.02.  In
that case, the amendment, supplement or waiver shall bind each Holder of a
Security who has consented to it and, provided that notice of such amendment,
supplement or waiver is reflected on a Security that evidences the same debt as
the consenting Holder’s Security, every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the consenting Holder’s
Security.

9.05         NOTATION ON OR EXCHANGE OF SECURITIES.

 

If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the
Trustee.  The Trustee may place an appropriate
notation on the Security as directed and prepared by the Company about the
changed terms and return it to the Holder. 
Alternatively, if the Company so determines, the Company in exchange for
the Security shall issue and the Trustee shall authenticate a new Security that
reflects the changed terms.

 

38

 

9.06         TRUSTEE PROTECTED.

 

The Trustee need not sign any amendment, supplement or waiver
authorized pursuant to this Article IX that adversely affects the
Trustee’s rights, duties, liabilities or responsibilities, unless the Trustee
receives indemnity reasonably satisfactory to it against any loss, liability or
expense.  The Trustee shall be entitled
to receive and be protected in relying upon an Opinion of Counsel and an
Officers’ Certificate stating that any supplemental indenture, amendment or
waiver complies with the Indenture.

9.07        EFFECT OF
SUPPLEMENTAL INDENTURE.

 

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

X.            CONVERSION

 

10.01       CONVERSION
PRIVILEGE; RESTRICTIVE LEGENDS.

 

A Holder of a Security may convert such Security into Common Stock at
any time during the period stated in paragraph 9 of the Securities.  The initial conversion rate is stated in paragraph 9
of the Securities.  The conversion rate
is subject to adjustment in accordance with Sections 10.06 through 10.12.

A Holder may convert a portion of the principal of such Security if the
portion is $1,000 principal amount or a positive integral multiple of $1,000
principal amount.  Provisions of this
Indenture that apply to conversion of all of a Security also apply to
conversion of a portion of it.

Any shares issued upon conversion of a Security shall bear the Private
Placement Legend until after the second anniversary of the later of the issue
date for the Securities and the last date on which the Company or any Affiliate
of the Company was the owner of such shares or the Security (or any predecessor
security) from which such shares were converted (or such shorter period of time
as permitted by Rule 144(k) under the Securities Act or any successor provision
thereunder) (or such longer period of time as may be required under the
Securities Act or applicable state securities laws in the Opinion of Counsel
for the Company, unless otherwise agreed by the Company and the Holder
thereof).

10.02       CONVERSION
PROCEDURE.

 

To convert a Security, a Holder must satisfy the requirements in paragraph 9
of the Securities.  The “conversion
date” is the first business day on which the Holder satisfies all
those requirements.  As soon as
practicable after the conversion date, the Company shall deliver to the Holder
through the Conversion Agent a certificate for the number of full shares of
Common Stock issuable upon the conversion and a check in lieu of any fractional
share determined in accordance with Section 10.03.  The person in whose name the certificate is registered shall be
treated as a stockholder of record on and after the conversion date.

 

39

 

Except as described below, no payment or adjustment will be made for
accrued interest on, or liquidated damages with respect to, a converted
Security or for dividends on any Common Stock issued on or prior to
conversion.  If any Holder surrenders a
Security for conversion after the close of business on the record date for the
payment of an installment of interest and prior to the opening of business on
the next interest payment date, then, notwithstanding such conversion, the
interest payable on such interest payment date shall be paid to the Holder of
such Security on such record date; provided, however, that such Security,
when surrendered for conversion, must be accompanied by payment to the Trustee
on behalf of the Company of an amount equal to the interest payable on such
interest payment date on the portion so converted; provided further, however,
that such payment to the Trustee described in the immediately preceding proviso
shall not be required in connection with any conversion of a Security that
occurs on or after the date that the Company has issued a notice of redemption
pursuant to Section 3.04 hereof and prior to the date of such
redemption.

If a Holder converts more than one Security at the same time, the
number of full shares issuable upon the conversion shall be based on the total
principal amount of the Securities converted.

Upon surrender of a Security that is converted in part, the Company
shall execute and the Trustee shall authenticate for and deliver to the Holder
a new Security in an authorized denomination equal in principal amount to the
unconverted portion of the Security surrendered.

If the last day on which a Security may be converted is not a business
day or is a Legal Holiday in a place where a Conversion Agent is located, the
Security may be surrendered to that Conversion Agent on the next succeeding
business day that is not a Legal Holiday.

10.03       FRACTIONAL SHARES.

 

The Company will not issue fractional shares of Common Stock upon conversion
of Securities and instead will deliver a check in an amount equal to the value
of such fraction computed on the basis of the last sale price of the Common
Stock as reported on the NNM (or if not listed for trading thereon, then on the
principal securities exchange or on the principal automated quotation system on
which the Common Stock is listed or admitted to trading) at the close of
business on the date of conversion or if no such sale takes place on such day,
the last sale price for such day shall be the average of the closing bid and
asked prices regular way on the NNM (or if not listed for trading thereon, on
the principal securities exchange or on the principal automated quotation
system on which the Common Stock is listed or admitted to trading) for such
day.  If on the date of conversion, the
Common Stock is not quoted by any such organization, the fair value of such
Common Stock on such day, as reasonably determined in good faith by the Board
of Directors shall be used.

10.04       TAXES ON CONVERSION.

 

If a Holder converts its Security, the Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of shares
of Common Stock upon the conversion. 
However, the Holder shall pay any such tax which is due because the
shares are issued in a name other than the Holder’s name.

 

40

 

10.05       COMPANY TO
PROVIDE STOCK.

 

The Company shall prior to the issuance of any Securities reserve out
of its authorized but unissued Common Stock or Common Stock held in its treasury
enough shares of Common Stock to permit the conversion of all of the
Securities.

All shares of Common Stock which may be issued upon conversion of the
Securities shall be duly authorized, validly issued, fully paid and
non-assessable, and shall be free from preemptive rights and free of any liens
and adverse claims.

The Company will endeavor to comply with all securities laws regulating
the offer and delivery of shares of Common Stock upon conversion of Securities
and will endeavor to list such shares on each national securities exchange or
automated quotation system on which the Common Stock is listed.

10.06       ADJUSTMENT OF CONVERSION RATE.

 

The
conversion rate shall be subject to adjustment from time to time as follows:

(a)           In
case the Company shall (1) pay a dividend in shares of Common Stock to all
holders of Common Stock, (2) make a distribution in shares of Common Stock to
all holders of Common Stock, (3) subdivide the outstanding shares of Common
Stock into a greater number of shares of Common Stock or (4) combine the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, the conversion rate in effect immediately prior to such action shall be
adjusted so that the holder of any Security thereafter surrendered for
conversion shall be entitled to receive the number of shares of Common Stock
which he would have owned immediately following such action had such Securities
been converted immediately prior thereto. 
Any adjustment made pursuant to this Section 10.06(a) shall
become effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision or combination.

(b)           In
case the Company shall issue rights or warrants to all holders of Common Stock,
entitling them (for a period commencing no earlier than the record date for the
determination of Holders of Common Stock entitled to receive such rights or
warrants and expiring not more than 60 days after such record date) to subscribe
for or purchase shares of Common Stock (or securities convertible into Common
Stock), at a price per share less than the then current market price (as
determined pursuant to Section 10.06(f) below) of Common
Stock on such record date, the conversion rate shall be increased by
multiplying the conversion rate in effect immediately prior to such record date
by a fraction of which the numerator shall be the number of shares of Common
Stock, outstanding on such record date, plus
the number of shares of Common Stock so offered for subscription or purchase
and the denominator of which shall be the number of shares of Common Stock
outstanding at the close of business on such record date plus the number of
shares of Common Stock which the aggregate of the offering price of the total 

 

41

 

number
of shares of Common Stock so offered for subscription or purchase would
purchase at such current market price.  Such adjustments shall become effective immediately after such
record date.

(c)           In
case the Company shall distribute to all holders of Common Stock shares of
capital stock of the Company other than Common Stock, evidences of indebtedness
or other assets (other than cash dividends out of current or retained earnings),
or shall distribute to substantially all holders of Common Stock rights or
warrants to subscribe for securities (other than those referred to in Section 10.06(b)
above), then in each such case the conversion rate shall be increased by multiplying the conversion rate in
effect immediately prior to the close of business on the record date for the
determination of shareholders entitled to such distribution by a fraction of
which the numerator shall be the current market price of Common Stock
(determined as provided in subsection (f) below), on such date
and the denominator shall be such current market price less the fair market
value (as determined by the Board of Directors whose determination shall be
conclusive and described in a Board Resolution) on such date of the portion of
the evidences of indebtedness, shares of capital stock, cash and other assets
to be distributed or of such subscription rights or warrants applicable to one
share of Common Stock such increase to become effective immediately prior to
the opening of business on the day following such record date.  Notwithstanding the foregoing, in the event
that the Company shall distribute rights or warrants (other than those referred
to in Section 10.06(b)
above) (“Rights”) pro rata to holders of Common
Stock, the Company may, in lieu of making any adjustment pursuant to this Section 10.06(c),
make proper provision so that each Holder of a Security who converts such
Security (or any portion thereof) after the record date for such distribution
and prior to the expiration or redemption of the Rights shall be entitled to
receive upon such conversion, in addition to the shares of Common Stock
issuable upon such conversion (the “Conversion Shares”), a number of Rights to
be determined as follows:  (i) if such
conversion occurs on or prior to the date for the distribution to the holders
of Rights of separate certificates evidencing such Rights (the “Distribution
Date”), the same number of Rights to which a holder of a number of
shares of Common Stock equal to the number of shares of Conversion Shares is
entitled at the time of such conversion in accordance with the terms and
provisions of and applicable to the Rights; and (ii) if such conversion occurs
after the Distribution Date, the same number of Rights to which a holder of the
number of shares of Common Stock into which the principal amount of the
Security so converted was convertible immediately prior to the Distribution
Date would have been entitled on the Distribution Date in accordance with the
terms and provisions of and applicable to the Rights; provided, however, that in
the event such fair market value on such record date of the portion of the
distributed evidences of indebtedness, shares of capital stock and other assets
or subscription rights or warrants so applicable to one share of Common Stock
is equal to or greater than such current market price of the Common Stock on
such record date, in lieu of the foregoing adjustment, adequate provision shall
be made so that each Holder shall have the right to receive upon conversion of
a Security (or any portion thereof) the amount of distributed 

 

42

 

evidences of indebtedness,
shares of capital stock and other assets or subscription rights or warrants
such Holder would have received had such Holder converted such Security (or any
portion thereof) immediately prior to such record date.  In the event that such dividend or
distribution is not so paid or made, the conversion rate shall again be
adjusted to be the conversion rate which would then be in effect if such
dividend or distribution had not been declared.

(d)           In
case the Company shall, by dividend or otherwise, at any time make a
distribution (the “Triggering Distribution,” and the amount of
the Triggering Distribution, together with the sum of (w) and (x) below, the “Combined
Amount”) to all or substantially all holders of its Common Stock of
cash (including any distributions of cash out of current or retained earnings
of the Company, but excluding any cash that is distributed as part of a
distribution requiring a conversion rate adjustment pursuant to this subsection
(d)) in an aggregate amount that, together with the sum of (w) the
aggregate amount of any cash and the fair market value (as determined in good
faith by the Board of Directors, whose determination shall be conclusive
thereof and described in a Board Resolution), as of the expiration of the
tender or exchange offer referred to below, of any other consideration payable
in respect of any tender or exchange offer by the Company or a subsidiary of
the Company for all or any portion of the Common Stock consummated within the
12 months preceding the date of payment of the Triggering Distribution and in
respect of which no conversion rate adjustment has been made pursuant to this Section
10.06, and (x) the aggregate amount of all other cash distributions
to all or substantially all holders of Common Stock made within the 12 months
preceding the date of payment of the Triggering Distribution and in respect of
which no conversion rate adjustment has been made pursuant to this Section
10.06, exceeds 10% of the product of the current market price per
share (as determined in accordance with subsection (f) of this Section 10.06) of the Common
Stock on the close of business, New York City time, on the business day (the “Distribution
Declaration Date”) immediately preceding the day on which the
Triggering Distribution is declared by the Company and the number of shares of
Common Stock outstanding on the Distribution Declaration Date (excluding shares
held in the treasury of the Company), the conversion rate shall be adjusted by
multiplying the conversion rate in effect immediately prior to the
effectiveness of the conversion rate adjustment contemplated by this subsection
(d) by a fraction (y) which denominator is such current market price
per share of Common Stock less a quotient which dividend is the Combined Amount
and which divisor is such number of shares of Common Stock outstanding, and (z)
which numerator is such current market price per share of Common Stock.  Such adjustment shall become effective
immediately prior to the opening of business on the day following the
Distribution Declaration Date.

(e)           In
case a tender or exchange offer made by the Company or any subsidiary of the
Company for all or any portion of the Common Stock shall expire and such tender
or exchange offer (as amended through the expiration thereof) shall involve the
payment of aggregate consideration in an amount 

 

43

 

(determined as the sum of
the aggregate amount of cash consideration and the aggregate fair market value
(as determined in good faith by the Board of Directors, whose determination
shall be conclusive thereof and described in a Board Resolution), as of the
last time (the “Expiration Time,” and the date of the Expiration Time, the “Expiration
Date”) tenders or exchanges may have been made pursuant to such
tender or exchange offer (as it may be amended), of any other consideration)
that, together with the sum of (u) the aggregate amount of any cash and the
fair market value (as determined in good faith by the Board of Directors, whose
determination shall be conclusive thereof and described in a Board Resolution),
as of the expiration of the other tender or exchange offer referred to below,
of any other consideration payable in respect of any other tender or exchange
offer by the Company or a subsidiary of the Company for all or any portion of
the Common Stock consummated within the 12 months preceding the Expiration Date
and in respect of which no conversion rate adjustment has been made pursuant to
this Section
10.06 and (v) the aggregate amount of other all-cash distributions
to all or substantially all holders of Common Stock made within the 12 months
preceding the Expiration Date and in respect of which no conversion rate
adjustment has been made pursuant to this Section 10.06, exceeds 10% of the product
of the current market price per share (as determined in accordance with subsection
(f) of this Section 10.06) of the Common Stock on the
close of business, New York City time, on the Expiration Date and the number of
shares of Common Stock outstanding at the Expiration Time (including any
tendered or exchanged shares but excluding shares held in the treasury of the
Company), the conversion rate shall be adjusted by multiplying the conversion
rate in effect immediately prior to the effectiveness of the conversion rate
adjustment contemplated by this subsection (e) by a fraction which
numerator is the sum of (w) the amount of the aggregate consideration
(determined as aforesaid) payable to stockholders based on the acceptance (up
to any maximum specified in the terms of the tender or exchange offer) of all
shares validly tendered or exchanged and not withdrawn as of the Expiration
Time (the shares deemed so accepted, up to any such maximum, the “Purchased
Shares”) and (x) the product of such number of shares of Common
Stock outstanding less the number of Purchased Shares, and the current market
price per share (as determined in accordance with subsection (f) of this Section
10.06) of Common Stock on the close of business, New York City time,
on the trading day next succeeding the Expiration Date, and which denominator
is the product of (y) such number of shares of Common Stock outstanding and (z)
the current market price per share (as determined in accordance with subsection
(f) of this Section 10.06) of Common Stock on the close
of business, New York City time, on the trading day next succeeding the
Expiration Date.  Such adjustment shall
become effective immediately prior to the opening of business on the day
following the Expiration Date.  If the
Company is obligated to purchase shares pursuant to any such tender or exchange
offer, but the Company is permanently prevented by applicable law from
effecting any or all such purchases, or any or all such purchases are
rescinded, then the conversion rate shall again be adjusted to be the
conversion rate that would have been in effect based upon the number of shares
actually 

 

44

 

purchased.  If the application of this subsection
(e) to any tender or exchange offer would result in a decrease in
the conversion rate, then no adjustment shall be made for such tender or
exchange offer under this subsection (e).

(f)            For
the purpose of any computation under subsections  (a), (b), (c), (d) and (e) above of this Section
10.06, the current market price per share of Common Stock on the
date fixed for determination of the stockholders entitled to receive the
issuance or distribution requiring such computation (the “Determination Date”) shall be
deemed to be the average of the Daily Market Prices for the ten consecutive
trading days immediately preceding the Determination Date; provided, however,
that (i) if the “ex” date for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to the
conversion rate pursuant to subsection  (a), (b), (c), (d) or (e) above occurs on or after
the tenth trading day prior to the Determination Date and prior to the “ex”
date for the issuance or distribution requiring such computation, the Daily
Market Price for each trading day prior to the “ex” date for such other event
shall be adjusted by multiplying such Daily Market Price by the reciprocal of
the fraction by which the conversion rate is so required to be adjusted as a
result of such other event, (ii) if the “ex” date for any event (other
than the issuance or distribution requiring such computation) that requires an
adjustment to the conversion rate pursuant to subsection  (a),
(b),
(c),
(d)
or (e)
above occurs on or after the “ex” date for the issuance or distribution
requiring such computation and on or prior to the Determination Date, the Daily
Market Price for each business day on and after the “ex” date for such other
event shall be adjusted by multiplying such Daily Market Price by the same
fraction by which the conversion rate is so required to be adjusted as a result
of such other event, and (iii) if the “ex” date for the issuance or
distribution requiring such computation is on or prior to the Determination
Date, after taking into account any adjustment required pursuant to
clause (i) or (ii) of this proviso, the Daily Market Price for each
trading day on and after the “ex” date shall be adjusted by adding thereto the
amount of any cash and the fair market value (as determined by the Board of
Directors in a manner consistent with any determination of such value for the
purposes of this Section 10.06, whose determination shall be conclusive and
described in a Resolution of the Board of Directors) of the evidences of
indebtedness, shares of capital stock or other securities or assets being
distributed (in the distribution requiring such computation) applicable to one
share of Common Stock as of the close of business on the day before such “ex”
date.  For the purpose of any
computation under subsection (e) of this Section
10.06, the current market price per share of Common Stock at the
expiration time for the tender offer requiring such computation shall be deemed
to be the average of the Daily Market Price for the ten consecutive trading
days commencing on the business day immediately following the expiration time
of such tender offer (the “Commencement Date”); provided, however,
that if the “ex” date for any event (other than the tender offer requiring such
computation) that requires an adjustment to the conversion rate pursuant to subsection
(a),
(b),
(c),
(d)
or (e)
above occurs on or after the expiration time for the tender offer requiring
such computation and prior to the day in question, the Daily Market Price for
each 

 

45

 

trading day on or after to
the “ex” date for such other event shall be adjusted by multiplying such Daily
Market Price by the same fraction by which the conversion rate is so required
to be adjusted as a result of such other event.  For purposes of this subsection, the term “ex” date,
(i) when used with respect to any issuance or distribution, means the
first date on which the Common Stock trades regular way on the relevant
exchange or in the relevant market from which the Daily Market Price was
obtained without the right to receive such issuance or distribution,
(ii) when used with respect to any subdivision or combination of shares of
Common Stock, means the first date on which the Common Stock trades regular way
on such exchange or in such market after the time at which such subdivision or
combination becomes effective, and (iii) when used with respect to any
tender offer means the first date on which the Common Stock trades regular way
on such exchange or in such market after the expiration time of such tender
offer (as it may be amended or extended).

(g)           In
addition to the foregoing adjustments in subsections (a), (b), (c), (d) and (e)
above, the Company, from time to time and to the extent permitted by law, may
increase the conversion rate by any amount for at least 20 business days, if
the Board of Directors of the Company has made a determination, which
determination shall be conclusive, that such increase would be in the best
interest of the Company.  The Company
shall give notice to the Trustee and cause such notice of such increase to be
mailed to each Holder of Securities at such Holder’s address as the same
appears on the registry books of the Registrar, at least 15 days prior to the
date on which such increase commences.

10.07       NO ADJUSTMENT.

 

No
adjustment in the conversion rate shall be required until cumulative
adjustments amount to 1% or more of the conversion rate as last adjusted; provided,
however, that any adjustments which by reason of this Section 10.07
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment.  All
calculations under this Article X shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.  No adjustment need be made for rights to
purchase Common Stock pursuant to a Company plan for reinvestment of dividends
or interest.  No adjustment need be made
for a change in the par value of the Common Stock.

If
any rights, options or warrants issued by the Company as described in Section
10.06 are only exercisable upon the occurrence of certain triggering
events, then the conversion rate will not be adjusted as provided in Section
10.06 until the earliest of such triggering event occurs.  Upon the expiration or termination of any
rights, options or warrants without the exercise of such rights, options or
warrants, the conversion rate then in effect shall be adjusted immediately to
the conversion rate which would have been in effect at the time of such
expiration or termination had such rights, options or warrants, to the extent
outstanding immediately prior to such expiration or termination, never been
issued.

No
adjustment need be made for a transaction referred to in this Article X
if Securityholders are to participate in the transaction without conversion on
a basis and with notice 

 

46

 

that the Board of Directors determines to be fair and appropriate in
light of the basis and notice on which holders of Common Stock participate in
the transaction.

10.08       OTHER ADJUSTMENTS.

 

In
the event that, as a result of an adjustment made pursuant to Section 10.06
hereof, the Holder of any Security thereafter surrendered for conversion shall
become entitled to receive any shares of Capital Stock other than shares of
Common Stock, thereafter the conversion rate of such other shares so receivable
upon conversion of any Security shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to Common Stock contained in this Article X.

10.09       ADJUSTMENTS FOR TAX PURPOSES.

 

The
Company may make such increases in the conversion rate, in addition to those
required by Section 10.06 hereof, as the Board of Directors may
determine to be advisable in order that any stock dividend, subdivision of
shares, distribution or rights to purchase stock or securities or distribution
of securities convertible into or exchangeable for stock made by the Company or
to its stockholders will not be taxable to the recipients thereof.

10.10       NOTICE OF ADJUSTMENT.

 

Whenever
the conversion rate is adjusted, the Company shall promptly mail to Holders at
the addresses appearing on the Registrar’s books a notice of the adjustment and
file with the Trustee an Officers’ Certificate briefly stating the facts
requiring the adjustment and the manner of computing it.  The certificate shall be conclusive evidence
of the correctness of such adjustment.

10.11       NOTICE OF CERTAIN TRANSACTIONS.

 

In
the event that:

(1)           the Company takes
any action which would require an adjustment in the conversion rate;

(2)           the Company takes
any action that would require a supplemental indenture pursuant to Section 10.12;
or

(3)           there is a
dissolution or liquidation of the Company;

a
Holder of a Security may wish to convert such Security into shares of Common
Stock prior to the record date for or the effective date of the transaction so
that he may receive the rights, warrants, securities or assets which a holder
of shares of Common Stock on that date may receive.  Therefore, the Company shall mail to Holders at the addresses
appearing on the Registrar’s books and file with the Trustee and the Conversion
Agent a notice stating the proposed record or effective date, as the case may
be, of any transaction referred to in clause (1), (2) or (3) of this Section 10.11.  The Company shall mail such notice at least
15 days before such 

 

47

 

date;
however, failure to mail such notice or any defect therein shall not affect the
validity of any transaction referred to in clause (1), (2) or (3) of this Section 10.11.

10.12       EFFECT OF RECLASSIFICATIONS, CONSOLIDATIONS, MERGERS, BINDING SHARE EXCHANGES OR SALES
ON CONVERSION PRIVILEGE.

 

If
any of the following shall occur, namely: 
(i) any reclassification or change in the Common Stock issuable upon
conversion of Securities (other than a change in par value, or from par value
to no par value, or from no par value to par value, or as a result of a
subdivision or combination), (ii) any consolidation, merger or binding share
exchange to which the Company is a party other than a merger in which the
Company is the continuing corporation and which does not result in any
reclassification of, or change (other than a change in name, or par value, or
from par value to no par value, or from no par value to par value or as a
result of a subdivision or combination) in, the Common Stock, or (iii) any sale
or conveyance of all or substantially all of the property or business of the
Company as an entirety, then the Company or such successor or purchasing
corporation, as the case may be, shall, as a condition precedent to such
reclassification, change, consolidation, merger, binding share exchange, sale
or conveyance, execute and deliver to the Trustee a supplemental indenture in
form reasonably satisfactory to the Trustee providing that the Holder of each
Security then outstanding shall have the right to convert such Security into
the kind and amount of shares of stock and other securities and property
(including cash) receivable upon such reclassification, change, consolidation,
merger, binding share exchange, sale or conveyance by a holder of the number of
shares of Common Stock, deliverable upon conversion of such Security
immediately prior to such reclassification, change, consolidation, merger, binding
share exchange, sale or conveyance. 
Such supplemental indenture shall provide for adjustments of the
conversion rate which shall be as nearly equivalent as may be practicable to
the adjustments of the conversion rate provided for in this Article X.  The foregoing, however, shall not in any way
affect the right a Holder of a Security may otherwise have, pursuant to clause (ii)
of the last sentence of subsection (c) of Section 10.06 hereof, to
receive Rights upon conversion of a Security. 
If, in the case of any such consolidation, merger, binding share
exchange, sale or conveyance, the stock or other securities and property
(including cash) receivable thereupon by a holder of Common Stock includes
shares of stock or other securities and property of a corporation other than
the successor or purchasing corporation, as the case may be, in such
consolidation, merger, binding share exchange, sale or conveyance, then such
supplemental indenture shall also be executed by such other corporation and
shall contain such additional provisions to protect the interests of the
Holders of the Securities as the Board of Directors shall reasonably consider
necessary by reason of the foregoing. 
The provision of this Section 10.12 shall similarly apply to
successive consolidations, mergers, binding share exchange, sales or
conveyances.

In
the event the Company shall execute a supplemental indenture pursuant to this Section 10.12,
the Company shall promptly file with the Trustee an Officers’ Certificate
briefly stating the reasons therefor, the kind or amount of shares of stock or
securities or property (including cash) receivable by Holders of the Securities
upon the conversion of their Securities after any such reclassification,
change, consolidation, merger, binding share exchange, sale or conveyance and
any adjustment to be made with respect thereto.

 

48

 

10.13       TRUSTEE’S DISCLAIMER.

 

The
Trustee has no duty to determine when an adjustment under this Article X
should be made, how it should be made or what such adjustment should be, but
may accept as conclusive evidence of the correctness of any such adjustment,
and shall be protected in relying upon the Officers’ Certificate with respect
thereto which the Company is obligated to file with the Trustee pursuant to Section 10.10
hereof.  The Trustee makes no
representation and shall not be accountable as to the validity or value of any
securities or assets issued upon conversion of Securities, and the Trustee
shall not be responsible for the failure by the Company to comply with any
provisions of this Article X.  Each Conversion Agent shall have the same protection under this Section
10.13 as the Trustee.

The
Trustee has no duty to determine whether a supplemental indenture under Section 10.12
is needed and shall not be under any responsibility to determine the
correctness of any provisions contained in any supplemental indenture executed
pursuant to Section 10.12, but may accept as conclusive evidence of
the correctness thereof, and shall be protected in relying upon, the Officers’
Certificate with respect thereto which the Company is obligated to file with
the Trustee pursuant to Section 10.12 hereof.

XI.           SUBORDINATION

 

11.01       AGREEMENT TO SUBORDINATE.

 

The Company agrees, and each Securityholder by accepting a Security
agrees, that the payment of all amounts due with respect to the Securities is
subordinated in right of payment, to the extent and in the manner provided in
this Article XI,
to the prior payment in full of all Senior Indebtedness and that the
subordination is for the benefit of the holders of Senior Indebtedness.

Money and securities held in trust pursuant to Article VIII are not
subject to the subordination provisions of this Article XI.

11.02       CERTAIN DEFINITIONS.

 

“Indebtedness”
means, with respect to any person, the principal of, and premium, if any, and
interest on (a) all indebtedness of such person for borrowed money
(including all indebtedness evidenced by notes, bonds, debentures or other
securities sold by such person for money), (b) all obligations incurred by
such person in the acquisition (whether by way of purchase, merger, consolidation
or otherwise and whether by such person or another person) of any business,
real property or other assets (except inventory and related items acquired in
the ordinary course of the conduct of the acquiror’s usual business), (c) direct
or indirect guarantees or similar agreements by such person of indebtedness
described in clause (a), (b), (e), (f), (g) or (h) of
another person, (d) all renewals, extensions, refundings, deferrals,
restructurings, amendments, supplements and modifications of any such
indebtedness, obligation or guarantee, (e) all reimbursement obligations
and other liabilities, contingent or otherwise, of such person with respect to
letters of credit, bankers’ acceptances or similar facilities issued for the
account of such person, (f) all capital lease obligations of such person,
(g) all obligations of such person under interest rate swap, currency
exchange or similar agreements of such person and (h) all

 

49

 

obligations and other liabilities, contingent or otherwise, under any
lease or related document, including a purchase agreement, conditional sale or
other title retention agreement, in connection with the lease of real property
or improvements thereon (or any personal property included as part of any such
lease) which provides that such person is contractually obligated to purchase
or cause a third party to purchase the leased property or pay an agreed upon
residual value of the leased property, including such person’s obligations
under such lease or related document to purchase or cause a third party to
purchase such leased property or pay an agreed upon residual value of the
leased property to the lessor.

“Representative”
means the indenture trustee or other trustee, agent or representative for an
issue of Senior Indebtedness.

“Senior
Indebtedness” means all Indebtedness of the Company outstanding at
any time except Indebtedness that by its terms is subordinate in right of
payment to the Securities or Indebtedness that is not otherwise senior in right
of payment to the Securities.  Senior
Indebtedness does not include Indebtedness of the Company to any of its subsidiaries.

11.03       LIQUIDATION; DISSOLUTION; BANKRUPTCY.

 

Upon any distribution of assets to creditors of the Company in a
liquidation, winding up or dissolution of the Company, or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its properties:

(i)            holders
of Senior Indebtedness shall be entitled to receive payment in full of the
principal of and interest (including interest accruing after the commencement
of any such proceeding) to the date of payment on the Senior Indebtedness
before Securityholders shall be entitled to receive any payment from the
Company of amounts due with respect to the Securities (other than cash payments
due upon conversion in lieu of fractional shares in accordance with Section 10.03);
and

(ii)           until
the Senior Indebtedness is paid in full, any distribution to which Securityholders
would be entitled from the Company but for this Article XI shall be made
to holders of Senior Indebtedness, as their interests may appear, except the Securityholders
may receive securities that are subordinated to Senior Indebtedness to at least
the same extent as the Securities and payments made pursuant to Sections 8.01
and 8.02.

11.04       COMPANY NOT TO MAKE PAYMENTS WITH RESPECT TO SECURITIES IN CERTAIN CIRCUMSTANCES.

 

No payment of amounts due on the Securities may be made by the Company,
directly or indirectly, with respect to the Securities (including any
repurchase pursuant to the exercise of the Repurchase Right) or to acquire any
of the Securities at any time if a default in payment of the principal of or
premium, if any, or interest on Senior Indebtedness exists, unless and until
such default shall have been cured or waived or shall have ceased to
exist.  During the continuance of any
event of default with respect to any Senior Indebtedness as such event of
default is defined under any such Senior 

 

50

 

Indebtedness or in any agreement pursuant to
which any Senior Indebtedness has been issued (other than default in payment of
the principal of or premium, if any, or interest on any Senior Indebtedness),
permitting the holders thereof to accelerate the maturity thereof, no payment
may be made by the Company, directly or indirectly, of any amount due with respect
to the Securities (a “Payment Blockage”) for 180 days following
written notice (a “Payment Blockage Notice”) to the Company
from any holder or holders thereof or its representative or representatives or
the trustee or trustees under any indenture under which any instrument
evidencing any such Senior Indebtedness may have been issued, that such an
event of default has occurred and is continuing.  Only
one Payment Blockage Notice with respect to the same event of default may be
given during any period of 360 consecutive days unless such event of default
has been cured or waived for a period of not less than 90 consecutive days;
provided, that in no event shall there be more than one interest payment in
respect of the Securities blocked during any such 360-day period.  No new Payment Blockage Notice of
non-payment may be given by the holders of such Senior Indebtedness during any
period  of
360 consecutive days unless all events of defaults which triggered the
preceding Payment Blockage have been cured or waived.  However, if the maturity of such Senior Indebtedness is
accelerated, no payment may be made by the Company on the Securities until such
Senior Indebtedness that has matured has been paid or such acceleration has
been cured or waived.

Regardless of anything to the contrary herein, nothing shall prevent
(a) any payment by the Trustee to the Securityholders of amounts deposited with
it pursuant to Article VIII or (b) any payment by the Trustee or the
Paying Agent as permitted by Section 11.12.  Nothing contained in this Article XI
will limit the right of the Trustee or the Securityholders to take any action
to accelerate the maturity of the Securities pursuant to Section 6.02 or to
pursue any rights or remedies hereunder. 
Nothing in this Section 11.04 shall apply to claims of or
payments to the Trustee under or pursuant to Section 7.07.

11.05       ACCELERATION OF SECURITIES.

 

If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Indebtedness of
the acceleration.

11.06       WHEN DISTRIBUTION MUST BE PAID OVER.

 

In the event that the Company shall make any payment to the Trustee
with respect to the Securities at a time when such payment is prohibited by Section 11.03
or 11.04, such payment shall be held by the Trustee, in trust
for the benefit of, and shall be paid forthwith over and delivered to, the
holders of Senior Indebtedness (pro rata as to each of such holders on the
basis of the respective amounts of Senior Indebtedness held by them) or their
Representative or the trustee under the indenture or other agreement (if any)
pursuant to which Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.

If a distribution is made to Securityholders, that because of this Article XI
should not have been made to them, the Securityholders who receive the
distribution shall hold it in trust for holders of Senior Indebtedness and pay
it over to them as their interests may appear.

 

51

 

11.07       NOTICE BY COMPANY.

 

The Company shall promptly notify the Trustee and the Paying Agent in
writing of any facts known to the Company that would cause a payment of any
amount due with respect to the Securities to violate this Article XI, but failure
to give such notice shall not affect the subordination of the Securities to the
Senior Indebtedness provided in this Article XI.

11.08       SUBROGATION.

 

After all Senior Indebtedness is paid in full and until the Securities
are paid in full, Securityholders shall be subrogated (equally and ratably with
all other Indebtedness of the Company ranking pari passu with the
Securities) to the rights of holders of Senior Indebtedness to receive distributions
applicable to Senior Indebtedness to the extent that distributions otherwise
payable to the Securityholders have been applied to the payment of Senior
Indebtedness.  A distribution made under
this Article XI
to holders of Senior Indebtedness which otherwise would have been
made to Securityholders is not, as between the Company and Securityholders, a
payment by the Company on Senior Indebtedness.

11.09       RELATIVE RIGHTS.

 

This Article XI defines the relative rights of Securityholders
and holders of Senior Indebtedness. 
Nothing in this Indenture shall:

(i)            impair,
as between the Company, on the one hand, and Securityholders, on the other
hand, the obligation of the Company, which is absolute and unconditional, to
pay all amounts due with respect to the Securities in accordance with their
terms;

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

(iii)          prevent
the Trustee or any Securityholder from exercising its available remedies upon a
Default or Event of Default, subject to the rights of holders of Senior Indebtedness
to receive distributions otherwise payable to Securityholders.

11.10       SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.

 

No right of any holder of Senior Indebtedness to enforce the
subordination of the indebtedness evidenced by the Securities shall be impaired
by any act or failure to act by the Company or by the failure of the Company to
comply with this Indenture.

11.11       DISTRIBUTION OR NOTICE TO REPRESENTATIVE.

 

Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness, the distribution may be made and the notice given to their
Representatives.

 

52

 

11.12       RIGHTS OF TRUSTEE AND PAYING AGENT.

 

The Trustee or Paying Agent may continue to make payments on the
Securities until it receives written notice of facts that would cause a payment
of amounts due with respect to the Securities to violate this Article XI.  Only the Company or a Representative or a
holder of an issue of Senior Indebtedness that has no Representative may give
the notice.

The Trustee shall be entitled to rely on the delivery to it of a
written notice by a person representing himself to be a holder of Senior
Indebtedness (or a Representative on behalf of such holder) to establish that
such notice has been given by a holder of Senior Indebtedness or a Representative
on behalf of any such holder.  In the
event that the Trustee determines in good faith that further evidence is
required with respect to the right of any person who is a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this Article XI,
the Trustee may request such person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Senior Indebtedness held by
such person, the extent to which such person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
person under this Article XI, 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 or until
such time as the Trustee shall be otherwise satisfied as to the right of such
person to receive such payment.

The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee.  Any Agent may do the same with like rights.

The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holder if it
shall mistakenly pay over or distribute to Securityholders or the Company or
any other person money or assets to which any holders of Senior Indebtedness
shall be entitled by virtue of this Article XI or otherwise.

11.13       OFFICERS’ CERTIFICATE.

 

If there occurs an event referred to in Section 11.03 or 11.04,
the Company shall promptly give to the Trustee an Officers’ Certificate (on
which the Trustee may conclusively rely) identifying all holders of Senior Indebtedness
or their Representatives and the principal amount of Senior Indebtedness then
outstanding held by each such holder and stating the reasons why such Officers’
Certificate is being delivered to the Trustee.

11.14       OBLIGATION OF COMPANY UNCONDITIONAL.

 

Nothing contained in this Article XI or elsewhere in this
Indenture or in any Security is intended to or shall impair, as between the
Company, its creditors other than holders of Senior Indebtedness and the
Holders of the Securities, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders of the Securities all amounts due with
respect to the Securities as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holders of the Securities and creditors of the Company, other
than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or the Holder of any Security from exercising all
remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under 

 

53

 

this Article XI of the holders of Senior
Indebtedness in respect of cash, property or securities of the Company received
upon the exercise of any such remedy. 
Upon any distribution of assets of the Company referred to in this Article XI,
the Trustee, subject to the provisions of Sections 7.01 and 7.02, and the Holders of the
Securities shall be entitled to rely upon any order or decree by any court of
competent jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or a certificate of the liquidating
trustee or agent or other person making any distribution to the Trustee or the
Holders of the Securities, for the purpose of ascertaining the persons entitled
to participate in such distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article XI.  Nothing contained in this Article XI or elsewhere in this
Indenture or in any Security is intended to or shall affect the obligation of
the Company to make, or prevent the Company from making, at any time except
during the pendency of any dissolution, winding up, liquidation or
reorganization proceeding, and except during the continuance of any default
specified in Section 11.04 (not cured or waived), payments at any time
of all amounts due with respect to the Securities.

11.15       NOT TO PREVENT EVENTS OF DEFAULT.

 

The failure to make any payment due with respect to the Securities by
reason of any provision of this Article XI shall not be construed as
preventing the occurrence of an Event of Default under Section 6.01.

XII.         MISCELLANEOUS

 

12.01       TRUST INDENTURE ACT CONTROLS.

 

If any provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this Indenture by the
TIA, the required provision of the TIA shall control.

12.02       NOTICES.

 

Any notice or communication by the Company or the Trustee to one or
both of the others is duly given if in writing and delivered in person, mailed
by first-class mail or by express delivery to the other parties’ addresses
stated in this Section 12.02. 
The Company or the Trustee by notice to the others may designate
additional or different addresses for subsequent notices or communications.

Any notice or communication to a Securityholder shall be mailed to its
address shown on the register kept by the Registrar.  Failure to mail a notice or communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other Securityholders.

If a notice or communication is mailed in the manner provided above, it
is duly given, whether or not the addressee receives it.

 

54

 

If the Company mails a notice or communication to Securityholders, it
shall mail a copy to the other and to the Trustee and each Agent at the same
time.

All notices or communications shall be in writing.

The Company’s address is:

ISIS
Pharmaceuticals, Inc.

2292
Faraday Avenue

Carlsbad,
CA  92008

(760)
931-9200

Attention:  B. Lynne Parshall

 

The Trustee’s address is:

Wells Fargo Bank Minnesota,
National Association

Corporate Trust Services

MAC N9303-110

Sixth and Marquette

Minneapolis, MN  55479

Attention:  Michael T. Lechner

 

12.03       COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.

 

Securityholders may communicate pursuant to TIA § 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities.  The Company, the Trustee,
the Registrar and anyone else shall have the protection of TIA § 312(c).

12.04       CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.

 

Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:

(i)            an
Officers’ Certificate stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and

(ii)           an
Opinion of Counsel stating that, in the opinion of such counsel, all such
conditions precedent have been complied with.

Each signer of an Officers’ Certificate or an Opinion of Counsel may
(if so stated) rely, effectively, upon an Opinion of Counsel as to legal
matters and an Officers’ Certificate as to factual matters if such signer
reasonably and in good faith believes in the accuracy of the document relied
upon.

 

55

 

12.05       STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.

 

Each Officers’ Certificate or Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:

(i)            a
statement that the person making such certificate or opinion has read such
covenant or condition;

(ii)           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;

(iii)          a
statement that, in the opinion of such person, he or she has made such examination
or investigation as is necessary to enable him or her to express an informed
opinion as to whether or not such covenant or condition has been complied with;
and

(iv)          a
statement as to whether or not, in the opinion of such person, such condition
or covenant has been complied with.

12.06       RULES BY TRUSTEE AND AGENTS.

 

The Trustee may make reasonable rules for action by or at a meeting of
Securityholders.  The Registrar, Paying
Agent or Conversion Agent may make reasonable rules and set reasonable
requirements for their respective functions.

12.07       LEGAL HOLIDAYS.

 

A “Legal Holiday” is a Saturday, a Sunday or a day on which
banking institutions are not required to be open in the City of New York, in
the State of New York or in the city in which the Trustee administers its
corporate trust business.  If a payment
date is a Legal Holiday at a place of payment, payment may be made at that
place on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue on that payment for the intervening period.

A “business day” is a day other than a Legal Holiday.

12.08       NO RECOURSE AGAINST OTHERS.

 

No past, present or future director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Securities or this Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation.  Each Holder by accepting a
Security waives and releases all such liability.  The waiver and release are part of the consideration for the
issuance of the Securities.

12.09       DUPLICATE ORIGINALS.

 

The parties may sign any number of copies of this Indenture.  Each signed copy shall be an original, but
all of them together represent the same agreement.  Delivery of an executed 

 

56

 

counterpart by facsimile shall be effective
as delivery of a manually executed counterpart thereof.

12.10       GOVERNING LAW.

 

The laws of the State of New York, without regard to principles of
conflicts of law, shall govern this Indenture and the Securities.

12.11       NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.

 

This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its subsidiaries.  Any such indenture, loan or debt agreement
may not be used to interpret this Indenture.

12.12       SUCCESSORS.

 

All agreements of the Company in this Indenture and the Securities
shall bind their respective successors. 
All agreements of the Trustee in this Indenture shall bind its
successors.

12.13       SEPARABILITY.

 

In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby
and a Holder shall have no claim therefor against any party hereto.

12.14       TABLE OF CONTENTS, HEADINGS, ETC.

 

The Table of Contents, Cross-Reference Table and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.

 

57

 

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

	
   

  	
  ISIS PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ B. Lynne Parshall 

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Michael T. Lechner

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

58

 

EXHIBIT A

[Face of Security]

ISIS PHARMACEUTICALS, INC.

[INSERT PRIVATE
PLACEMENT LEGEND AND GLOBAL SECURITY LEGEND AS REQUIRED]

5 1⁄2% Convertible Subordinated Note due 2009

CUSIP No. ____________

 

ISIS
PHARMACEUTICALS, INC., a Delaware corporation (herein called the “Company”),
for value received, hereby promises to pay to Cede & Co. or registered
assigns, the principal sum of _________________ Dollars ($_______________) on
May 1, 2009, and to pay interest thereon, as provided on the reverse hereof,
until the principal and any unpaid and accrued interest is paid or duly
provided for.  The right to payment of
the principal and all other amounts due with respect hereto is subordinated to
the rights of Senior Indebtedness as set forth in the Indenture referred to on
the reverse side hereof.

Interest Payment Dates:  May 1
and November 1, with the first payment to be made on November 1, 2002.

Record Dates:  April 15 and
October 15.

The provisions on the back of this certificate are incorporated as if
set forth on the face hereof.

IN WITNESS
WHEREOF, ISIS
PHARMACEUTICALS, INC. has caused this instrument to be duly signed.

ISIS PHARMACEUTICALS, INC.

By:                                                                                                                 

Name:

Title:

Dated:  _______________

 

 

A-1

 

TRUSTEE’S
CERTIFICATE OF AUTHENTICATION

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

WELLS FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION,  as Trustee

By:
                                                                                         

Authorized Signatory

Dated:  ________________

 

A-2

 

[REVERSE
OF SECURITY]

ISIS PHARMACEUTICALS, INC.

5 1⁄2% Convertible Subordinated Note due 2009

 

1.             Interest. 
ISIS
PHARMACEUTICALS, INC., a Delaware corporation (the “Company”),
promises to pay interest on the principal amount of this Security at the rate per annum shown
above.  The Company will pay interest
semi-annually on May 1 and November 1 of each year, with the first payment to
be made on November 1, 2002.  Interest
on the Securities will accrue on the principal amount from the most recent date
to which interest has been paid or, if no interest has been paid, from May 1,
2002.  Interest will be computed on the
basis of a 360-day year of twelve 30-day months.

2.             Maturity. 
The Notes will mature on May 1, 2009.

3.             Method of Payment.  The Company will pay interest on the
Securities (except defaulted interest) to the persons who are registered
Holders of Securities at the close of business on the record date set forth on
the face of this Security next preceding the applicable interest payment date.  Holders must surrender Securities to a
Paying Agent to collect the principal, Redemption Price, Provisional Redemption
Price, if applicable, Make-Whole Payment, if applicable, or Repurchase Price of
the Securities.  The Company will pay
all amounts due with respect to the Securities in money of the United States
that at the time of payment is legal tender for payment of public and private
debts.  However, the Company may, at its
option, pay all amounts due with respect to the Securities held other than by
the Depositary by check payable in such money. 
It may mail an interest check to a Holder’s registered address.

4.             Paying Agent, Registrar, Conversion Agent.  Initially, Wells Fargo Bank Minnesota,
National Association (the “Trustee”) will act as Paying Agent, Registrar
and Conversion Agent.  The Company may
change any Paying Agent, Registrar or Conversion Agent without notice.  The Company may act in any such capacity.

5.             Indenture. 
The Company issued the Securities under an Indenture dated as of May 1,
2002 (the “Indenture”) between the Company and the Trustee.  The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939 (15 U.S. Code §§ 77aaa-77bbbb) (the “Act”)
as in effect on the date of the Indenture. 
The Securities are subject to all such terms, and Securityholders are
referred to the Indenture and the Act for a statement of such terms.  The Securities are general unsecured senior
subordinated obligations of the Company limited to $125,000,000 aggregate
principal amount ($143,750,000 if the Initial Purchasers (as defined in the
Indenture) have elected to exercise their over-allotment option to purchase an
additional $18,750,000 of the Securities), except as otherwise provided in the
Indenture (except for Securities issued in substitution for destroyed,
mutilated, lost or stolen Securities). 
Terms used herein which are defined in the Indenture have the meanings
assigned to them in the Indenture.

 

A-3

 

6.             Provisional and Optional Redemption.  The Securities will be redeemable prior to
maturity at the option of the Company, in whole or in part, at any time on or
after May 3, 2005, in cash, at the following redemption prices (expressed as
percentages of the principal amount thereof), if redeemed during the periods
commencing on the dates set forth below, in each case together with accrued and
unpaid interest, if any, to the redemption date:

	
  Date

  	
   

  	
  Redemption Price

  
	
  May
  3, 2005 to April 30, 2006

  	
   

  	
  103.143%

  
	
  May
  1, 2006 to April 30, 2007

  	
   

  	
  102.357%

  
	
  May
  1, 2007 to April 30, 2008

  	
   

  	
  101.571%

  
	
  May
  1, 2008 through May 1, 2009 inclusive

  	
   

  	
  100.786%

  

 

The
Securities may be redeemed at the election of the Company, as a whole or in parts
from time to time, at any time prior to May 3, 2005 (a “Provisional Redemption”), at
a redemption price equal to $1,000 per $1,000 principal amount of the
Securities redeemed (such amount, together with the Make-Whole Payment (as
defined below) the “Provisional Redemption Price”), on the date
of redemption (the “Provisional Redemption Date”) specified in
the notice of Provisional Redemption if (1) the closing price of the Common
Stock on the NNM (or other United States national securities exchange where the
Company’s Common Stock is traded) has exceeded 150% of the then current
conversion price for at least 20 trading days within a period of any 30
consecutive trading days ending on the trading day prior to the date of mailing
of the notice of Provisional Redemption (the “Notice Date”), and (2) a
shelf registration statement covering resales of the Securities and the Common
Stock issuable upon conversion thereof is effective and available for use and
is expected to remain effective and available for use for the 30 days following
the Provisional Redemption Date, unless registration is no longer required.

Upon any such Provisional
Redemption, the Company shall make an additional payment (the “Make-Whole
Payment”) with respect to the Securities called for redemption to
holders on the Provisional Redemption Date in an amount equal to the total
value of the aggregate amount of interest that would have been payable on the
Securities from the last day through which interest was paid on the Securities
(or May 1, 2002 if no interest has been paid) through May 1, 2005 (or May 2,
2005 if the Provisional Redemption is May 2, 2005).  The Company may make the Make-Whole Payment, at its option,
either in cash or Common Stock or a combination thereof.  Payments made in Common Stock will be valued
at 95% of the average closing sales prices of the Common Stock on the NNM (or
other United States national securities exchange where the Common Stock is
traded) for the five trading days ending on the day prior to the 

 

 

A-4

 

 

Provisional
Redemption Date.  The Company shall make
the Make-Whole Payment on all Securities called for sProvisional Redemption,
including those Securities converted into Common Stock between the Notice Date
and the Provisional Redemption Date.

 

7.             Notice of Redemption.  Notice of redemption will be mailed at least
30 days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at its registered address.  Securities in denominations larger than $1,000 principal amount
may be redeemed in part but only in positive integral multiples of $1,000
principal amount.  On and after the redemption
date interest ceases to accrue on Securities or portions of them called for
redemption.

8.             Repurchase at Option of Holder.  In the event of a Change in Control with respect
to the Company, then each Holder of the Securities shall have the right, at the
Holder’s option, subject to the rights of the holders of Senior Indebtedness
under Article XI
of the Indenture, to require the Company to repurchase such Holder’s
Securities including any portion thereof which is $1,000 in principal amount or
any positive integral multiple thereof on a business day (the “Repurchase
Date”) that is no later than 30 business days after the date of the
Change in Control Notice, unless otherwise required by applicable law, at a
price equal to 100% of the outstanding principal amount of such Security, plus
accrued and unpaid interest to the Repurchase Date.

Within 30 business days after the occurrence of the Change in Control,
the Company is obligated to give notice of the occurrence of such Change in
Control to each Holder.  Such notice
shall include, among other things, the date by which Holder must notify the
Company of such Holder’s intention to exercise the Repurchase Right and of the
procedure which such Holder must follow to exercise such right.  To exercise a Repurchase Right, a Holder
shall deliver to the Company (if it is acting as its own Paying Agent), or to a
Paying Agent designated by the Company for such purpose in the Change in
Control Notice, (i) no later than the close of business on the third business
day immediately preceding the Repurchase Date, the Option of Holder To Elect
Purchase Notice on the back of the Securities with respect to which the
Repurchase Right is being exercised, duly completed and signed, with
appropriate signature guarantee, and (ii) at any time after such delivery of
such Option of Holder To Elect Purchase Notice, such Securities with respect to
which the Repurchase Right is being exercised, duly endorsed for transfer to
the Company.  Upon so delivering such
Option of Holder To Elect Purchase Notice and such Securities, the Holder of
such Securities shall be entitled to receive from the Company (if it is acting
as its own Paying Agent), or such Paying Agent, a nontransferable receipt of
deposit evidencing such deposit.

A “Change in Control” of the Company means:

(i)            the acquisition by any “person,” entity or “group” within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 50% or more of the voting power of the total outstanding
Common Stock or other capital stock into which the Common Stock is hereafter
reclassified or changed;

 

A-5

 

(ii)           persons who constitute the Board of Directors (the “Incumbent
Board”) as of the date of the indenture, cease for any reason to
constitute at least a majority of the Board of Directors, provided that any
person subsequently becoming a director whose election, or nomination for
election by stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such person were a member of the Incumbent Board; or

(iii)          the sale, lease or transfer of all or substantially all of
the assets and property of the Company to any “person,” entity or “group”
within the meaning of Section 13(d) or 14(d) of the Exchange Act.

However,
a Change in Control will not be deemed to have occurred if either:

                (i)            the last sale price of the Common Stock for any five
trading days during the ten trading days immediately preceding the Change in
Control is at least equal to 105% of the conversion price in effect on such
trading day; or

                (ii)           in the case of a merger or consolidation, all or
substantially all of the consideration (excluding cash payments for fractional
shares and cash payments pursuant to dissenters’ appraisal rights) in the
merger or consolidation constituting the Change in Control consists of common
stock quoted traded on a United States national securities exchange or on the
NNM (or which will be so traded or quoted when issued or exchanged in
connection with such Change in Control) and as a result of such transaction or
transactions the Securities become convertible solely into such common stock.

9.             Conversion.  A Holder may convert his or her Security into Common Stock of the
Company at any time prior to the close of business on May 1, 2009, or, (x) if
the Security is called for redemption by the Company, the Holder may convert it
at any time before the close of business on the business day immediately
preceding the date fixed for such redemption, or (y) if the Security is to be
repurchased by the Company pursuant to paragraph 8 hereof, the Holder may convert
it at any time before the close of business on the business day immediately
preceding the Repurchase Date.  The
initial conversion rate is 60.1504 shares of Common Stock per $1,000 principal
amount of Securities, or an effective initial conversion price of approximately
$16.625 per share, subject to adjustment in the event of certain circumstances
as specified in the Indenture.  The
Company will deliver a check in lieu of any fractional share.  On conversion no payment or adjustment for
any unpaid and accrued interest, or liquidated damages with respect to, the
Securities will be made.  If a Holder
surrenders a Security for conversion between the record date for the payment of
interest and the next interest payment date, such Security, when surrendered
for conversion, must be accompanied by payment of an amount equal to the
interest thereon which the registered Holder on such record date is to receive,
unless the Securities have been called for redemption as described in the
Indenture.

To convert a Security, a Holder must (1) complete and sign the
Conversion Notice, with appropriate signature guarantee, on the back of the Security,
(2) surrender the Security to a Conversion Agent, (3) furnish appropriate
endorsements and transfer documents if required by the Registrar or Conversion
Agent, (4) pay the amount of interest, if any, the Holder may be paid 

 

A-6

 

as provided in the last sentence of the above
paragraph and (5) pay any transfer or similar tax if required.  A Holder may convert a portion of a Security
if the portion is $1,000 principal amount or a positive integral multiple of
$1,000 principal amount.

Any shares issued upon conversion of a Security shall bear the Private
Placement Legend until after the second anniversary of the later of the issue
date for the Securities and the last date on which the Company or any Affiliate
of the Company was the owner of such shares or the Security (or any predecessor
security) from which such shares were converted (or such shorter period of time
as permitted by Rule 144(k) under the Securities Act or any successor provision
thereunder) (or such longer period of time as may be required under the
Securities Act or applicable state securities laws in the Opinion of Counsel
for the Company, unless otherwise agreed by the Company and the Holder
thereof).

10.   
       Subordination.  The Securities are subordinated in right of
payment, in the manner and to the extent set forth in the Indenture, to the
prior payment in full of all Senior Indebtedness.  Each Holder by accepting a Security agrees to such subordination
and authorizes the Trustee to give it effect.

11.   
       Denominations, Transfer, Exchange.  The Securities are in registered form
without coupons in denominations of $1,000 principal amount and positive
integral multiples of $1,000 principal amount. 
The transfer of Securities may be registered and Securities may be exchanged
as provided in the Indenture.  The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents.  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 cover any tax or
other governmental charge payable in connection therewith.  The Registrar need not exchange or register
the transfer of any Security selected for redemption in whole or in part,
except the unredeemed portion of Securities to be redeemed in part.  Also, it need not exchange or register the
transfer of any Securities for a period of 15 days before the mailing of a
notice of redemption of the Securities selected to be redeemed.

12.   
       Persons Deemed Owners.  The registered Holder of a Security may be
treated as the owner of such Security for all purposes.

13.   
       Merger or Consolidation.  The Company shall not consolidate with, or
merge into, or transfer or lease all or substantially all of its properties or
assets to, any person unless the person is a corporation, limited liability
company or other limited liability entity organized under the laws of the
United States, any State thereof or the District of Columbia, provided that
this condition will not apply if independent tax counsel experienced in such
matters delivers an Opinion of Counsel stating that, under then existing laws,
there would be no adverse tax consequences to the Holders in the event that
this condition is not satisfied, and such person assumes by supplemental
indenture all the obligations of the Company under the Securities and the
Indenture and immediately after giving effect to the transaction no Default or
Event of Default exists.

14.   
       Amendments, Supplements and Waivers.  Subject to certain exceptions, the Indenture
or the Securities may be amended or supplemented with the consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any 

 

A-7

 

existing Default or Event of Default may be waived with the consent of
the Holders of a majority in aggregate principal amount of the Securities then
outstanding.  Without notice to or the
consent of any Securityholder, the Indenture or the Securities may be amended
or supplemented to cure any ambiguity, omission, defect or inconsistency, to
provide for uncertificated Securities in addition to certificated Securities,
to comply with Sections 5.01 and 10.12 of the Indenture or to make any
change that does not adversely affect the rights of any Securityholder.

15.   
       Defaults and Remedies.  An Event of Default includes the occurrence
of any of the following: default in payment of principal at maturity, upon
redemption or exercise of a Repurchase Right or otherwise; default for 30 days
in payment of interest or other amounts due; failure by the Company for 60 days
after notice to it to comply with any of its other agreements in the Indenture
or the Securities; and certain events of bankruptcy or insolvency.  If any Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of the Securities then outstanding may declare all the Securities to be
due and payable immediately, except as provided in the Indenture.  If an Event of Default specified in Section
6.01(iv) or (v) of the Indenture with respect to the
Company occurs, the principal of and accrued interest on all the Securities
shall ipso
facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Securityholder.  Securityholders may not enforce the
Indenture or the Securities except as provided in the Indenture.  The Trustee may require indemnity satisfactory
to it before it enforces the Indenture or the Securities.  Subject to certain limitations, Holders of a
majority in principal amount of the Securities then outstanding may direct the
Trustee in its exercise of any trust or power. 
The Trustee may withhold from Securityholders notice of any continuing
Default or Event of Default (except a Default or Event of Default in payment)
if it determines that withholding notice is in the interests of the
Securityholders.  The Company must
furnish an annual compliance certificate to the Trustee.

16.   
       Registration Rights.  The Holders are entitled to registration
rights as set forth in the Registration Rights Agreement (as defined in the
Indenture).  The Holders shall be entitled
to receive liquidated damages in certain circumstances, all as set forth in the
Registration Rights Agreement.

17.   
       Trustee Dealings with the Company.  The Trustee under the Indenture, or any
banking institution serving as successor Trustee thereunder, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not Trustee.

18.   
       No Recourse Against Others.  No past, present or future director,
officer, employee, consultant or stockholder, as such, of the Company shall
have any liability for any obligations of the Company under the Securities or
the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation.  Each
Securityholder by accepting a Security waives and releases all such
liability.  The waiver and release are
part of the consideration for the issue of the Securities.

19.   
       Authentication.  This Security shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.

 

A-8

 

20.   
       Abbreviations.  Customary abbreviations may be used in the
name of a Securityholder or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entirety), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (Uniform Gifts to Minors Act).

THE COMPANY WILL FURNISH TO ANY
SECURITYHOLDER UPON WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE
INDENTURE.  REQUESTS MAY BE MADE TO:

ISIS
Pharmaceuticals, Inc.

2292
Faraday Avenue

Carlsbad,
CA  92008

Attention:  Corporate Secretary

 

A-9

 

	
  [FORM OF ASSIGNMENT]

  
	
   

  
	
  I
  or we assign to

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PLEASE
  INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  
	
  (please
  print or type name and address)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
   

  
	
  the
  within Security and all rights thereunder, and hereby irrevocably constitutes
  and appoints

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  
	
  attorney
  to transfer the Security on the books of the Company with full power of
  substitution in the premises.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  NOTICE:  The signature on this assignment must
  correspond with the name as it appears upon the face of the within Security
  in every particular way without alteration or enlargement or any change
  whatsoever and be guaranteed by a guarantor institution participating in the
  Securities Transfer Agents Medallion Program or in such other guarantee
  program acceptable to the Trustee.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature
  Guarantee:

  	
   

  
	
   

  	
   

  	
   

  
					

 

                        In connection with any
transfer of this Security occurring prior to the date which is the earlier of
(i) the date of the declaration by the Commission of the effectiveness of a
registration statement under the Securities Act of 1933, as amended (the “Securities
Act”) covering resales of this Security (which effectiveness shall not have
been suspended or terminated at the date of the transfer) and (ii) the Resale
Restriction Termination Date, the undersigned confirms that it has not utilized
any general solicitation or general advertising in connection with transfer:

 

A-10

 

[Check One]

(1)                      ____           to the Company or any subsidiary
thereof; or

(2)                      ____           pursuant to and in compliance with
Rule 144A
under the Securities Act of 1933, as amended; or

(3)                      ____           outside the United States to a person
other than a “U.S. person” in compliance with Rule 904 of Regulation S
under the Securities Act of 1933, as amended; or

(4)                                          pursuant to the exemption
from registration provided by Rule 144 under the Securities Act of 1933,
as amended; or

(5)                      ____           pursuant to an effective registration
statement under the Securities Act of 1933, as amended.

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

o            The transferee is an Affiliate of
the Company.

(If the Security is transferred to an Affiliate, the restrictive legend must
remain on the Security for two years following the date of the transfer).

Unless
one of the items is checked, the Trustee will refuse to register any of the Securities
evidenced by this certificate in the name of any person other than the
registered Holder thereof; provided, however, that if item (4)
is checked, the Company or the Trustee may require, prior to registering any
such transfer of the Securities, in their sole discretion, such written legal
opinions, certifications and other information as the Trustee or the Company
have reasonably requested 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 of 1933, as amended.

If
none of the foregoing items are checked, the Trustee or Registrar shall not be
obligated to register this Security in the name of any person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.16 of the Indenture shall
have been satisfied.

	
  Dated:

  	
   

  	
  Signed:

  	
   

  
	
   

  	
   

  	
   

  	
  (Sign
  exactly as name appears on the other side of this Security)

   

  
	
  Signature
  Guarantee:

  	
   

  	
   

  
						

 

TO
BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED

The
undersigned represents and warrants that it is purchasing this Security for its
own account or an account with respect to which it exercises sole investment
discretion and that 

 

A-11

 

it
and any such account is a “qualified institutional buyer” within the meaning of
Rule 144A under the Securities Act of 1933, as amended, and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Company as the undersigned has
requested pursuant to Rule 144A or has determined transferor is relying upon
the undersigned’s foregoing representations in order to claim the exemption
from registration provided by Rule 144A.

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  NOTICE:    To be executed by
  an executive officer

  

 

 

A-12

 

	
  CONVERSION NOTICE

  
	
   

  
	
  To
  convert this Security into Common Stock of the, check the box:

  
	
   

  
	
  o

  
	
   

  
	
  To
  convert only part of this Security, state the principal amount to be
  converted (must be in multiples of $1,000): 

  
	
   

  
	
   

  
	
   

   

   

   

  $__________________

   

   

   

   

   

  If
  you want the stock certificate made out in another person’s name, fill in the
  form below:   

   

   

  
	
  (Insert
  other person’s soc. sec. or tax I.D. no.) 

  
	
   

  
	
   

  
	
   

  
	
   

  
	
   

  
	
   

  
	
   

  
	
   

  
	
  (Print
  or type other person’s name, address and zip code)

  
	
   

  
	
   

  
	
   

  
	
  Date:
  

  	
   

  	
    Signature(s):

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (Sign
  exactly as your name(s) appear(s) on the other side of this Security)

  
	
   

  
	
   

  
	
   

  
	
   

  
	
   

  
	
  Signature(s)
  guaranteed by:

  	
   

  
	
   

  	
   (All signatures must be guaranteed by a
  guarantor institution participating in the Securities Transfer Agents
  Medallion Program or in such other guarantee program acceptable to the
  Trustee.)

  
	
   

  
	
   

  
					

 

A-13

 

OPTION OF HOLDER TO ELECT PURCHASE NOTICE

Certificate No. of Security:________________________

If you want to elect to have this Security purchased by the Company
pursuant to Section 3.08 of the Indenture, check the box:  o

If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 3.08 of the Indenture, state
the principal amount:

$ __________________________________

(in an integral multiple of $1,000)

	
  Date:

  	
   

  	
   

  	
  Signature(s):
  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (Sign
  exactly as your name(s) appear(s) on the other side of this Security)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature(s)
  guaranteed by:

  	
   

  	
  (All
  signatures must be guaranteed by a guarantor institution participating in the
  Securities Transfer Agents Medallion Program or in such other guarantee
  program acceptable to the Trustee.)

  

 

 

A-14

 

SCHEDULE A

SCHEDULE OR EXCHANGES OF INTERESTS IN THE GLOBAL SECURITY.

                The following exchanges of a
part of this Global Security for an interest in another Global Security or for
Securities in certificated form have been made:

 

	
  Date of Exchange

  	
   

  	
  Amount of decrease in Principal amount of this
  Global Security

  	
   

  	
  Amount of increase in Principal amount of this
  Global Security

  	
   

  	
  Principal amount of this Global Security following
  such decrease  (or increase)

  	
   

  	
  Signature or authorized signatory of Trustee or Note
  Custodian

  

 

 

a This is
included in Global notes only.

 

 

EXHIBIT
B-1

FORM OF PRIVATE PLACEMENT LEGEND

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION.  NEITHER THIS SECURITY NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
SUCH REGISTRATION.  THE HOLDER HEREOF
MAY NOT ENGAGE IN HEDGING TRANSACTIONS WITH RESPECT TO THIS SECURITY UNLESS
SUCH TRANSACTIONS ARE IN COMPLIANCE WITH THE SECURITIES ACT.

THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE “RESALE
RESTRICTION TERMINATION DATE”) WHICH IS THE LATER OF (X) TWO YEARS AFTER THE
LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY
OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF SUCH SECURITY), AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE
REQUIRED BY APPLICABLE LAW ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY OF THE COMPANY,
(B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY
BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT OR (D) PURSUANT TO
OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES IN ACCORDANCE WITH
REGULATION S UNDER THE SECURITIES ACT, SUBJECT TO THE COMPANY’S AND THE
TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO THIS
CLAUSE (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM.  THIS LEGEND WILL BE REMOVED UPON THE REQUEST
OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.

 

B-1

 

EXHIBIT B-2

FORM OF LEGEND FOR GLOBAL SECURITY

Any Global Security authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:

THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING
OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY.  THIS SECURITY IS NOT EXCHANGEABLE FOR
SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS
NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO
TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY 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) MAY BE REGISTERED
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

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.

TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTION 2.16 OF THE INDENTURE.

 

B-2

 

EXHIBIT C-1

Form of Certificate To Be Delivered

in Connection with Transfers

     Pursuant to Regulation
S     

          ,

Wells
Fargo Bank Minnesota, National Association

Corporate Trust Services

MAC N9303-110

Sixth and Marquette

Minneapolis, MN  55479

 

Attention:  Corporate Finance

Re:                               ISIS
PHARMACEUTICALS, INC. (the “Company”) 5 1⁄2% Convertible Subordinated
Notes due 2009 (the “Securities”)

Ladies
and Gentlemen:

In connection with our proposed sale of $_________ aggregate principal
amount of the Securities, we confirm that such sale has been effected pursuant
to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the “Securities Act”), and, accordingly, we
represent that:

(1)           the
offer of the Securities was made in an “offshore transaction” to a person other
than a “U.S. person” (as defined in Regulation S);

(2)           either
(a) at the time the buy offer was originated, the transferee was outside
the United States or we and any person acting on our behalf reasonably believed
that the transferee was outside the United States, or (b) the transaction
was executed in, on or through the facilities of a designated off-shore
securities market and neither we nor any person acting on our behalf knows that
the transaction has been pre-arranged with a buyer in the United States;

(3)           no
directed selling efforts have been made in the United States in contravention
of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable;

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

(5)           we
have advised the transferee of the transfer restrictions applicable to the
Securities; and

 

C-1-1

 

(6)           if
we are a dealer in securities or have received a selling concession, fee or
other remuneration in respect of the Securities, and the transfer is to occur
during the restricted period, then the requirements of Rule 904(c)(1) have been
satisfied.

 

C-1-2

 

You, the Company and counsel
for the Company are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby.  Terms used in
this certificate have the meanings set forth in Regulation S.

 

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  [Name of Transferor]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
    Authorized Signature

  

 

 

C-1-3

 

EXHIBIT C-2

Form of Certificate To Be Delivered

in Connection with Transfers

     Pursuant to Regulation
S     

          ,

Wells
Fargo Bank Minnesota, National Association

Corporate Trust Services

MAC N9303-110

Sixth and Marquette

Minneapolis, MN  55479

 

Attention:  Corporate Finance

Re:                               ISIS
PHARMACEUTICALS, INC. (the “Company”) 5 1⁄2% Convertible Subordinated
Notes due 2009 (the “Securities”)

Ladies
and Gentlemen:

In connection with our proposed purchase of $_________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S.
Securities Act of 1933, as amended (the “Securities Act”), and, accordingly, we
represent that:

(1)           the
undersigned is not a U.S. person (as defined in Regulation S) and has not
acquired the Securities for the account or benefit of any U.S. person;

(2)           the
undersigned is not a distributor within the meaning of Regulation S; and

(3)           the
undersigned agrees to resell the Securities only in accordance with the
provisions of Regulation S, pursuant to registration under the Securities
Act, or pursuant to an exemption from registration and agrees not to engage in
hedging transactions with regard to the Securities unless in compliance with
the Securities Act.

You, the Company and counsel for the Company are entitled to rely upon
this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby.  Terms used in this certificate have the
meanings set forth in Regulation S.

Very truly yours,

[Name of Transferee]

 

 

C-2-1

 

By:                                                                                                               

Authorized Signature

 

 

C-2-2

 

EXHIBIT D

Form of Notice of Transfer
Pursuant to Registration Statement

ISIS
Pharmaceuticals, Inc.

2292
Faraday Avenue

Carlsbad, California  92008

 

Wells
Fargo Bank Minnesota, National Association

Corporate Trust Services

MAC N9303-110

Sixth and Marquette

Minneapolis, MN  55479

 

Re:                               ISIS
PHARMACEUTICALS, INC. (the “Company”) 5 1⁄2% Convertible Subordinated
Notes due 2009 (the “Securities”)

Ladies
and Gentlemen:

Please be advised that _____________ has transferred $___________
aggregate principal amount of the Securities or _________ shares of the Common
Stock, $0.001 par value per share, of the Company issuable on conversion of the
Securities (“Stock”) pursuant to an effective Shelf Registration Statement
on Form S-3 (File No. 333-________).

We hereby certify that the prospectus
delivery requirements, if any, of the Securities Act of 1933 as amended, have
been satisfied with respect to the transfer described above and that the
above-named beneficial owner of the Securities or Stock is named as a “Selling
Security Holder” in the Prospectus dated _________, or in amendments
or supplements thereto, and that the aggregate principal amount of the
Securities, or number of shares of Stock transferred are [a portion of] the Securities
or Stock listed in such Prospectus, as amended or supplemented, opposite such
owner’s name.

Very truly yours,

 

_________________________

           (Name)

 

 

D-1

EXECUTION COPY

 

 

$125,000,000

Isis Pharmaceuticals, Inc.

5 1⁄2% Convertible Subordinated Notes

due 2009

PURCHASE AGREEMENT

April 26, 2002

 

 

 

 

 

 

PURCHASE AGREEMENT

April 26, 2002

UBS Warburg LLC

Robertson Stephens, Inc.

Needham & Company,
Inc.

Roth Capital Partners,
LLC

as Initial
Purchasers

 

c/o UBS Warburg LLC

299 Park Avenue

New York, New York
10171

Ladies and
Gentlemen:

Isis Pharmaceuticals,
Inc., a Delaware corporation, (the "Company"), proposes to
issue and sell to the initial purchasers named in Schedule A hereto (the
"Initial Purchasers") $125,000,000 aggregate principal amount
of its 51⁄2% Convertible Subordinated Notes due 2009 (the "Firm Notes").  In addition, solely for the purpose of
covering over-allotments, the Company proposes to grant to the Initial
Purchasers the option to purchase from the Company up to an additional
$18,750,000 aggregate principal amount of the Company's 5 1⁄2% Convertible
Subordinated Notes due 2009 (the "Additional Notes").  The Firm Notes and the Additional Notes are
hereinafter collectively sometimes referred to as the "Notes."

The Notes are to be
issued pursuant to an indenture (the "Indenture") to be dated
as of May 1, 2002, between the Company and Wells Fargo Bank Minnesota, N. A.,
as trustee (the "Trustee"). 
Copies of the Indenture, in substantially final form, have been
delivered to the Initial Purchasers. 
The Notes will be convertible in accordance with their terms and the
terms of the Indenture into shares of the common stock (the "Common
Stock") of the Company, par value $0.001 per share (the "Shares").

The Notes and the Shares
will be offered without being registered under the Securities Act of 1933, as
amended, and the rules and regulations thereunder (collectively, the "Act"),
to "qualified institutional buyers" in compliance with the exemption
from registration provided by Rule 144A under the Act ("Rule 144A")
and in offshore transactions in reliance on Regulation S under the Act ("Regulation
S").

The Initial Purchasers
and their direct and indirect transferees will be entitled to the benefits of a
Registration Rights Agreement to be entered into at or prior to the time of
purchase (as defined herein) between the Company and the Initial Purchasers
(the "Registration Rights Agreement").

In connection with the
sale of the Notes, the Company has prepared a preliminary offering memorandum
(the "Preliminary Memorandum") and will prepare a final
offering memorandum (the "Final Memorandum" and, with the
Preliminary Memorandum, each an "Offering Memorandum"), including
or incorporating by reference a description of the terms of the Notes and the
Shares, the terms of the offering and a description of the Company.  As used herein, the terms "Preliminary
Memorandum," "Final Memorandum" and "Offering
Memorandum" shall include in each case the documents incorporated by
reference therein, if any.  The terms
"supplement," "amendment" and "amend"
as used herein with respect to an Offering Memorandum shall include all
documents deemed to be incorporated by reference in the Preliminary Memorandum
or Final Memorandum, if any, that are filed subsequent to the 

 

 

date of such Offering Memorandum, but prior to the
completion of the offering of the Notes, with the Securities and Exchange
Commission (the "Commission") pursuant to the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder
(collectively, the "Exchange Act").

 

The Company and the Initial Purchasers agree as follows:

 

1.                 
Sale and Purchase.  Upon the basis of the
representations and warranties and subject to the terms and conditions herein
set forth, the Company agrees to sell to the Initial Purchasers, and each of
the Initial Purchasers, severally and not jointly, agrees to purchase from the
Company, the aggregate principal amount of Firm Notes set forth opposite the
name of such Initial Purchaser in Schedule A hereto at a purchase price
of 97% of the principal amount thereof.

 

In addition, the Company hereby grants to the several Initial
Purchasers the option to purchase, and upon the basis of the representations
and warranties and subject to the terms and conditions herein set forth, the
Initial Purchasers shall have the right to purchase, severally and not jointly,
from the Company all or a portion of the Additional Notes as may be necessary
to cover over-allotments made in connection with the offering of the Firm
Notes, at a purchase price of 97% of the principal amount thereof, plus accrued
interest, if any, from the time of purchase (as hereinafter defined) to the
additional time of purchase (as hereinafter defined).  This option may be exercised by the Initial Purchasers, at any
time and from time to time on or before the 30th day following the
date hereof by written notice to the Company. 
Such notice shall set forth the aggregate initial principal amount of
Additional Notes as to which the option is being exercised and the date and
time when the Additional Notes are to be delivered (such date and time being
herein referred to as the "additional time of purchase"); provided,
however, that the additional time of purchase shall not be earlier than
(i) the time of purchase or (ii) the second business day after the date on
which the option shall have been exercised nor later than the tenth business
day(1) after the date on which the option shall have been exercised.  The principal amount of Additional Notes to
be sold to each Initial Purchaser shall be the amount which bears the same
proportion to the aggregate amount of Additional Notes being purchased as the
principal amount of Firm Notes set forth opposite the name of such Initial
Purchaser on Schedule A hereto bears to the total amount of Firm Notes.

 

2.                 
Payment and Delivery.  Payment of
the purchase price for the Firm Notes shall be made to the Company by Federal
(same day) funds, at the offices of Dewey Ballantine LLP in New York, New York,
or at such other place as may be agreed upon by the parties hereto, for the
respective accounts of the Initial Purchasers. 
Such payment and delivery shall be made at 10:00 A.M., New York City
time, on May 1, 2002 (unless another time shall be agreed to by you and the
Company or unless postponed in accordance with the provisions of Section 9
hereof).  The time at which such payment
and delivery are actually made is hereinafter sometimes called the "time
of purchase."

 

Payment of the purchase price for the Additional Notes shall be made at
the additional time of purchase in the same manner and at the same office as
the payment for the Firm Notes.

 

Certificates for the Notes shall be in definitive form or global form,
as specified by you, and registered in such names and in such denominations as
you shall specify in writing not later than one full business day prior to the
time of purchase or the additional time of purchase, as the case may be.  For the purpose of expediting the checking
of the certificates for the Notes by you, the Company agrees to 

 

(1)     As used herein "business day"
shall mean a day on which the New York Stock Exchange is open for trading.

 

 

2

 

make such certificates available to you for such
purpose at least one full business day preceding the time of purchase or the
additional time of purchase, as the case may be.

 

3.                 
Representations and Warranties of the Company. 
The Company represents and warrants to each of the Initial Purchasers
that:

(a)               
the
Preliminary Memorandum does not contain and the Final Memorandum, as amended or
supplemented, as applicable, will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the
Company makes no representation or warranty with respect to any statement
contained in the Offering Memorandum in reliance upon and in conformity with
information concerning the Initial Purchasers furnished in writing by or on
behalf of any Initial Purchaser through you to the Company for use in the
Offering Memorandum; and neither the Company nor any of its affiliates has
distributed any offering material in connection with the offer or sale of the
Notes other than the Offering Memorandum or any other materials, if any,
permitted by the Act;

(b)               
the
Company's capitalization (i) on December 31, 2001 was in all material respects
as set forth under the heading entitled "Actual" in the section of
the Offering Memorandum entitled "Capitalization"; and (ii) as of the
time of purchase shall be in all material respects as set forth on an as
adjusted basis to give effect to the sale of the Firm Notes, as set forth under
the heading entitled "As Adjusted" in the section of the Offering
Memorandum entitled "Capitalization" (subject to the issuance of
shares of Common Stock upon the exercise of stock options disclosed as
outstanding and issued under the plans described in the Offering Memorandum and
subject to the issuance of shares of Common Stock pursuant to agreements
described in the Offering Memorandum); all of the issued and outstanding shares
of capital stock of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable, have been issued in compliance
with all federal and state securities laws and were not issued in violation of
any preemptive right, resale right, right of first refusal or similar right;

(c)               
the
Company has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the State of Delaware, with the requisite
corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Offering Memorandum;

(d)               
the
Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to so qualify would not reasonably be expected to have a
material adverse effect on the business, operations, prospects, properties,
condition (financial or otherwise) or results of operation of the Company and
the Subsidiaries (as hereinafter defined) taken as a whole (a "Material
Adverse Effect").  The Company
has no subsidiaries (as defined in the Act) other than as listed in Schedule
B annexed hereto (the "Subsidiaries") and except for such
other inactive subsidiaries that do not possess, individually or in the
aggregate, any assets, liabilities or rights that are material to the Company
and the Subsidiaries taken as a whole; the Company owns such interest in the
Subsidiaries as is set forth in the Offering Memorandum; except for the
Subsidiaries or as described in the Offering Memorandum, the Company does not
own, directly or indirectly, any long-term debt or any material equity interest
in any firm, corporation, partnership, joint venture, association or other
entity; complete and correct copies of the certificates of incorporation and of
the bylaws of the 

 

3

 

Company and all
amendments thereto have been made available to you; each of the Subsidiaries
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, with the
requisite corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Offering Memorandum;
each of the Subsidiaries is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the ownership or
leasing of the properties or the conduct of its business requires such
qualification, except where the failure to so qualify would not reasonably be
expected to have a Material Adverse Effect; all of the outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and validly
issued, are fully paid and non-assessable, have been issued in compliance with
all applicable securities laws and were not issued in violation of any
preemptive right, resale right, right of first refusal or similar right;

(e)               
neither
the Company nor any of the Subsidiaries is in breach or violation of, or in
default under (nor has any event occurred which with notice, lapse of time, or
both would result in the Company's or any Subsidiary's breach or violation of,
or constitute the Company's or any Subsidiary's default under) (each such
breach, violation, default or event of the Company or any of the Subsidiaries,
a "Default Event"), (i) its charter, bylaws or other
organizational documents, (ii) any obligation, agreement, covenant or condition
contained in any license, permit, indenture, mortgage, deed of trust, bank loan
or credit agreement or other evidence of indebtedness, or any lease, contract
or other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which any of them or any of their properties may
be bound or affected, (iii) any federal, state, local or foreign law,
regulation or rule or (iv) any decree, judgment or order applicable to the
Company, any of the Subsidiaries or any of their respective properties, other
than, in the case of clauses (ii) and (iii), such Default Events as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect; and the execution, delivery and performance of this Agreement,
the Registration Rights Agreement, the Indenture and the Notes and consummation
of the other transactions contemplated hereby and thereby, including the
issuance and sale of the Notes and the issuance of the Shares upon conversion
of the Notes, does not constitute and will not result in a Default Event under
(w) any provisions of the charter, bylaws or other organizational documents of
the Company or any of the Subsidiaries, (x) under any provision of any license,
permit, indenture, mortgage, deed of trust, bank loan or credit agreement or
other evidence of indebtedness, or any lease, contract or other agreement or
instrument to which the Company or any of the Subsidiaries or by which any of
them or their respective properties may be bound or affected, (y) under any
federal, state, local or foreign law, regulation or rule or (z) under any
decree, judgment or order applicable to the Company, any of the Subsidiaries or
any of their respective properties, except, in the case of clauses (x) and (y),
for such Default Events as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect;

(f)                
this
Agreement has been duly authorized, executed and delivered by the Company and
is a legal, valid and binding agreement of the Company;

(g)               
the
Registration Rights Agreement has been duly authorized by the Company and when
executed and delivered by the Company and the other parties thereto will be a
legal, valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms except as the enforceability thereof may
be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws affecting creditors' rights generally and general
principles of equity and except to the extent the rights to indemnity may be limited by
applicable law;

 

4

 

(h)               
the
Notes have been duly authorized by the Company and when executed and delivered
by the Company and duly authenticated in accordance with the terms of the
Indenture and delivered to and paid for by the Initial Purchasers in accordance
with the terms hereof will constitute legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with their terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or similar laws affecting
creditors' rights generally and general principles of equity, and will be
entitled to the benefits of the Indenture and the Registration Rights
Agreement; the Shares initially issuable upon conversion of the Notes have been
duly authorized and validly reserved for issuance upon conversion of the Notes,
and upon conversion of the Notes in accordance with their terms and the terms
of the Indenture will be issued free of statutory and contractual preemptive
rights and are sufficient in number to meet the current conversion
requirements, and such Shares, when so issued upon such conversion in
accordance with the terms of the Indenture, will be duly and validly issued and
fully paid and non-assessable;

(i)                 
the
Indenture has been duly authorized by the Company and when executed and
delivered by the Company and the other parties thereto will be a legal, valid
and binding agreement of the Company, enforceable against the Company in
accordance with its terms except as the enforceability thereof may be limited
by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
similar laws affecting creditors' rights generally and general principles of
equity and except to the extent the rights to indemnity may be limited by applicable law;

(j)                 
the
terms of the Notes, the Registration Rights Agreement, the Indenture and the
capital stock of the Company, including the Shares, conform in all material
respects to the description thereof contained in the Offering Memorandum;

(k)               
no
approval, authorization, consent or order of or filing with any national,
state, local or other governmental or regulatory commission, board, body,
authority or agency is required to be obtained or made by the Company or any of
the Subsidiaries in connection with the issuance and sale of the Notes and the
Shares as contemplated hereby or the consummation by the Company of the other
transactions contemplated hereby other than (i) as may be required (A) under
the securities or blue sky laws of the various jurisdictions in which the Notes
and the Shares are being offered by the Initial Purchasers, (B) by federal and
state securities laws with respect to the Company's obligations under the
Registration Rights Agreement, (C) with respect to the Notes, under the
applicable listing criteria of the National Association of Securities Dealers,
Inc. (the "NASD") for its PORTAL trading market ("PORTAL")
and (D) with respect to the Shares, under the applicable listing criteria of
the Nasdaq National Market and (ii) as have been made or obtained on or prior
to the time of purchase or the additional time of purchase, as the case may be
(or, if not required to be made or obtained on or prior to the time of purchase
or the additional time of purchase, as the case may be, that will be made or
obtained when required);

(l)                 
except as set forth in the Offering Memorandum (i) no
person has the right, contractual or otherwise, to cause the Company to issue or
sell to it the Notes or the Shares or any shares of Common Stock or shares of
any other capital stock or other equity interests of the Company, (ii) no
person has any preemptive rights, co-sale rights, rights of first refusal or
other rights to purchase the Notes or the Shares or any shares of Common Stock
or shares of any other capital stock or other equity interests of the Company
and (iii) no person has the right to act as an underwriter, or as a financial
advisor to the Company, in connection with the offer and sale 

 

5

 

of
the Notes and the Shares, in the case of each of the foregoing clauses (i),
(ii) and (iii), whether as a result of the sale of the Notes and the Shares as
contemplated hereby or otherwise; no person has the right, contractual or
otherwise, to cause the Company to register under the Act any shares of Common
Stock or shares of any other capital stock or other equity interests of the
Company whether as a result of the sale of the Notes and the Shares as
contemplated hereby, the transactions contemplated by the Registration Rights
Agreement or otherwise, except as disclosed in the Offering Memorandum and
except for such rights as have been complied with or waived, or, with respect
to the transactions contemplated by the Registration Rights Agreement, except
as such rights will be complied with or waived;

(m)              
Ernst
& Young LLP, whose report on the consolidated financial statements of the
Company and the Subsidiaries is included in the Offering Memorandum, are
independent public accountants as required by the Act;

(n)               
the
Company and each of the Subsidiaries has all necessary licenses, permits,
authorizations, consents and approvals and has made all necessary filings
required under any federal, state, local or foreign law, regulation or rule
(collectively, "Permits"), and has obtained all
authorizations, consents and approvals from other persons (collectively, "Approvals")
that are necessary in order to conduct its business as described in the
Offering Memorandum, other than such Permits and Approvals the failure of which
to obtain would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect; to its knowledge, neither the Company nor
any of the Subsidiaries is in violation of, or any default under, any such
Permit or Approval or any federal, state, local or foreign law, regulation or
rule or any decree, order or judgment applicable to the Company or any of the
Subsidiaries the effect of which would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect;

(o)               
all
legal or governmental proceedings, related party transactions, contracts,
leases or documents of a character required to be filed pursuant to the
Exchange Act have been so filed, and all descriptions of such documents
contained in the Offering Memorandum are correct in all material respects;

(p)               
except
as disclosed in the Offering Memorandum, there are no actions, suits, claims,
investigations or proceedings pending or threatened to which the Company, its
directors or officers, any of the Subsidiaries or, to the Company's knowledge,
any of the Subsidiaries' directors or officers is a party or of which any of
their respective properties is subject at law or in equity, or before or by any
federal, state, local or foreign governmental or regulatory commission, board,
body, authority or agency which, if adversely decided, would reasonably be
expected to result in a judgment, decree or order having a Material Adverse
Effect or prevent consummation of the transactions contemplated hereby;

(q)               
the financial statements, together with the related
schedules and notes, included in the Offering Memorandum present fairly in all
material respects the consolidated financial position of the Company and the
Subsidiaries as of the dates indicated and the consolidated results of
operations and cash flows of the Company and the Subsidiaries for the periods
specified and have been prepared in compliance in all material respects with
the requirements of the Act and in conformity with generally accepted
accounting principles applied on a consistent basis during the periods
involved; the other financial and statistical data set forth under
"Summary Consolidated Financial Data," "Capitalization,"
and "Selected Consolidated Financial Data" in the Offering Memorandum
are accurately presented in all material respects and 

 

6

 

prepared
on a basis consistent with such financial statements and books and records of
the Company;

(r)                
subsequent
to the respective dates as of which information is given in the Final
Memorandum, there has not been (i) any material adverse change, or any
development which could reasonably be expected to result in a material adverse
change in the business, operations, properties, condition (financial or
otherwise), or results of operations of the Company and the Subsidiaries taken
as a whole, (ii) any transaction of the Company or the Subsidiaries which is
material to the Company and the Subsidiaries taken as a whole, (iii) any
obligation, direct or contingent, which is material to the Company and the
Subsidiaries taken as a whole, incurred by the Company or any of the
Subsidiaries, or (iv) any dividend or distribution of any kind declared, paid
or made on the capital stock of the Company other than accrued, paid in kind
dividends for the Company's Series A Convertible Exchangeable 5% Preferred
Stock and Series B Convertible Exchangeable 5% Preferred Stock; neither the
Company nor any of the Subsidiaries has any material contingent obligation
which is not disclosed in the Offering Memorandum;

(s)               
the Company has obtained for the benefit of the Initial
Purchasers the agreement (a "Lock-Up Agreement"), in the form
set forth as Exhibit A hereto, of each of its executive officers and
directors; the Company will not release or purport to release any of its
executive officers or directors from any Lock-Up Agreement without the prior
written consent of UBS Warburg LLC;

(t)                
the
Company is not and, after giving effect to the offering and sale of the Notes,
will not be an "investment company" or an entity
"controlled" by an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act");

(u)               
any
statistical and market related data included in the Offering Memorandum are
based on or derived from sources that the Company believes to be reliable and
accurate, and the Company has obtained the written consent to the use of such
data from such sources to the extent required;

(v)               
neither
the Company nor any of the Subsidiaries nor, to the Company’s knowledge, any of
their respective affiliates has taken, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected to
cause or result, under the Exchange Act or otherwise, in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Notes;

(w)              
the
Company and each of the Subsidiaries maintain insurance of the types and in
amounts reasonably adequate for their respective businesses, including, but not
limited to, insurance covering real and personal property owned or leased by
the Company against theft, damage, destruction, acts of vandalism and other
risks customarily insured against, all of which insurance is in full force and
effect;

(x)                
neither
the Company nor any of the Subsidiaries has sustained since the date of the
latest financial statements included in the Offering Memorandum any losses or
interferences with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Offering Memorandum or other than any losses 

 

7

 

or interferences which
would not, individually or in the aggregate, 
reasonably be expected to have a Material Adverse Effect;

(y)               
the
Company and each of the Subsidiaries have good title to all personal property
owned by them as described in the Offering Memorandum, which to the Company’s
knowledge is free and clear of all liens, encumbrances and defects except such
as (i) are described in the Offering Memorandum, (ii) were incurred in the
ordinary course of business and are not material or (iii) would not,
individually or in the aggregate, 
reasonably be expected to have a Material Adverse Effect; except as
described in the Offering Memorandum, any real property and buildings held
under lease by the Company are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and presently proposed to be made of such property
and buildings by the Company or any of the Subsidiaries, as the case may be;

(z)                
neither
the Company nor, to the Company's knowledge, any of the Subsidiaries has
violated any foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants, nor any federal or state law
relating to discrimination in the hiring, promotion or pay of employees nor any
applicable federal or state wages and hours laws, nor any provisions of the
Employee Retirement Income Security Act or the rules and regulations
promulgated thereunder, which would, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect;

(aa)            
the
Company and each of the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences;

(bb)           
except
as would not individually or in the aggregate reasonably be expected to have a
Material Adverse Effect, all tax returns required to be filed by the Company
and each of the Subsidiaries have been filed, other than those filings being
contested in good faith, and all taxes, including withholding taxes, penalties
and interest, assessments, fees and other charges due pursuant to such returns or
pursuant to any assessment received by the Company or any of the Subsidiaries
have been paid, other than those being contested in good faith and for which
adequate reserves have been provided;

(cc)            
all
documents incorporated by reference by the Offering Memorandum complied in all
material respects, as of the date of the Offering Memorandum, with the
requirements of the Exchange Act;

(dd)           
other
than as set forth in the Offering Memorandum, or as would not individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect, the
Company and the Subsidiaries own, possess, license or have other rights to use,
all patents, trademarks, servicemarks, trade names, copyrights, trade secrets,
information, proprietary rights and processes ("Intellectual Property")
necessary for their business as described in the Offering Memorandum, without
any known conflict with or infringement of the interests of others.  Except 

 

8

 

as described in
the Offering Memorandum, the Company is not aware of any options, licenses or
agreements of any kind relating to the Intellectual Property of the Company or
the Subsidiaries that are outstanding and required to be described in a
document incorporated by reference into the Offering Memorandum, and, except as
described in the Offering Memorandum, neither the Company nor either of the
Subsidiaries is a party to or bound by any options, licenses or agreements with
respect to the Intellectual Property of any other person or entity that are
required to be described in a document incorporated by reference into the
Offering Memorandum; none of the technology employed by the Company and the
Subsidiaries has been obtained or is used or proposed to be used by the Company
or the Subsidiaries in violation of any contractual obligation binding on the
Company or the Subsidiaries or any of their respective directors or executive
officers or, to the Company's knowledge, any employees of the Company or the
Subsidiaries, other than any violation which would not reasonably be expected
to individually or in the aggregate have a Material Adverse Effect; except as
described in the Offering Memorandum, to the Company's knowledge neither the
Company nor either of the Subsidiaries has violated, infringed or conflicted
with, or, by conducting its business as described in the Offering Memorandum
and commercializing the products under development described therein, would
violate, infringe or conflict with any of the Intellectual Property of any
other person or entity other than any such violation, infringement or conflict
which would not reasonably be expected to individually or in the aggregate have
a Material Adverse Effect;

(ee)            
the
clinical, pre-clinical and other studies and tests conducted by or on behalf of
or sponsored by the Company or any Subsidiary or in which the Company, any
Subsidiary or their respective products or product candidates have participated
that are described in the Offering Memorandum or the results of which are
referred to in the Offering Memorandum were and, if still pending, are being
conducted in accordance with standard medical and scientific research
procedures; except to the extent disclosed in the Offering Memorandum, the
Company and each Subsidiary has operated and currently is in compliance in all
material respects with all applicable rules, regulations and policies of the
U.S. Food and Drug Administration and comparable drug regulatory agencies
outside of the United States (collectively, the "Regulatory Authorities");
and except to the extent disclosed in the Offering Memorandum, the Company has
not received any notices or other correspondence from the Regulatory
Authorities or any other governmental agency requiring the termination or
suspension of any clinical or pre-clinical studies or tests that are described
in the Offering Memorandum or the results of which are referred to in the
Offering Memorandum;

(ff)              
when
the Notes are issued pursuant to this Agreement, the Notes will not be of the
same class (within the meaning of Rule 144A) as securities of the Company that
are listed on a national securities exchange registered pursuant to Section 6
of the Exchange Act or quoted in a U.S. automated inter-dealer quotation
system;

(gg)           
none
of the Company, the Subsidiaries or any affiliate (as defined in Rule 501(b) of
Regulation D under the Act, an "Affiliate") of the Company has
directly, or through any agent, (i) sold, offered for sale, solicited offers to
buy or otherwise negotiated in respect of, any security (as defined in the Act)
which is or will be integrated with the sale of the Notes in a manner that
would require the registration under the Act of the Notes or (ii) offered,
solicited offers to buy or sold the Notes by any form of general solicitation
or general advertising (as those terms are used in Regulation D under the Act)
or in any manner involving a public offering within the meaning of Section 4(2)
of the Act; 

 

9

 

(hh)           
none
of the Company, its Affiliates or any person acting on its or their behalf
(other than the Initial Purchasers, for which parties the Company makes no
representations), or, to the knowledge of the Company, the Subsidiaries, has
engaged or will engage in any directed selling efforts (within the meaning of
Regulation S) with respect to any offer or sale of the Notes made in reliance
on Regulation S, and the Company and its Affiliates and any person acting on
its or their behalf (other than the Initial Purchasers, for which parties the
Company makes no representations), and to the knowledge of the Company, the
Subsidiaries, have complied and will comply with the offering restrictions
requirement of Regulation S with respect to any offer or sale of the Notes made
in reliance on Regulation S; and

(ii)               
it
is not necessary in connection with the offer, sale and delivery of the Notes
to the Initial Purchasers pursuant to this Agreement to register the Notes
under the Act or to qualify the Indenture under the Trust Indenture Act of
1939, as amended.

4.                 
Representations and Warranties of the Initial Purchasers. 
The Initial Purchasers propose to offer the Notes for sale upon the
terms and conditions set forth in this Agreement and the Offering Memorandum,
and each Initial Purchaser hereby represents and warrants to and agrees with
the Company that:

(a)               
It
will offer and sell the Notes only: 
(i) to persons whom it reasonably believes are "qualified
institutional buyers" ("QIBs") within the meaning of Rule
144A in transactions meeting the requirements of Rule 144A and
(ii) outside the United States to persons other than U.S. persons (as
defined in Regulation S) in compliance with Regulation S, who, in each case, in
purchasing such Notes, are deemed to have represented and agreed as provided in
the Offering Memorandum under the caption "Notice to investors";

(b)               
It
is a QIB within the meaning of Rule 144A;

(c)               
It
has not and will not directly or indirectly, solicit offers in the United
States for, or offer or sell, the Notes by any form of general solicitation,
general advertising (as such terms are used in Regulation D) or in any manner
involving a public offering within the meaning of Section 4(2) of the Act; and

(d)               
With
respect to offers and sales outside the United States:

(i)                  
It
understands that no action has been or will be taken in any jurisdiction by the
Company that would permit a public offering of the Notes, or possession or
distribution of the Offering Memorandum or any other offering or publicity
material relating to the Notes, in any country or jurisdiction where action for
that purpose is required;

(ii)                
The
Notes have not been registered under the Act and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S. persons
except in accordance with Rule 144A or Regulation S or pursuant to another
exemption from the registration requirements of the Act; and

(iii)               
It
has offered the Notes and will offer and sell the Notes (A) as part of their
distribution at any time and (B) otherwise until one year after the later of
the commencement of the offering and the time of purchase (or the additional
time of purchase, if later) (the "Distribution Compliance Period"),
only in accordance with Rule 903 of Regulation S or as otherwise permitted in
this Section 4; accordingly, neither it, its 

 

10

Affiliates nor any
persons acting on its or their behalf have engaged or will engage in any
directed selling efforts (within the meaning of Regulation S) with respect to
the Notes, and it, its Affiliates and such persons have complied and will
comply with the offering restrictions requirement of Regulation S, including,
during the Distribution Compliance Period:

a)              no
such offer or sale will be made to a U.S. person or for the account or benefit
of a U.S. person (other than an Initial Purchaser);

b)              
   it will not engage in hedging transactions
involving the Notes or the Shares unless in compliance with the Act and will
include in any information provided to publishers of publicly available
databases a statement that the Notes are subject to restrictions under Regulation
S and Rule 144A; and

c)              it,
its Affiliates and any person acting on its behalf, if selling Notes to another
Initial Purchaser, a dealer or a person receiving a selling concession, fee or
other remuneration in respect of the Notes, will send a confirmation or other
notice to the purchaser stating that the purchaser is subject to the same
restrictions on offers and sales as set forth in this Section 4.

5.                 
Certain Covenants of the Company.  The Company
hereby agrees:

(a)               
to
prepare the Offering Memorandum in a form approved by the Initial Purchasers
and not to make any amendment or supplement to the Final Memorandum which shall
reasonably be disapproved by counsel to the Initial Purchasers promptly after
reasonable notice thereof;

(b)               
to
furnish such information as may be required and otherwise to cooperate in
qualifying the Notes and the Shares for offering and sale under the securities
or blue sky laws of such states as you may designate and to maintain such
qualifications in effect so long as required for the distribution of the Notes;
provided that the Company shall not be required to qualify as a foreign
corporation or to consent to the service of process under the laws of any such
state (except service of process with respect to the offering and sale of the
Notes); and to promptly advise you of the receipt by the Company of any
notification with respect to the suspension of the qualification of the Notes
and the Shares for sale in any jurisdiction or the initiation or threat of any
proceeding for such purpose;

(c)               
to
furnish, upon request, to the Initial Purchasers for as long as the Notes are
outstanding (i) copies of any reports or other communications which the Company
shall send to its stockholders or shall from time to time publish or publicly
disseminate, (ii) copies of all annual, quarterly and current reports filed
with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar forms,
as may be designated by the Commission, (iii) copies of documents or
reports filed with any national securities exchange on which any class of
securities of the Company is listed and (iv) such other public information as
you may reasonably request regarding the Company or any of the Subsidiaries, in
each case as soon as reasonably practicable after such reports, communications,
documents or information become available;

 

11

 

(d)               
to
furnish the Initial Purchasers with as many copies of the Offering Memorandum,
any documents incorporated by reference therein and any amendment or supplement
thereto as the Initial Purchasers may from time to time reasonably request, and
if, at any time prior to the completion of the resale of the Notes by the
Initial Purchasers, any event shall have occurred as a result of which the
Offering Memorandum as then amended or supplemented would include an untrue
statement of material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made when such Offering Memorandum is delivered, not misleading, or, if for any
other reason it shall be necessary or desirable during such time to amend or
supplement the Offering Memorandum, to notify the Initial Purchasers and upon
the request of the Initial Purchasers to prepare and furnish, at the Company's
expense, to the Initial Purchasers and to any dealer in securities as many
copies as the Initial Purchasers may from time to time reasonably request of an
amended Offering Memorandum or a supplement to the Offering Memorandum which
will correct such statement or omission or effect such compliance;

(e)               
to
furnish to you as early as reasonably practicable prior to the time of purchase
and the additional time of purchase, as the case may be but not later than two
business days prior thereto, a copy of the latest available unaudited interim
consolidated financial statements, if any, of the Company and the Subsidiaries
which have been read by the Company's independent certified public accountants,
as stated in their letter to be furnished pursuant to Section 7(d) hereof;

(f)                
at
any time when the Company is not subject to Section 13 or 15(d) of the Exchange
Act and so long as any of the Notes (or Shares issued upon conversion thereof)
are "restricted securities" within the meaning of Rule 144(a)(3)
under the Act, for the benefit of holders from time to time of the Notes, to
furnish at its expense, upon request, to holders of Notes and prospective
purchasers of Notes information satisfying the requirements of subsection
(d)(4)(i) of Rule 144A;

(g)               
to
use its best efforts to cause the Notes to be eligible for trading in PORTAL;

(h)               
to
apply the net proceeds from the sale of the Notes in the manner set forth under
the caption "Use of proceeds" in the Offering Memorandum;

(i)                 
to
reserve and keep available at all times free of preemptive rights, Shares for
the purpose of enabling the Company to satisfy any obligations to issue Shares
upon conversion of the Notes;

(j)                 
to
use its best efforts to list, as promptly as practicable but in no event later
than the time that the registration statement is declared effective in
accordance with the Registration Rights Agreement, and subject to notice of
issuance, the Shares on the Nasdaq National Market;

(k)               
to
pay all costs, expenses, fees and taxes in connection with (i) the preparation
of each Preliminary Memorandum, Final Memorandum and any amendments or
supplements thereto, and the printing and furnishing of copies of each thereof
to the Initial Purchasers and to dealers (including costs of mailing and
shipment), (ii) the preparation, issue, execution, authentication, transfer and
delivery of the Notes and the Shares, (iii) the printing of this Agreement, the
Registration Rights Agreement, the Indenture and any closing documents 

 

12

 

(including compilations
thereof) and the reproduction and/or printing and furnishing of copies of each
thereof to the Initial Purchasers and (except closing documents) to dealers
(including costs of mailing and shipment), (iv) the qualification of the Notes
and the Shares for offering and sale under state laws and the determination of
their eligibility for investment under state law as aforesaid (including
associated filing fees and the reasonable legal fees and disbursements of
counsel for the Initial Purchasers) and the printing and furnishing of copies
of any blue sky surveys or legal investment surveys to the Initial Purchasers
and to dealers, (v) any fees payable to investment rating agencies with respect
to the rating of the Notes, (vi) the cost and charges of the Trustee and any
transfer agent, registrar or depositary, (vii) the costs and expenses of the
Company relating to presentations or meetings undertaken in connection with the
marketing of the offer and sale of the Notes to prospective investors and the
Initial Purchasers' sales forces, including, without limitation, expenses
associated with the production of road show slides and graphics, fees and
expenses of any consultants engaged in connection with the road show
presentations, travel, lodging and other expenses incurred by the officers of
the Company and any such consultants, and the cost of any aircraft chartered in
connection with the road show and (viii) the performance of the other
obligations of the Company hereunder;

(l)                 
not to sell, offer or agree to sell, contract to sell,
hypothecate, pledge, grant any option to sell or otherwise dispose of, directly
or indirectly, any Notes or shares of Common Stock or securities convertible
into or exchangeable or exercisable for Common Stock or other rights to purchase
Common Stock or any other securities of the Company that are substantially
similar to the Notes or the Common Stock, or file or cause to be declared
effective a registration statement under the Act relating to the offer and sale
of any Notes or shares of Common Stock or securities convertible into or
exercisable or exchangeable for Common Stock or other rights to purchase Common
Stock or any other securities of the Company that are substantially similar to
the Notes or the Common Stock, for a period of ninety (90) days after the date
hereof (the "Lock-up Period"), without the prior written
consent of UBS Warburg LLC except for (i) the issuance and sale of the Notes
pursuant to this Agreement and the issuance of Shares upon conversion of the
Notes, (ii) the registration of the offer and sale of the Notes and the Shares
pursuant to the Registration Rights Agreement, (ii) issuances of Common Stock
upon the exercise of options or warrants or upon the conversion of convertible
securities disclosed as outstanding in the Offering Memorandum, (iv) the
issuance of stock options not exercisable during the Lock-up Period pursuant to
stock option plans described in the Offering Memorandum and (v) the issuance
and registration of securities which may be required pursuant to the Company's
or the Subsidiaries' currently outstanding agreements which are described in
the Offering Memorandum, including without limitation the issuance of Common
Stock to Hybridon, Inc. and the registration thereof under the Act.  During the first 45 days of the Lock-up
Period UBS Warburg LLC may withhold its consent to the actions described in
this Section 5(l) for any or no reason. 
If after the expiration of the first 45 days of the Lock-up Period the
average last reported sales price of the Common Stock on the Nasdaq National
Market for any five consecutive trading days equals or exceeds $19.95 per share
(adjusted for any stock split, combination or similar transaction), then UBS
Warburg LLC may not thereafter withhold its consent to such actions
unreasonably.

(m)              
not
to sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in the Act), either directly or by an
Affiliate, which could be integrated with the sale of the Notes in a manner
which would require the registration under the Act of the offer and sale of the
Notes;

 

13

 

(n)               
not
to solicit any offer to buy or offer or sell the Notes or the Shares by means
of any form of general solicitation or general advertising (as those terms are
used in Regulation D) or in any manner involving a public offering within the
meaning of Section 4(2) of the Act;

(o)               
with
respect to those Notes sold in reliance on Regulation S, (i) not to, either
directly or by any of its affiliates or any person acting on its or their
behalf (other than the Initial Purchasers), engage in any directed selling
efforts (within the meaning of Regulation S) and (ii) directly and its
affiliates and any person acting on its or their behalf (other than the Initial
Purchasers) to comply with the requirements of Regulation S and, during the
Distribution Compliance Period, to include in any information provided to
publishers of publicly available databases a statement that the Notes are
subject to restrictions under Regulation S and Rule 144A;

(p)               
during
the period of two years after the time of purchase or the additional time of
purchase, if later, not to directly, nor permit any of its affiliates (as
defined in Rule 144 under the Act ("Rule 144")) to, resell any
of the Notes or the Shares which constitute "restricted securities"
under Rule 144 that have been reacquired by any of them except pursuant to an
effective registration statement under the Act;

(q)               
not
to take any action prohibited by Regulation M under the Exchange Act in
connection with the distribution of the Notes contemplated hereby; and

(r)                
to
file in a timely manner a Form D with the Securities and Exchange Commission
pursuant to Regulation D under the Act relating to the offer and sale of the
Notes.

6.                 
Reimbursement of Initial Purchasers' Expenses. 
If the Notes are not delivered for any reason other than the termination
of this Agreement pursuant to the last paragraph of Section 9 hereof or the
default by one or more of the Initial Purchasers in its or their respective
obligations hereunder, the Company agrees, in addition to paying the amounts
described in Section 5(k) hereof, to reimburse the Initial Purchasers for all
of their out-of-pocket expenses, including the reasonable fees and disbursements
of their counsel.

7.                 
Conditions of Initial Purchasers' Obligations. 
The several obligations of the Initial Purchasers hereunder are subject
to the accuracy of the representations and warranties on the part of the
Company on the date hereof and at the time of purchase (and the several
obligations of the Initial Purchasers at the additional time of purchase are
subject to the accuracy of the representations and warranties on the part of
the Company on the date hereof and at the time of purchase (unless previously
waived) and at the additional time of purchase, as the case may be), the
performance by the Company of its obligations hereunder and to the following
additional conditions precedent:

(a)               
You
shall have received, at the time of purchase and at the additional time of
purchase, as the case may be, an opinion of Cooley Godward LLP, counsel for the
Company, addressed to the Initial Purchasers, and dated the time of purchase or
the additional time of purchase, as the case may be, with reproduced copies for
each of the other Initial Purchasers and in form reasonably satisfactory to
Dewey Ballantine LLP, counsel for the Initial Purchasers, stating that:

(i)                  
the
Company has been duly incorporated and is validly existing as a corporation and
in good standing under the laws of the State of Delaware, with full corporate
power and authority to own, lease and operate its properties and conduct its 

 

14

 

business as
described in the Offering Memorandum, to execute and deliver this Agreement,
the Registration Rights Agreement and the Indenture and to issue, sell and
deliver the Notes and, if issued on the date hereof, the Shares in accordance
with the terms of the Indenture, as herein contemplated;

(ii)                
the
Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which such qualification is necessary,
except where the failure to so qualify would not reasonably be expected to have
a Material Adverse Effect;

(iii)               
this
Agreement has been duly authorized, executed and delivered by the Company;

(iv)              
the
Registration Rights Agreement has been duly authorized, executed and delivered
by the Company and is a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms;

(v)                
the
Indenture has been duly authorized, executed and delivered by the Company and
is a legal, valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms;

(vi)              
the
Company has authorized and outstanding (as of the dates indicated) shares of
capital stock as set forth in the Offering Memorandum under the caption
"Capitalization"; the outstanding shares of capital stock of the
Company (A) have been duly authorized and validly issued and are fully paid and
non-assessable and (B) were issued in compliance with all preemptive rights,
co-sale rights and rights of first refusal under (1) the Delaware General
Corporation Law (the "DGCL"), (2) the Certificate of
Incorporation, as amended, and Bylaws of the Company and (3) any contract, commitment
or instrument filed as an exhibit to a document filed by the Company pursuant
to the Exchange Act and incorporated by reference in the Offering Memorandum
(collectively, the "Material Agreements"); with respect to the
Company's issuance of the Shares upon conversion of the Notes, there are no
applicable preemptive rights under the DGCL, the Certificate of Incorporation,
as amended, or Bylaws of the Company or any of the Material Agreements;

(vii)             
the
common stock of the Company conforms in all material respects to the
description thereof contained in the Offering Memorandum (as incorporated by
reference therein from the Company’s Registration Statement on Form 8-A filed
with the Commission on April 12, 1991 and from the Company’s Certificate of
Amendment of Restated Certificate of Incorporation filed with the Company’s
Quarterly Report on Form 10-Q for the period ended June 30, 2001, as amended);

(viii)           
no
approval, authorization, consent or order of or filing with any national, state
or local governmental or regulatory commission, board, body, authority or
agency is required to be obtained or made by the Company in connection with the
execution and delivery of this Agreement, the Registration Rights Agreement and
the Indenture and the issuance and sale of the Notes and, if issued on the date
hereof, the Shares, except for such as (A) may be required under state
securities laws and except for the filing of a Form D with the Securities and
Exchange Commission pursuant to Regulation D under the Act, (B) are required in
connection with the filing of the shelf registration 

 

15

 

statement(s) as
contemplated by the Registration Rights Agreement and (C) have been obtained or
made prior to the date hereof;

(ix)               
the execution and delivery of this Agreement, the
Registration Rights Agreement, the Indenture and the Notes by the Company, the
issuance of the Notes and, if issued on the date hereof, the issuance of the
Shares upon the conversion of the Notes do not constitute, and will not result
in, a Default Event pursuant to (A) any provision of the Certificate of
Incorporation, as amended, or Bylaws of the Company, (B) any Material
Agreement, (C) any law, regulation or rule applicable to the Company (other
than state or foreign securities laws, as to which such counsel expresses no
opinion) or (D) any decree, judgment or order known by such counsel to be
applicable to the Company or any of the Subsidiaries other than, in the case of
clause (B) such Default Events as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse
Effect;

(x)                 
to
the best of such counsel's knowledge, there are no related party transactions,
contracts, licenses, agreements, leases or documents of a character which are
required to be filed as exhibits to the documents incorporated by reference in
the Offering Memorandum or to be summarized or described in such documents
which have not been so filed, summarized or described;

(xi)               
to
the best of such counsel's knowledge, except as disclosed in the Offering
Memorandum, there are no actions, suits, claims, investigations or proceedings
pending or overtly threatened to which the Company or any of the Subsidiaries
is subject or of which any of their respective properties is subject, whether
at law, in equity or before or by any federal, state, local or foreign
governmental or regulatory commission, board, body, authority or agency which,
if determined adversely to the Company, would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect;

(xii)              
the
Company is not and, after giving effect to the offer and sale of the Notes,
will not be an "investment company" or an entity
"controlled" by an "investment company," as such terms are
defined in the Investment Company Act;

(xiii)            
the
Notes have been duly authorized and executed by the Company and when duly
authenticated in accordance with the terms of the Indenture and delivered to
and paid for by the Initial Purchasers in accordance with the terms of this
Agreement will constitute legal, valid and binding obligations of the Company;

(xiv)            
the
Shares initially issuable upon conversion of the Notes have been duly
authorized and reserved for issuance upon conversion of the Notes and are
initially sufficient in number to meet the conversion requirements of the
Notes, and such Shares, when so issued in accordance with the terms of the
Indenture, will be duly and validly issued and fully paid and non-assessable;

(xv)             
assuming
(A) the veracity of the representations and warranties of the Company set forth
in Section 3 of this Agreement and of the Initial Purchasers set forth in
Section 4 of this Agreement and (B) compliance by the Company with the
covenants and agreements set forth in Section 5 of this Agreement and by the
Initial Purchasers with the covenants and agreements set forth in Section 4 of
this Agreement, it is not 

 

16

 

necessary in
connection with (x) the offer, sale and delivery of the Notes to the Initial
Purchasers pursuant to this Agreement or (y) the initial resales of the Notes
by the Initial Purchasers in the manner contemplated in the Offering Memorandum
to register the Notes under the Act or to qualify the Indenture in respect
thereof under the Trust Indenture Act of 1939, as amended, it being understood
that no opinion is expressed as to any subsequent resale of any Note or Share;

(xvi)            
the
statements set forth in the Offering Memorandum under the caption
"Description of convertible notes," insofar as such description
purports to describe the provisions of documents referred to therein, fairly
present in all material respects such documents;

(xvii)          
those
statements in the Offering Memorandum under the captions "Risk factors—Provisions in our certificate of
incorporation, other agreements and Delaware law may prevent stockholders from
receiving a premium for their shares" and "Risk factors—If registration rights that we have
previously granted are exercised, then the price of our securities may be
negatively affected" that are descriptions of contracts, agreements or
other legal documents or of legal proceedings, or refer to statements of law or
legal conclusions, are accurate in all material respects and present fairly the
information or applicable law referred to therein;

(xviii)         
those
statements in the Offering Memorandum under the caption "Material United
States federal income tax considerations," insofar as such statements
constitute a discussion of the United States federal tax laws referred to
therein, are accurate in all material respects and fairly present in all
material respects the United States federal tax laws referred to therein; and

(xix)             
except
as described in the Offering Memorandum (including those documents incorporated
by reference therein), no person has the right, pursuant to the terms of any
Material Agreement, to have any securities issued by the Company and owned by
such person registered pursuant to the Act, as a result of the transactions
contemplated by this Agreement or otherwise, except for such rights as have
been complied with or waived.

In addition, such counsel
shall state that, during the course of the preparation of the Offering
Memorandum (it being understood that such counsel did not participate in the
preparation of the documents incorporated by reference), such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants of the Company
and representatives of the Initial Purchasers at which the contents of the Offering
Memorandum were discussed.  Although
such counsel has not independently verified and is not passing upon and does
not assume responsibility for the accuracy, completeness or fairness of the
statements contained in the Offering Memorandum (except as and to the extent
stated in subparagraphs (vii), (xvi), (xvii) and (xviii) above), on the basis
of the foregoing nothing has come to the attention of such counsel that causes
such counsel to believe that the Offering Memorandum or any amendment or supplement
thereto at the date of such Offering Memorandum or such amendment or
supplement, and at all times up to and including the time of purchase or
additional time of purchase, as the case may be, contained or contains an
untrue statement of a material fact or omitted or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading (it
being understood that such counsel need express no opinion with respect to the
financial statements and schedules and other financial or statistical data
included in the Offering Memorandum).

 

17

 

(b)               
You
shall have received at the time of purchase and at the additional time of
purchase, as the case may be, the opinion of Woodcock Washburn LLP, patent
counsel to the Company, dated the time of purchase or the additional time of
purchase, as the case may be, with reproduced copies for each of the other
Initial Purchasers and in form reasonably satisfactory to Dewey Ballantine LLP,
counsel for the Initial Purchasers, stating that: 

(i)                  
based
on information brought to such counsel's attention by the Company with respect
to the Company's investigation of the published literature and patent
references relating to the inventions claimed in its patent applications in
such counsel's care (the "relevant applications"), such
counsel has disclosed all pertinent art references to the United States Patent
and Trademark Office in such applications. 
To the best of such counsel's knowledge, all information submitted to
the United States Patent and Trademark Office in the relevant applications and
in connection with the prosecution of the relevant applications was
accurate.  Neither such counsel nor, to
the best of its knowledge, the Company has made any misrepresentation or
concealed any material fact from the Patent and Trademark Office in any of the
relevant applications, or in connection with the prosecution of such applications;

(ii)                
the
statements in the Offering Memorandum under the heading "Risk factors—Intellectual property litigation could be
expensive and prevent us from pursuing our programs" and in the Company's
Annual Report on Form 10-K for the year ended December 31, 2001 under the caption
"Patents and Proprietary Rights" constitute an accurate summary of
the matters referred to therein and fairly present the information called for
with respect to such matters; and

(iii)               
other
than as disclosed in the Offering Memorandum, to the best of such counsel's
knowledge, the Company's products and products under development do not, and
would not upon commercialization, infringe or conflict with asserted rights of
any third party with respect to any material patents, trademarks, licenses,
copyrights and proprietary or other confidential information employed by the
Company in connection with its business.

 

With respect to
subparagraph (i) of paragraph (b) above, Woodcock Washburn LLP may state that
they have not independently conducted any investigation of the published
literature and patent references relating to the inventions claimed in the
Company's patent applications.

(c)               
You
shall have received at the time of purchase and at the additional time of
purchase, as the case may be, the opinion of Dewey Ballantine LLP, counsel for
the Initial Purchasers, dated the time of purchase or the additional time of
purchase, as the case may be, with respect to the issuance and sale of the
Notes by the Company, the Offering Memorandum (together with any supplement thereto)
and other related matters as the Initial Purchasers may require.

(d)               
You
shall have received from Ernst & Young LLP letters dated, respectively, the
date of this Agreement and the time of purchase and additional time of
purchase, as the case may be, and addressed to the Initial Purchasers (with
reproduced copies for each of the Initial Purchasers) in the forms heretofore
approved by UBS Warburg LLC.

 

18

 

(e)               
No
amendment or supplement to the Offering Memorandum, or document which upon
filing with the Commission would be incorporated by reference therein, shall at
any time have been made or filed to which you have objected or shall object in
writing.

(f)                
At
the time of purchase or the additional time of purchase, as the case may be,
the Offering Memorandum and all amendments or supplements thereto, or
modifications thereof, if any, shall not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they are made, not misleading.

(g)               
Between
the time of execution of this Agreement and the time of purchase or the
additional time of purchase, as the case may be, (i) no material and adverse
change or any development involving a prospective material and adverse change
(other than as specifically described in the Offering Memorandum), in the
business, properties, condition (financial or otherwise) or results of
operations of the Company and the Subsidiaries, taken as a whole, shall occur
or become known and (ii) no transaction which is material and adverse to the
Company shall have been entered into by the Company or any of the Subsidiaries.

(h)               
The
Company will, at the time of purchase or additional time of purchase, as the
case may be, deliver to you a certificate signed by one of the Company's
executive officers to the effect that the representations and warranties of the
Company as set forth in this Agreement are true and correct as of each such
date, that the Company has performed such of its obligations under this
Agreement as are to be performed at or before the time of purchase and at or
before the additional time of purchase, as the case may be, and the conditions
set forth in paragraphs (f) and (g) of this Section 7 have been met.

(i)                 
You
shall have received the letters referred to in Section 3(s).

(j)                 
The
Company shall have furnished to you such other documents and certificates as to
the accuracy and completeness of any statement in the Offering Memorandum as of
the time of purchase and the additional time of purchase, as the case may be,
as you may reasonably request.

(k)               
The
Notes shall have been designated for trading on PORTAL, subject only to notice
of issuance at or prior to the time of purchase.

(l)                 
Between
the time of execution of this Agreement and the time of purchase or additional
time of purchase, as the case may be, there shall not have occurred any
downgrading, nor shall any notice or announcement have been given or made of
(i) any intended or potential downgrading or (ii) any review or possible change
that does not indicate an improvement, in the rating accorded any securities of
or guaranteed by the Company or any Subsidiary by any "nationally
recognized statistical rating organization", as that term is defined in
rule 436(g)(2) under the Act.

 

8.                 
Effective Date of Agreement; Termination.  This
Agreement shall become effective when the parties hereto have executed and
delivered this Agreement.

 

The obligations of the several Initial Purchasers hereunder
shall be subject to termination in the absolute discretion of UBS Warburg LLC
or any group of Initial Purchasers (which may include UBS Warburg LLC) which
has agreed to purchase in the aggregate at least 50% of the Firm Notes, (i) if,
since the time of execution of this Agreement or the respective dates as of
which information is given in 

 

19

 

the Offering
Memorandum, there has been any material adverse change, financial or otherwise
(other than as specifically described in the Preliminary Offering Memorandum at
the time of execution of this Agreement), in the operations, business,
condition or prospects of the Company and the Subsidiaries taken as a whole,
which would, in the judgment of UBS Warburg LLC or in the judgment of such
group of Initial Purchasers, make it impracticable to market the Notes in the
manner and on the terms set forth in the Final Offering Memorandum, (ii) there
shall have occurred any downgrading, or any notice shall have been given of (x)
any intended or potential downgrading or (y) any review or possible change that
does not indicate an improvement, in the rating accorded any securities of or
guaranteed by the Company or any Subsidiary by any "nationally recognized
statistical rating organization", as that term is defined in Rule
436(g)(2) under the Act or (iii) if, at any time prior to the time of purchase
or, with respect to the purchase of any Additional Notes, the additional time
of purchase, as the case may be, trading in securities on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market shall have
been suspended or limitations or minimum prices shall have been established on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market, or if a banking moratorium shall have been declared either by the
United States or New York State authorities, or if the United States shall have
declared war in accordance with its constitutional processes or there shall
have occurred any material outbreak or escalation of hostilities or other
national or international calamity or crisis of such magnitude in its effect on
the financial markets of the United States as, in the judgment of UBS Warburg
LLC or in the judgment of such group of Initial Purchasers, to make it
impracticable to market the Notes in the manner and on the terms set forth in
the Final Offering Memorandum.

If you or any group of
Initial Purchasers elects to terminate this Agreement as provided in this
Section 8, the Company and each other Initial Purchaser shall be notified
promptly by letter or telegram from such terminating Initial Purchaser.

If the sale to the Initial Purchasers of the Notes, as
contemplated by this Agreement, is not carried out by the Initial Purchasers
for any reason permitted under this Agreement or if such sale is not carried
out because the Company shall be unable to comply with any of the terms of this
Agreement, the Company shall not be under any obligation or liability under
this Agreement (except to the extent provided in Sections 5(k), 6 and 10
hereof), and the Initial Purchasers shall be under no obligation or liability
to the Company under this Agreement (except to the extent provided in
Section 10 hereof) or to one another hereunder.

 

9.                 
Increase in Initial Purchasers' Commitments. 
Subject to Sections 7 and 8, if any Initial Purchaser shall default in
its obligation to purchase and pay for the Firm Notes to be purchased by it
hereunder (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 8 hereof) and if the aggregate
principal amount of Firm Notes which all Initial Purchasers so defaulting shall
have agreed but failed to purchase and pay for does not exceed 10% of the total
aggregate principal amount of Firm Notes to be purchased at such time, the
non-defaulting Initial Purchasers shall purchase and pay for (in addition to
the aggregate number of Firm Notes they are obligated to purchase pursuant to
Section 1 hereof) the aggregate principal amount of Firm Notes agreed to
be purchased by all such defaulting Initial Purchasers, as hereinafter
provided.  Such Notes shall be purchased
and paid for by such non-defaulting Initial Purchaser or Initial Purchasers in
such amount or amounts as you may designate with the consent of each Initial
Purchaser so designated or, in the event no such designation is made, such
Notes shall be purchased and paid for by all non-defaulting Initial Purchasers
pro rata in proportion to the aggregate principal amount of Firm Notes set
opposite the names of such non-defaulting Initial Purchasers in Schedule A.

 

Without relieving any
defaulting Initial Purchaser from its obligations hereunder, the Company agrees
with the non-defaulting Initial Purchasers that it will not sell any Firm Notes
hereunder 

 

20

 

unless all of the
Firm Notes are purchased by the Initial Purchasers (or by substituted Initial
Purchasers selected by you with the approval of the Company or selected by the
Company with your approval).

If a new Initial
Purchaser or Initial Purchasers are substituted by the Initial Purchasers or by
the Company for a defaulting Initial Purchaser or Initial Purchasers in
accordance with the foregoing provision, the Company or you shall have the
right to postpone the time of purchase for a period not exceeding five business
days in order that any necessary changes in the Offering Memorandum and other
documents may be effected.

The term Initial
Purchaser as used in this Agreement shall refer to and include any Initial
Purchaser substituted under this Section 9 with like effect as if such
substituted Initial Purchaser had originally been named in Schedule A.

If the aggregate principal amount of Notes which the
defaulting Initial Purchaser or Initial Purchasers agreed to purchase exceeds
10% of the total aggregate principal amount of Notes which all Initial
Purchasers agreed to purchase hereunder, and if neither the non-defaulting
Initial Purchasers nor the Company shall make arrangements within the five
business day period stated above for the purchase of all the Notes which the
defaulting Initial Purchaser or Initial Purchasers agreed to purchase
hereunder, this Agreement shall terminate without further act or deed and
without any liability on the part of the Company to any non-defaulting Initial
Purchaser and without any liability on the part of any non-defaulting Initial
Purchaser to the Company.  Nothing in
this paragraph, and no action taken hereunder, shall relieve any defaulting
Initial Purchaser from liability in respect of any default of such Initial
Purchaser under this Agreement.

 

10.              
Indemnity and Contribution.

(a)               
The
Company agrees to indemnify, defend and hold harmless each Initial Purchaser,
its partners, directors and officers, and any person who controls any Initial
Purchaser within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, and the successors and assigns of all of the foregoing persons
from and against any loss, damage, expense, liability or claim (including the
reasonable cost of investigation) which, jointly or severally, any such Initial
Purchaser or any such person may incur under the Act, the Exchange Act, the
common law or otherwise, insofar as such loss, damage, expense, liability or
claim arises out of or is based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in the Offering Memorandum (the term
Offering Memorandum for the purpose of this Section 10 being deemed to
include any Preliminary Memorandum, the Final Memorandum and the Offering
Memorandum as amended or supplemented by the Company), or arises out of or is
based upon any omission or alleged omission to state a material fact required
to be stated in the Offering Memorandum or necessary to make the statements
made therein not misleading, except insofar as any such loss, damage, expense,
liability or claim arises out of or is based upon any untrue statement or
alleged untrue statement of a material fact contained in and in conformity with
information furnished in writing by or on behalf of any Initial Purchaser
through you to the Company expressly for use with reference to such Initial
Purchaser in such Offering Memorandum or arises out of or is based upon any
omission or alleged omission to state a material fact in connection with such
information required to be stated in such Offering Memorandum or necessary to
make such information not misleading, or (ii) any untrue statement or alleged
untrue statement made by the Company in Section 3 of this Agreement or the
failure by the Company to perform when and as required any agreement or
covenant contained herein or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any audio or visual materials provided
by the Company or based upon written information furnished by or 

 

21

 

on behalf of the
Company including, without limitation, slides, videos, films, tape recordings,
used in connection with the marketing of the Notes or (iv) the matters to be
covered in the Final Memorandum under the caption "Risk factors—If this offering violated securities
laws, purchasers in this offering would have the right to seek refunds or
damages" (such description to be substantially as set forth on Exhibit B
hereto), provided, however, that the indemnity
agreement contained in clause (i) of this subsection (a) with respect to any
Preliminary Memorandum or amended Preliminary Memorandum shall not inure to the
benefit of any Initial Purchaser from whom the person asserting any such loss,
damage, expense, liability or claim purchased the Notes which is the subject
thereof if the Final Memorandum corrected any such alleged untrue statement or
omission and if such Initial Purchaser failed to send or give a copy of the
Final Memorandum to such person at or prior to the written confirmation of the
sale of such Notes to such person, unless the failure is the result of
noncompliance by the Company with Section 5(d) hereof.

If any action, suit or
proceeding (together, a "Proceeding") is brought against an
Initial Purchaser or any such person in respect of which indemnity may be
sought against the Company pursuant to the foregoing paragraph, such Initial
Purchaser or such person shall promptly notify the Company in writing of the
institution of such Proceeding and the Company shall assume the defense of such
Proceeding, including the employment of counsel reasonably satisfactory to such
indemnified party and payment of all fees and expenses; provided, however,
that the omission to so notify the Company shall not relieve the Company from
any liability which the Company may have to any Initial Purchaser or any such
person or otherwise, except to the extent the Company is materially prejudiced
thereby.  Such Initial Purchaser or such
person shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
Initial Purchaser or of such person unless the employment of such counsel shall
have been authorized in writing by the Company in connection with the defense
of such Proceeding or the Company shall not have, within a reasonable period of
time in light of the circumstances, employed counsel to have charge of the
defense of such Proceeding or such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them which
are different from, additional to or in conflict with those available to the
Company (in which case the Company shall not have the right to direct the
defense of such Proceeding on behalf of the indemnified party or parties), in
any of which events such fees and expenses shall be borne by the Company and
paid as incurred (it being understood, however, that the Company shall not be
liable for the expenses of more than one separate counsel (in addition to any
local counsel) in any one Proceeding or series of related Proceedings in the
same jurisdiction representing the indemnified parties who are parties to such
Proceeding).  The Company shall not be
liable for any settlement of any Proceeding effected without the written
consent of the Company, but if settled with the written consent of the Company,
the Company agrees to indemnify and hold harmless any Initial Purchaser and any
such person from and against any loss or liability by reason of such
settlement.  Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second sentence of this paragraph, then the
indemnifying party agrees that it shall be liable for any settlement of any
Proceeding effected without the Company's written consent if (i) such
settlement is entered into more than 60 business days after receipt by the
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
not have reimbursed the indemnified party in accordance with such request prior
to the date of such settlement and (iii) such indemnified party shall have
given the indemnifying party at least 30 days' prior notice of its intention to
settle.  No indemnifying party shall,
without the prior written consent of the indemnified party, effect any settlement
of any pending or threatened Proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are 

 

22

 

the subject matter of such Proceeding and does not
include an admission of fault, culpability or a failure to act, by or on behalf
of such indemnified party.

 

(b)               
Each
Initial Purchaser severally agrees to indemnify, defend and hold harmless the
Company, its directors and officers, and any person who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
and the successors and assigns of all of the foregoing persons from and against
any loss, damage, expense, liability or claim (including the reasonable cost of
investigation) which the Company or any such person may incur under the Act,
the Exchange Act, the common law or otherwise, insofar as such loss, damage,
expense, liability or claim arises out of or is based upon any untrue statement
or alleged untrue statement of a material fact contained in and in conformity
with information furnished in writing by or on behalf of such Initial Purchaser
through you to the Company expressly for use with reference to such Initial
Purchaser in the Offering Memorandum (or in the Offering Memorandum as amended
by the Company), or arises out of or is based upon any omission or alleged
omission to state a material fact in connection with such information required
to be stated in such Offering Memorandum or necessary to make such information
not misleading.

 

If any Proceeding is brought against the Company or any such person in
respect of which indemnity may be sought against any Initial Purchaser pursuant
to the foregoing paragraph, the Company or such person shall promptly notify
such Initial Purchaser in writing of the institution of such Proceeding and
such Initial Purchaser shall assume the defense of such Proceeding, including
the employment of counsel reasonably satisfactory to such indemnified party and
payment of all fees and expenses; provided, however, that the
omission to so notify such Initial Purchaser shall not relieve such Initial
Purchaser from any liability which such Initial Purchaser may have to the
Company or any such person or otherwise, except to the extent such Initial
Purchaser is materially prejudiced thereby. 
The Company or such person shall have the right to employ their or its
own counsel in any such case, but the fees and expenses of such counsel shall
be at the expense of the Company or such person unless the employment of such
counsel shall have been authorized in writing by such Initial Purchaser in
connection with the defense of such Proceeding or such Initial Purchaser shall
not have, within a reasonable period of time in light of the circumstances,
employed counsel to defend such Proceeding or such indemnified party or parties
shall have reasonably concluded that there may be defenses available to it or
them which are different from or additional to or in conflict with those
available to such Initial Purchaser (in which case such Initial Purchaser shall
not have the right to direct the defense of such Proceeding on behalf of the
indemnified party or parties, but such Initial Purchaser may employ counsel and
participate in the defense thereof but the fees and expenses of such counsel
shall be at the expense of such Initial Purchaser), in any of which events such
fees and expenses shall be borne by such Initial Purchaser and paid as incurred
(it being understood, however, that such Initial Purchaser shall not be liable
for the expenses of more than one separate counsel (in addition to any local
counsel) in any one Proceeding or series of related Proceedings in the same
jurisdiction representing the indemnified parties who are parties to such
Proceeding).  No Initial Purchaser shall
be liable for any settlement of any such Proceeding effected without the
written consent of such Initial Purchaser but if settled with the written
consent of such Initial Purchaser, such Initial Purchaser agrees to indemnify
and hold harmless the Company and any such person from and against any loss or
liability by reason of such settlement. 
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel as contemplated by the second sentence
of this paragraph, then the indemnifying party agrees that it shall be liable
for any settlement of any Proceeding effected without its written consent if
(i) such settlement is entered into more than 60 business days after receipt by
such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement and (iii) such indemnified party
shall have given the indemnifying party at least 30 days' prior notice of its
intention to settle.  No indemnifying
party shall, 

 

23

 

without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened Proceeding in respect
of which any indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such Proceeding and does not
include an admission of fault, culpability or a failure to act, by or on behalf
of such indemnified party.

 

(c)               
If
the indemnification provided for in this Section 10 is unavailable to an
indemnified party under subsections (a) and (b) of this Section 10 in
respect of any losses, damages, expenses, liabilities or claims referred to
therein, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, damages, expenses, liabilities or claims
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Initial Purchasers on the other
hand from the offering of the Notes or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company on the one
hand and of the Initial Purchasers on the other in connection with the
statements or omissions which resulted in such losses, damages, expenses,
liabilities or claims, as well as any other relevant equitable considerations.  The relative benefits received by the
Company on the one hand and the Initial Purchasers on the other shall be deemed
to be in the same respective proportions as the total proceeds from the
offering (net of discounts and commissions but before deducting expenses) received
by the Company and the total discounts and commissions received by the Initial
Purchasers.  The relative fault of the
Company on the one hand and of the Initial Purchasers on the other shall be
determined by reference to, among other things, whether the untrue statement or
alleged untrue statement of a material fact or omission or alleged omission
relates to information supplied by the Company or by the Initial Purchasers and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.  The amount paid or payable by a party as a result of the losses,
damages, expenses, liabilities and claims referred to in this subsection shall
be deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating, preparing to defend or defending
any Proceeding.

(d)               
The
Company and the Initial Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section 10 were determined by
pro rata allocation (even if the Initial Purchasers were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in subsection (c) above.  Notwithstanding the provisions of this
Section 10, in no case shall any Initial Purchaser be required to
contribute any amount in excess of the amount by which the total price at which
the Notes resold by it in the initial placement of such Notes with investors
exceeds the amount of any damage which such Initial Purchaser has otherwise
been required to pay by reason of such untrue statement or alleged untrue
statement or omission or alleged omission. 
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.  The Initial Purchasers' obligations to
contribute pursuant to this Section 10 are several in proportion to the
respective principal amount of Notes they have purchased hereunder, and not
joint.

(e)               
The
indemnity and contribution agreements contained in this Section 10 and the
covenants, warranties and representations of the Company and the Initial
Purchasers contained in this Agreement shall remain in full force and effect
regardless of any investigation 

 

24

 

made by or on
behalf of any Initial Purchaser, its partners, directors or officers or any
person (including each partner, officer or director of such person) who
controls any Initial Purchaser within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, or by or on behalf of the Company, its
directors or officers or any person who controls any of the foregoing within
the meaning of Section 15 of the Act or Section 20 of the Exchange
Act, and shall survive any termination of this Agreement or the issuance and
delivery of the Notes.  The Company and
each Initial Purchaser agree promptly to notify each other of the commencement
of any Proceeding against it and against any of the officers or directors of
the Company in connection with the issuance and sale of the Notes, or in
connection with the Offering Memorandum.

 

11.              
Notices.  Except as otherwise herein provided, all statements,
requests, notices and agreements shall be in writing and, if to the Initial
Purchasers, shall be sufficient in all respects if delivered or sent to UBS
Warburg LLC, 299 Park Avenue, New York, NY  10171-0026, Attention: 
Syndicate Department; and if to the Company, shall be sufficient in all
respects if delivered or sent to the Company at the offices of the Company at
2292 Faraday Avenue, Carlsbad, CA 
92008, Attention:  B. Lynne
Parshall, Esq., Executive Vice President and Chief Financial Officer.

12.              
Information Furnished by the Initial Purchasers.  The statements set forth in the last
paragraph on the cover page of the Offering Memorandum and the statements set
forth in the ninth paragraph (regarding over-allotment, stabilizing and
syndicate covering transactions) under the caption "Plan of
distribution" in the Offering Memorandum constitute the only information
furnished by or on behalf of the Initial Purchasers as such information is
referred to in Sections 3 and 10 hereof.

13.              
Governing Law; Construction.  This
Agreement and any claim, counterclaim or dispute of any kind or nature
whatsoever arising out of or in any way relating to this Agreement
("Claim"), directly or indirectly, shall be governed by, and
construed in accordance with, the laws of the State of New York.  The section headings in this Agreement have
been inserted as a matter of convenience of reference and are not a part of
this Agreement.

14.              
Submission to Jurisdiction.  Except as
set forth below, no Claim may be commenced, prosecuted or continued in any
court other than the courts of the State of New York located in the City and
County of New York or in the United States District Court for the Southern
District of New York, which courts shall have jurisdiction over the
adjudication of such matters, and you and the Company consent to the
jurisdiction of such courts and personal service with respect thereto.  The Company hereby consents to personal
jurisdiction, service and venue in any court in which any Claim arising out of
or in any way relating to this Agreement is brought by any third party against
an Initial Purchaser or any indemnified party. 
Each Initial Purchaser and the Company (on its behalf and, to the extent
permitted by applicable law, on behalf of its stockholders and affiliates)
waives all right to trial by jury in any action, proceeding or counterclaim
(whether based upon contract, tort or otherwise) in any way arising out of or
relating to this Agreement.  The Company
agrees that a final judgment not subject to appeal in any such action,
proceeding or counterclaim brought in any such court shall be conclusive and
binding thereupon, and may be enforced in any other courts in the jurisdiction
to which the Company is or may be subject, by suit upon such judgment.

15.              
Parties at Interest.  The
Agreement herein set forth has been and is made solely for the benefit of the
Initial Purchasers, the Company and, to the extent provided in Section 10
hereof, the controlling persons, directors and officers referred to in such
section, and their respective successors, assigns, heirs, personal
representatives and executors and administrators.  No other person, partnership, association or corporation
(including a purchaser, as such purchaser, from any of the Initial Purchasers)
shall acquire or have any right under or by virtue of this Agreement.

 

25

 

16.              
Counterparts.  This Agreement may be signed by the parties
in one or more counterparts which together shall constitute one and the same
agreement among the parties.

17.              
Successors and Assigns.  This
Agreement shall be binding upon the Initial Purchasers and the Company and
their successors and assigns and any successor or assign of any substantial
portion of the Company's and any of the Initial Purchasers' respective
businesses and/or assets.

18.              
Miscellaneous.  UBS Warburg LLC, an
indirect, wholly owned subsidiary of UBS AG, is not a bank and is separate from
any affiliated bank, including any U.S. branch or agency of UBS
Warburg LLC.  Because UBS Warburg
LLC is a separately incorporated entity, it is solely responsible for its own
contractual obligations and commitments, including obligations with respect to
sales and purchases of securities. 
Securities sold, offered or recommended by UBS Warburg LLC are not
deposits, are not insured by the Federal Deposit Insurance Corporation, are not
guaranteed by a branch or agency, and are not otherwise an obligation or
responsibility of a branch or agency.

 

A lending affiliate of
UBS Warburg LLC may have lending relationships with issuers of securities
underwritten or privately placed by UBS Warburg LLC.  To the extent required under the securities laws, prospectuses
and other disclosure documents for securities underwritten or privately placed
by UBS Warburg LLC will disclose the existence of any such lending
relationships and whether the proceeds of the issue will be used to repay debts
owed to affiliates of UBS Warburg LLC.

 

26

 

If the foregoing
correctly sets forth the understanding between the Company and the Initial
Purchasers, please so indicate in the space provided below for the purpose,
whereupon this letter and your acceptance shall constitute a binding agreement
between the Company and the Initial Purchasers.

	
   

  	
   

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ISIS PHARMACEUTICALS,
  INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ B. Lynne Parshall

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Accepted and agreed to
  as of the date first 

  above written:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  UBS WARBURG LLC

  	
   

  	
   

  
	
  ROBERTSON STEPHENS,
  INC.

  	
   

  	
   

  
	
  NEEDHAM & COMPANY,
  INC.

  	
   

  	
   

  
	
  ROTH CAPITAL PARTNERS,
  LLC

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  on behalf of itself and
  the other Initial Purchasers named in Schedule A hereto:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
    UBS WARBURG LLC

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Steve Meehan

  	
   

  	
   

  
	
   

  	
  Name:  Steve Meehan

  	
   

  	
   

  
	
   

  	
  Title: Managing
  Director

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ S. Kelly

  	
   

  	
   

  
	
   

  	
  Name:  S. Kelly

  	
   

  	
   

  
	
   

  	
  Title:  Director

  	
   

  	
   

  
						

 

 

27

 

SCHEDULE A

 

 

	
  Initial Purchasers

  	
   

  	
  Principal Amount of Firm Notes

  
	
   

  	
   

  	
   

  
	
  UBS WARBURG LLC

  	
   

  	
  $

  	
  122,375,000

  
	
   

  	
   

  	
   

  
	
  ROBERTSON STEPHENS, INC. 

  	
   

  	
  1,500,000

  
	
  NEEDHAM & COMPANY, INC. 

  	
   

  	
  750,000

  
	
  ROTH CAPITAL PARTNERS, LLC

  	
   

  	
  375,000

  
	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  $

  	
  125,000,000

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 

Sch-B

 

 

SCHEDULE B

	
  Name

  	
   

  	
  Jurisdiction
  of Incorporation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Orasense Ltd.

  	
   

  	
  Bermuda

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Hepasense Ltd.

  	
   

  	
  Bermuda

  	
   

  

 

 

 

Sch-B

 

EXHIBIT A

 

 

Isis Pharmaceuticals, Inc.

Common Stock

($.001 Par Value)

, 2002

 

UBS Warburg LLC

Robertson Stephens, Inc.

 

c/o UBS Warburg LLC

       299 Park Avenue
       New York, New York 10171

Ladies and
Gentlemen:

This Lock-Up Letter
Agreement is being delivered to you in connection with the proposed Purchase
Agreement (the "Purchase Agreement") to be entered into by and among
Isis Pharmaceuticals, Inc. (the "Company"), you and the other Initial
Purchasers named therein, with respect to an offering without registration under
the Securities Act of 1933, as amended (the "Act"), in reliance on
Rule 144A, Regulation S and Regulation D under the Act, Convertible
Subordinated Notes due 2009 (the "Notes") of the Company (the
"Offering").

In order to induce you to
enter into the Purchase Agreement, the undersigned agrees that for a period of
90 days after the date of the Final Memorandum relating to the Offering the
undersigned will not, without the prior written consent of UBS Warburg LLC, (i)
sell, offer to sell, contract to sell, hypothecate, pledge, grant any option to
purchase or otherwise dispose of, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position within the meaning
of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Commission promulgated thereunder with respect to, any
Notes or Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or any securities substantially similar to the Notes
or the Common Stock, (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of Common Stock or any securities convertible into or exercisable or
exchangeable for any Notes or Common Stock or any securities substantially
similar to the Notes or the Common Stock, whether any such transaction is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise, or (iii) publicly announce an intention to effect any transaction
specified in clause (i) or (ii).  The
foregoing sentence shall not apply to (a) the sale of any Common Stock to the
Initial Purchasers pursuant to the Purchase Agreement, (b) bona fide gifts,
provided the recipient or recipients thereof agree in writing to be bound by
the terms of this Lock-Up Letter Agreement, (c) dispositions to any trust for
the direct or indirect benefit of the undersigned and/or the immediate family
of the undersigned, provided that such trust agrees in writing to be bound by
the terms of this Lock-Up Letter Agreement, or (d) the sale of up to
        [The Number Equal to the greater of (A)
the number of shares subject to stock options that will expire by the end of
2002, or (B) 20,000 shares for 

 

Exhibit B-1

 

Executive Officers and 8,000 shares
for Directors]
shares of Common Stock made after the tenth (10th) business day
following the time of purchase (as defined in the Purchase Agreement).  For sales of Common Stock made under the
exception set forth in clause (d) above, the Company will recommend that the undersigned
use designated personnel of UBS Warburg LLC previously approved by the Company
to effectuate such sales.

In addition, the
undersigned hereby waives any rights the undersigned may have to require
registration of Common Stock in connection with the filing of a registration
statement relating to the Offering.  The
undersigned further agrees that, for a period of 90 days after the date of the
Final Memorandum relating to the Offering, the undersigned will not, without
the prior written consent of UBS Warburg LLC, make any demand for, or exercise
any right with respect to, the registration of Common Stock of the Company or
any securities convertible into or exercisable or exchangeable for Common Stock.

If for any reason the
Purchase Agreement shall be terminated prior to the time of purchase (as
defined in the Purchase Agreement), this Lock-Up Letter Agreement shall be
terminated and the undersigned shall be released from its obligations
hereunder.

	
   

  	
  Yours very
  truly,

  
	
   

  	
   

   

  
	
   

  	
  Name:

  

 

 

 

Exhibit
A-2

 

 

EXHIBIT B

 

 

 

If this offering violated securities
laws, purchasers in this offering would have the right to seek refunds or
damages.

 

On April 24, 2002, an
article appeared in a San Diego newspaper regarding this offering in which one
of our officers was interviewed.  The
newspaper article could form the basis for a claim that we have engaged in an
unregistered public offering of the convertible notes in
violation of securities laws.  We would dispute any such claim. 
However, if such a claim were made and it prevailed,
the initial purchasers and persons who purchase the convertible notes from the
initial purchasers in this offering would have the right, for a period of one year, to obtain recovery of the consideration paid in
connection with their purchase of the convertible notes or, if they have
already sold the convertible notes, to recover any losses resulting from their
purchase of the convertible notes.

 

 

 

A-1Exhibit 4.20

 

ISIS PHARMACEUTICALS, INC.

 

                THIS SECURITY HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION.  NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.  THE HOLDER HEREOF MAY NOT ENGAGE IN HEDGING
TRANSACTIONS WITH RESPECT TO THIS SECURITY UNLESS SUCH TRANSACTIONS ARE IN
COMPLIANCE WITH THE SECURITIES ACT.

 

                THE HOLDER OF THIS SECURITY BY
ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH
SECURITY, PRIOR TO THE DATE (THE “RESALE RESTRICTION TERMINATION DATE”) WHICH
IS THE LATER OF (X) TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF
AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE
OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), AND (Y) SUCH
LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW ONLY (A) TO THE
COMPANY OR ANY SUBSIDIARY OF THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED
INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A UNDER THE SECURITIES ACT OR (D) PURSUANT TO OFFERS AND SALES THAT
OCCUR OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE
SECURITIES ACT, SUBJECT TO THE COMPANY’S AND THE TRUSTEE’S RIGHT PRIOR TO ANY
SUCH OFFER, SALE OR TRANSFER PURSUANT TO THIS CLAUSE (D) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM.  THIS
LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE.

 

                THIS SECURITY IS A GLOBAL
SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS
REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A
SUCCESSOR DEPOSITARY.  THIS SECURITY IS
NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN
THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS
SECURITY 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) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE INDENTURE.

 

                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.

 

                TRANSFERS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES
OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.16 OF THE
INDENTURE.

 

1

 

	
  No. A-1

  	
   

  	
  $

  	
   

  

 

5 1⁄2% Convertible Subordinated
Note due 2009

CUSIP No. 464337AA2

 

ISIS PHARMACEUTICALS, INC., a Delaware corporation (herein called the
“Company”), for value received, hereby promises to pay to Cede & Co. or
registered assigns, the principal sum of
                                    
on May 1, 2009, and to pay interest thereon, as provided on the reverse hereof,
until the principal and any unpaid and accrued interest is paid or duly
provided for.  The right to payment of
the principal and all other amounts due with respect hereto is subordinated to
the rights of Senior Indebtedness as set forth in the Indenture referred to on
the reverse side hereof.

 

Interest
Payment Dates:  May 1 and November 1,
with the first payment to be made on November 1, 2002.

 

Record
Dates:  April 15 and October 15.

 

The
provisions on the back of this certificate are incorporated as if set forth on
the face hereof.

 

1

IN WITNESS WHEREOF, ISIS
PHARMACEUTICALS, INC. has caused this instrument to be duly signed.

 

	
   

  	
   

  	
  ISIS
  PHARMACEUTICALS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  
						

 

2

TRUSTEE’S CERTIFICATE
OF AUTHENTICATION

 

This is one of the
Securities referred to 

in the
within-mentioned Indenture.

 

WELLS FARGO BANK
MINNESOTA, NATIONAL ASSOCIATION, as Trustee

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized
  Signatory

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  
				

 

3

[REVERSE OF SECURITY]

 

ISIS PHARMACEUTICALS, INC.

 

5 1⁄2% Convertible Subordinated
Note due 2009

 

1.             Interest.  ISIS
PHARMACEUTICALS, INC., a Delaware corporation (the “Company”), promises to pay interest on the
principal amount of this Security at the rate per annum
shown above.  The Company will pay
interest semi-annually on May 1 and November 1 of each year, with the first
payment to be made on November 1, 2002. 
Interest on the Securities will accrue on the principal amount from the
most recent date to which interest has been paid or, if no interest has been
paid, from May 1, 2002.  Interest will
be computed on the basis of a 360-day year of twelve 30-day months.

 

2.             Maturity.  The Notes will mature on May 1, 2009.

 

3.             Method
of Payment.  The Company will
pay interest on the Securities (except defaulted interest) to the persons who
are registered Holders of Securities at the close of business on the record
date set forth on the face of this Security next preceding the applicable
interest payment date.  Holders must
surrender Securities to a Paying Agent to collect the principal, Redemption
Price, Provisional Redemption Price, if applicable, Make-Whole Payment, if
applicable, or Repurchase Price of the Securities.  The Company will pay all amounts due with respect to the
Securities in money of the United States that at the time of payment is legal
tender for payment of public and private debts.  However, the Company may, at its option, pay all amounts due with
respect to the Securities held other than by the Depositary by check payable in
such money.  It may mail an interest
check to a Holder’s registered address.

 

4.             Paying
Agent, Registrar, Conversion Agent. 
Initially, Wells Fargo Bank Minnesota, National Association (the “Trustee”) will act as Paying Agent,
Registrar and Conversion Agent.  The
Company may change any Paying Agent, Registrar or Conversion Agent without
notice.  The Company may act in any such
capacity.

 

5.             Indenture.  The Company issued the Securities under an
Indenture dated as of May 1, 2002 (the “Indenture”)
between the Company and the Trustee. 
The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S. Code §§ 77aaa-77bbbb) (the “Act”)
as in effect on the date of the Indenture. 
The Securities are subject to all such terms, and Securityholders are
referred to the Indenture and the Act for a statement of such terms.  The Securities are general unsecured senior
subordinated obligations of the Company limited to $125,000,000 aggregate
principal amount ($143,750,000 if the Initial Purchasers (as defined in the
Indenture) have elected to exercise their over-allotment option to purchase an
additional $18,750,000 of the Securities), except as otherwise provided in the
Indenture (except for Securities issued in substitution for destroyed,
mutilated, lost or stolen Securities). 
Terms used herein which are defined in the Indenture have the meanings
assigned to them in the Indenture.

 

4

 

6.             Provisional
and Optional Redemption.  The
Securities will be redeemable prior to maturity at the option of the Company,
in whole or in part, at any time on or after May 3, 2005, in cash, at the
following redemption prices (expressed as percentages of the principal amount
thereof), if redeemed during the periods commencing on the dates set forth
below, in each case together with accrued and unpaid interest, if any, to the
redemption date:

 

	
  Date

  	
   

  	
  Redemption Price

  	
   

  
	
  May 3, 2005 to April
  30, 2006

  	
   

  	
  103.143

  	
  %

  
	
  May 1, 2006 to April
  30, 2007

  	
   

  	
  102.357

  	
  %

  
	
  May 1, 2007 to April
  30, 2008

  	
   

  	
  101.571

  	
  %

  
	
  May 1, 2008 through May
  1, 2009 inclusive

  	
   

  	
  100.786

  	
  %

  

 

The
Securities may be redeemed at the election of the Company, as a whole or in
parts from time to time, at any time prior to May 3, 2005 (a “Provisional Redemption”), at a redemption
price equal to $1,000 per $1,000 principal amount of the Securities redeemed
(such amount, together with the Make-Whole Payment (as defined below) the “Provisional Redemption Price”), on the
date of redemption (the “Provisional
Redemption Date”) specified in the notice of Provisional Redemption
if (1) the closing price of the Common Stock on the NNM (or other United States
national securities exchange where the Company’s Common Stock is traded) has
exceeded 150% of the then current conversion price for at least 20 trading days
within a period of any 30 consecutive trading days ending on the trading day
prior to the date of mailing of the notice of Provisional Redemption (the “Notice Date”), and (2) a shelf
registration statement covering resales of the Securities and the Common Stock
issuable upon conversion thereof is effective and available for use and is
expected to remain effective and available for use for the 30 days following
the Provisional Redemption Date, unless registration is no longer required.

 

Upon
any such Provisional Redemption, the Company shall make an additional payment
(the “Make-Whole Payment”) with
respect to the Securities called for redemption to holders on the Provisional
Redemption Date in an amount equal to the total value of the aggregate amount
of interest that would have been payable on the Securities from the last day
through which interest was paid on the Securities (or May 1, 2002 if no
interest has been paid) through May 1, 2005 (or May 2, 2005 if the Provisional
Redemption is May 2, 2005).  The Company
may make the Make-Whole Payment, at its option, either in cash or Common Stock or
a combination thereof.  Payments made in
Common Stock will be valued at 95% of the average closing sales prices of the
Common Stock on the NNM (or other United States national securities exchange
where the Common Stock is traded) for the five trading days ending on the day
prior to the

 

5

 

Provisional
Redemption Date.  The Company shall make
the Make-Whole Payment on all Securities called for Provisional Redemption,
including those Securities converted into Common Stock between the Notice Date
and the Provisional Redemption Date.

 

7.             Notice
of Redemption.  Notice of
redemption will be mailed at least 30 days but not more than 60 days before the
redemption date to each Holder of Securities to be redeemed at its registered
address.  Securities in denominations
larger than $1,000 principal amount may be redeemed in part but only in
positive integral multiples of $1,000 principal amount.  On and after the redemption date interest
ceases to accrue on Securities or portions of them called for redemption.

 

8.             Repurchase
at Option of Holder.  In the
event of a Change in Control with respect to the Company, then each Holder of
the Securities shall have the right, at the Holder’s option, subject to the
rights of the holders of Senior Indebtedness under Article XI of the Indenture, to require the Company to
repurchase such Holder’s Securities including any portion thereof which is
$1,000 in principal amount or any positive integral multiple thereof on a
business day (the “Repurchase Date”)
that is no later than 30 business days after the date of the Change in Control
Notice, unless otherwise required by applicable law, at a price equal to 100%
of the outstanding principal amount of such Security, plus accrued and unpaid
interest to the Repurchase Date.

 

Within
30 business days after the occurrence of the Change in Control, the Company is
obligated to give notice of the occurrence of such Change in Control to each
Holder.  Such notice shall include,
among other things, the date by which Holder must notify the Company of such
Holder’s intention to exercise the Repurchase Right and of the procedure which
such Holder must follow to exercise such right.  To exercise a Repurchase Right, a Holder shall deliver to the
Company (if it is acting as its own Paying Agent), or to a Paying Agent
designated by the Company for such purpose in the Change in Control Notice, (i)
no later than the close of business on the third business day immediately
preceding the Repurchase Date, the Option of Holder To Elect Purchase Notice on
the back of the Securities with respect to which the Repurchase Right is being
exercised, duly completed and signed, with appropriate signature guarantee, and
(ii) at any time after such delivery of such Option of Holder To Elect Purchase
Notice, such Securities with respect to which the Repurchase Right is being
exercised, duly endorsed for transfer to the Company.  Upon so delivering such Option of Holder To Elect Purchase Notice
and such Securities, the Holder of such Securities shall be entitled to receive
from the Company (if it is acting as its own Paying Agent), or such Paying
Agent, a nontransferable receipt of deposit evidencing such deposit.

 

A “Change in Control” of the Company means:

 

the acquisition by any “person,” entity or “group”
within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 50% or more of the voting power of the total outstanding
Common Stock or other capital stock into which the Common Stock is hereafter
reclassified or changed;

 

6

 

persons who constitute the Board of Directors (the “Incumbent Board”) as of the date of the
indenture, cease for any reason to constitute at least a majority of the Board
of Directors, provided that any person subsequently becoming a director whose
election, or nomination for election by stockholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such person were a member of the Incumbent Board; or

 

the sale, lease or transfer of all or substantially
all of the assets and property of the Company to any “person,” entity or
“group” within the meaning of Section 13(d) or 14(d) of the Exchange Act.

 

However, a Change in Control will not be deemed to
have occurred if either:

 

(i)            the last sale price of the Common
Stock for any five trading days during the ten trading days immediately
preceding the Change in Control is at least equal to 105% of the conversion
price in effect on such trading day; or

 

(ii)           in the case of a merger or
consolidation, all or substantially all of the consideration (excluding cash
payments for fractional shares and cash payments pursuant to dissenters’
appraisal rights) in the merger or consolidation constituting the Change in
Control consists of common stock quoted traded on a United States national
securities exchange or on the NNM (or which will be so traded or quoted when
issued or exchanged in connection with such Change in Control) and as a result
of such transaction or transactions the Securities become convertible solely
into such common stock.

 

9.             Conversion.  A Holder may convert his or her Security
into Common Stock of the Company at any time prior to the close of business on
May 1, 2009, or, (x) if the Security is called for redemption by the Company,
the Holder may convert it at any time before the close of business on the
business day immediately preceding the date fixed for such redemption, or (y)
if the Security is to be repurchased by the Company pursuant to paragraph 8 hereof, the Holder may convert
it at any time before the close of business on the business day immediately
preceding the Repurchase Date.  The
initial conversion rate is 60.1504 shares of Common Stock per $1,000 principal
amount of Securities, or an effective initial conversion price of approximately
$16.625 per share, subject to adjustment in the event of certain circumstances
as specified in the Indenture.  The
Company will deliver a check in lieu of any fractional share.  On conversion no payment or adjustment for
any unpaid and accrued interest, or liquidated damages with respect to, the
Securities will be made.  If a Holder
surrenders a Security for conversion between the record date for the payment of
interest and the next interest payment date, such Security, when surrendered
for conversion, must be accompanied by payment of an amount equal to the
interest thereon which the registered Holder on such record date is to receive,
unless the Securities have been called for redemption as described in the
Indenture.

 

7

 

To
convert a Security, a Holder must (1) complete and sign the Conversion Notice,
with appropriate signature guarantee, on the back of the Security, (2)
surrender the Security to a Conversion Agent, (3) furnish appropriate
endorsements and transfer documents if required by the Registrar or Conversion
Agent, (4) pay the amount of interest, if any, the Holder may be paid as
provided in the last sentence of the above paragraph and (5) pay any transfer
or similar tax if required.  A Holder
may convert a portion of a Security if the portion is $1,000 principal amount
or a positive integral multiple of $1,000 principal amount.

 

Any
shares issued upon conversion of a Security shall bear the Private Placement Legend
until after the second anniversary of the later of the issue date for the
Securities and the last date on which the Company or any Affiliate of the
Company was the owner of such shares or the Security (or any predecessor
security) from which such shares were converted (or such shorter period of time
as permitted by Rule 144(k) under the Securities Act or any successor provision
thereunder) (or such longer period of time as may be required under the
Securities Act or applicable state securities laws in the Opinion of Counsel
for the Company, unless otherwise agreed by the Company and the Holder
thereof).

 

10.           Subordination.  The Securities are subordinated in right of
payment, in the manner and to the extent set forth in the Indenture, to the
prior payment in full of all Senior Indebtedness.  Each Holder by accepting a Security agrees to such subordination
and authorizes the Trustee to give it effect.

 

11.           Denominations,
Transfer, Exchange.  The
Securities are in registered form without coupons in denominations of $1,000
principal amount and positive integral multiples of $1,000 principal
amount.  The transfer of Securities may
be registered and Securities may be exchanged as provided in the
Indenture.  The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents.  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 cover any tax or other governmental
charge payable in connection therewith. 
The Registrar need not exchange or register the transfer of any Security
selected for redemption in whole or in part, except the unredeemed portion of
Securities to be redeemed in part. 
Also, it need not exchange or register the transfer of any Securities
for a period of 15 days before the mailing of a notice of redemption of the
Securities selected to be redeemed.

 

12.           Persons
Deemed Owners.  The
registered Holder of a Security may be treated as the owner of such Security
for all purposes.

 

13.           Merger
or Consolidation.  The
Company shall not consolidate with, or merge into, or transfer or lease all or
substantially all of its properties or assets to, any person unless the person
is a corporation, limited liability company or other limited liability entity
organized under the laws of the United States, any State thereof or the
District of Columbia, provided that this condition will not apply if
independent tax counsel experienced in such matters delivers an Opinion of
Counsel stating that, under then existing laws, there would be no adverse tax
consequences to the Holders in the event that this condition is not satisfied,
and such person assumes by supplemental indenture all the obligations of the
Company under the Securities and the Indenture and immediately after giving
effect to the transaction no Default or Event of Default exists.

 

8

 

14.           Amendments,
Supplements and Waivers. 
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the consent of the Holders of at least a majority
in aggregate principal amount of the Securities then outstanding, and any existing
Default or Event of Default may be waived with the consent of the Holders of a
majority in aggregate principal amount of the Securities then outstanding.  Without notice to or the consent of any
Securityholder, the Indenture or the Securities may be amended or supplemented
to cure any ambiguity, omission, defect or inconsistency, to provide for
uncertificated Securities in addition to certificated Securities, to comply
with Sections 5.01 and 10.12 of the Indenture or to make any
change that does not adversely affect the rights of any Securityholder.

 

15.           Defaults
and Remedies.  An Event of
Default includes the occurrence of any of the following: default in payment of
principal at maturity, upon redemption or exercise of a Repurchase Right or
otherwise; default for 30 days in payment of interest or other amounts due;
failure by the Company for 60 days after notice to it to comply with any of its
other agreements in the Indenture or the Securities; and certain events of
bankruptcy or insolvency.  If any Event
of Default occurs and is continuing, the Trustee or the Holders of at least 25%
in aggregate principal amount of the Securities then outstanding may declare
all the Securities to be due and payable immediately, except as provided in the
Indenture.  If an Event of Default
specified in Section 6.01(iv) or (v) of the Indenture with respect to the
Company occurs, the principal of and accrued interest on all the Securities
shall ipso
facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Securityholder.  Securityholders may not enforce the
Indenture or the Securities except as provided in the Indenture.  The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Securities.  Subject to certain limitations, Holders of a
majority in principal amount of the Securities then outstanding may direct the
Trustee in its exercise of any trust or power. 
The Trustee may withhold from Securityholders notice of any continuing
Default or Event of Default (except a Default or Event of Default in payment)
if it determines that withholding notice is in the interests of the
Securityholders.  The Company must
furnish an annual compliance certificate to the Trustee.

 

16.           Registration
Rights.  The Holders are
entitled to registration rights as set forth in the Registration Rights
Agreement (as defined in the Indenture). 
The Holders shall be entitled to receive liquidated damages in certain
circumstances, all as set forth in the Registration Rights Agreement.

 

17.           Trustee
Dealings with the Company. 
The Trustee under the Indenture, or any banking institution serving as
successor Trustee thereunder, in its individual or any other capacity, may make
loans to, accept deposits from, and perform services for the Company or its
Affiliates, and may otherwise deal with the Company or its Affiliates, as if it
were not Trustee.

 

18.           No
Recourse Against Others.  No
past, present or future director, officer, employee, consultant or stockholder,
as such, of the Company shall have any liability for any obligations of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation.  Each Securityholder by accepting a Security waives and releases
all such liability.  The waiver and
release are part of the consideration for the issue of the Securities.

 

9

 

19.           Authentication.  This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.

 

20.           Abbreviations.  Customary abbreviations may be used in the
name of a Securityholder or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entirety), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (Uniform Gifts to Minors Act).

 

THE
COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND WITHOUT
CHARGE A COPY OF THE INDENTURE.  REQUESTS
MAY BE MADE TO:

 

ISIS Pharmaceuticals, Inc.

2292 Faraday Avenue

Carlsbad, CA 
92008

Attention: 
Corporate Secretary

 

10

 

	
  [FORM OF ASSIGNMENT]

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  I or we assign
  to

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PLEASE INSERT
  SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  
	
  (please print or
  type name and address)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  
	
   

  
	
  the within
  Security and all rights thereunder, and hereby irrevocably constitutes and
  appoints

  
	
   

  
	
  attorney to
  transfer the Security on the books of the Company with full power of
  substitution in the premises.

  
	
   

  	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  NOTICE:  The signature on this assignment must
  correspond with the name as it appears upon the face of the within Security
  in every particular way without alteration or enlargement or any change
  whatsoever and be guaranteed by a guarantor institution participating in the
  Securities Transfer Agents Medallion Program or in such other guarantee
  program acceptable to the Trustee.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature
  Guarantee:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
				

 

In
connection with any transfer of this Security occurring prior to the date which
is the earlier of (i) the date of the declaration by the Commission of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the “Securities Act”) covering resales of this Security (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the Resale Restriction Termination Date, the undersigned
confirms that it has not utilized any general solicitation or general advertising
in connection with transfer:

 

11

 

[Check One]

 

	
  (1)

  	
   

  	
  o

  	
   

  	
  to the Company
  or any subsidiary thereof; or

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (2)

  	
   

  	
  o

  	
   

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

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (3)

  	
   

  	
  o

  	
   

  	
  outside the
  United States to a person other than a “U.S. person” in compliance with
  Rule 904 of Regulation S under the Securities Act of 1933, as amended;
  or

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (4)

  	
   

  	
  o

  	
   

  	
  pursuant to the
  exemption from registration provided by Rule 144 under the Securities
  Act of 1933, as amended; or

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (5)

  	
   

  	
  o

  	
   

  	
  pursuant to an
  effective registration statement under the Securities Act of 1933, as
  amended.

  

 

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

 

o            The
transferee is an Affiliate of the Company. 
(If the Security is transferred to an Affiliate, the restrictive legend
must remain on the Security for two years following the date of the transfer).

 

Unless
one of the items is checked, the Trustee will refuse to register any of the Securities
evidenced by this certificate in the name of any person other than the registered
Holder thereof; provided, however, that if item (4) is checked,
the Company or the Trustee may require, prior to registering any such transfer
of the Securities, in their sole discretion, such written legal opinions,
certifications and other information as the Trustee or the Company have
reasonably requested 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 of 1933, as amended.

 

If
none of the foregoing items are checked, the Trustee or Registrar shall not be
obligated to register this Security in the name of any person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.16
of the Indenture shall have been satisfied.

 

	
  Dated:

  	
   

  	
   

  	
  Signed:

  	
   

  
	
   

  	
   

  	
  (Sign exactly as
  name appears on the other side of this Security)

  
	
   

  	
   

  
	
  Signature
  Guarantee:

  	
   

  
							

 

12

TO BE COMPLETED BY
PURCHASER IF (2) ABOVE IS CHECKED

 

The
undersigned represents and warrants that it is purchasing this Security for its
own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a “qualified institutional buyer”
within the meaning of Rule 144A under the Securities Act of 1933, as amended,
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined transferor is
relying upon the undersigned’s foregoing representations in order to claim the
exemption from registration provided by Rule 144A.

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  NOTICE:

  	
   

  	
  To be executed
  by an executive officer

  

 

13

 

	
  CONVERSION NOTICE

  
	
   

  
	
  To convert this
  Security into Common Stock of the, check the box:

  
	
   

  
	
  o

  
	
   

  
	
  To convert only
  part of this Security, state the principal amount to be converted (must be in
  multiples of $1,000):

  
	
   

  
	
  $

  	
   

  	
   

  
	
   

  
	
  If you want the
  stock certificate made out in another person’s name, fill in the form below:

  
	
   

  
	
  (Insert other
  person’s soc. sec. or tax I.D. no.)

  
	
   

  
	
   

  
	
   

  
	
   

  
	
  (Print or type
  other person’s name, address and zip code)

  
	
   

  
	
   

  
	
  Date:

  	
   

  	
   

  	
  Signature(s):

  	
   

  
	
   

  
	
   

  	
   

  
	
   

  	
  (Sign exactly as
  your name(s) appear(s) on the other side of this Security)

  
	
   

  
	
  Signature(s)
  guaranteed by:

  	
   

  	
   

  
	
   

  	
  (All signatures
  must be guaranteed by a guarantor institution participating in the Securities
  Transfer Agents Medallion Program or in such other guarantee program
  acceptable to the Trustee.)

  
									

 

14

 

OPTION OF HOLDER TO ELECT PURCHASE NOTICE

 

	
  Certificate
  No. of Security:

  	
   

  	
   

  
	
   

  
	
  If
  you want to elect to have this Security purchased by the Company pursuant to Section 3.08 of the Indenture, check
  the box:  o

  
	
   

  
	
  If
  you want to elect to have only part of this Security purchased by the Company
  pursuant to Section 3.08 of
  the Indenture, state the principal amount:

  
	
   

  
	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
  (in an integral multiple of $1,000)

  	
   

  
	
   

  
	
  Date:

  	
   

  	
   

  	
  Signature(s):

  	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Sign exactly as
  your name(s) appear(s) on the other side of this Security)

  
	
   

  
	
  Signature(s)
  guaranteed by:

  	
   

  	
   

  
	
   

  	
   

  	
  (All signatures
  must be guaranteed by a guarantor institution participating in the Securities
  Transfer Agents Medallion Program or in such other guarantee program
  acceptable to the Trustee.)

  
										

 

15

 

SCHEDULE A

 

SCHEDULE OR EXCHANGES OF INTERESTS IN THE GLOBAL
SECURITY.

 

The
following exchanges of a part of this Global Security for an interest in
another Global Security or for Securities in certificated form have been made:

 

	
  Date of Exchange

  	
   

  	
  Amount of decrease in Principal amount of this Global
  Security

  	
   

  	
  Amount of increase in Principal amount of this Global Security

  	
   

  	
  Principal amount of this Global Security following such
  decrease  (or increase)

  	
   

  	
  Signature or authorized signatory of Trustee or Note
  Custodian

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