Document:

<PAGE>

                                                                    Exhibit 4.17

                      RESALE REGISTRATION RIGHTS AGREEMENT

                                      among

                        INHALE THERAPEUTIC SYSTEMS, INC.,

               MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED

                          DEUTSCHE BANK SECURITIES INC.

                              LEHMAN BROTHERS INC.

                                       and

                         U.S. BANCORP PIPER JAFFRAY INC.

                          Dated as of October 17, 2000

<PAGE>

         Resale Registration Rights Agreement (the "Agreement"), dated as of
October 17, 2000 among Inhale Therapeutic Systems, Inc., a Delaware corporation
(together with any successor entity, herein referred to as the "Issuer"),
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities
Inc., Lehman Brothers Inc., and U.S. Bancorp Piper Jaffray Inc. (collectively,
the "Initial Purchasers").

         Pursuant to the Purchase Agreement, dated October 11, 2000, between the
Issuer and the Initial Purchasers (the "Purchase Agreement"), the Initial
Purchasers have agreed to purchase from the Issuer up to $200,000,000
($250,000,000 if the Initial Purchasers exercise the over-allotment option in
full) in aggregate principal amount of 3 1/2% Convertible Subordinated Notes due
2007 (the "Notes"). The Notes will be convertible into fully paid, nonassessable
common stock, par value $0.0001 per share, of the Issuer (the "Common Stock") on
the terms, and subject to the conditions, set forth in the Indenture (as defined
herein). To induce the Initial Purchasers to purchase the Notes, the Issuer has
agreed to provide the registration rights set forth in this Agreement pursuant
to Section 3(l) of the Purchase Agreement.

         The parties hereby agree as follows:

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

         ADVICE:  As defined in Section 4(c)(ii) hereof.

         AGREEMENT:  As defined in the preamble hereto.

         BLUE SKY APPLICATION:  As defined in Section 6(a) hereof.

         BROKER-DEALER:  Any broker or dealer registered under the Exchange Act.

         BUSINESS DAY: A day other than a Saturday or Sunday or any federal
holiday in the United States.

         CLOSING DATE:  The date of this Agreement.

         COMMISSION:  Securities and Exchange Commission.

         COMMON STOCK:  As defined in the preamble hereto.

         DAMAGES PAYMENT DATE: Each Interest Payment Date. For purposes of this
Agreement, if no Notes are outstanding, "Damages Payment Date" shall mean each
April 17 and October 17.

         EFFECTIVENESS PERIOD:  As defined in Section 2(a)(iii) hereof.

         EFFECTIVENESS TARGET DATE:  As defined in Section 2(a)(ii) hereof.

         EXCHANGE ACT:  Securities Exchange Act of 1934, as amended.

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

                                       1
<PAGE>

         INDEMNIFIED HOLDER:  As defined in Section 6(a) hereof.

         INDENTURE: The Indenture, dated as of October 17, 2000, between the
Issuer and Chase Manhattan Bank and Trust Company, National Association, as
trustee (the "Trustee"), pursuant to which the Notes are to be issued, as such
Indenture is amended, modified or supplemented from time to time in accordance
with the terms thereof.

         INITIAL PURCHASERS:  As defined in the preamble hereto.

         INTEREST PAYMENT DATE:  As defined in the Indenture.

         ISSUER:  As defined in the preamble hereto.

         LIQUIDATED DAMAGES:  As defined in Section 3(a) hereof.

         MAJORITY OF HOLDERS: Holders holding over 50% of the aggregate
principal amount of Notes outstanding; provided that, for purpose of this
definition, a holder of shares of Common Stock which constitute Transfer
Restricted Securities and were issued upon conversion of the Notes shall be
deemed to hold an aggregate principal amount of Notes (in addition to the
aggregate principal amount of Notes held by such holder) equal to the aggregate
principal amount of Notes converted by such Holder into such shares of Common
Stock.

         NASD:  National Association of Securities Dealers, Inc.

         NOTES:  As defined in the preamble hereto.

         PERSON: An individual, partnership, corporation, unincorporated
organization, trust, joint venture or a government or agency or political
subdivision thereof.

         PROSPECTUS: The prospectus included in a Shelf Registration Statement,
as amended or supplemented by any prospectus supplement and by all other
amendments thereto, including post-effective amendments, and all material
incorporated by reference into such Prospectus.

         QUESTIONNAIRE DEADLINE:  As defined in Section 2(b) hereof.

         RECORD HOLDER: With respect to any Damages Payment Date, each Person
who is a Holder on the record date with respect to the Interest Payment Date on
which such Damages Payment Date shall occur. In the case of a Holder of shares
of Common Stock issued upon conversion of the Notes, "Record Holder" shall mean
each Person who is a Holder of shares of Common Stock which constitute Transfer
Restricted Securities on the April 2 or October 2 immediately preceding the
Damages Payment Date.

         REGISTRATION DEFAULT:  As defined in Section 3(a) hereof.

         SALE NOTICE:  As defined in Section 4(e) hereof.

         SECURITIES ACT:  Securities Act of 1933, as amended.

         SHELF FILING DEADLINE: As defined in Section 2(a)(i) hereof.

                                       2
<PAGE>

         SHELF REGISTRATION STATEMENT:  As defined in Section 2(a)(i) hereof.

         SUSPENSION PERIOD.  As defined in Section 4(b)(i) hereof.

         TIA: Trust Indenture Act of 1939, as in effect on the date the
Indenture is qualified under the TIA.

         TRANSFER RESTRICTED SECURITIES: Each Note and each share of Common
Stock issued upon conversion of Notes until the earlier of:

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

            (ii) the date on which such Note or such share of Common Stock
         issued upon conversion is transferred in compliance with Rule 144 under
         the Securities Act or may be sold or transferred pursuant to Rule 144
         under the Securities Act (or any other similar provision then in
         force); or

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

         UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration in
which securities of the Issuer are sold to an underwriter for reoffering to the
public.

         2. SHELF REGISTRATION.

         (a) The Issuer shall:

            (i) not later than 90 days after the date hereof (the "Shelf Filing
         Deadline"), cause to be filed a registration statement pursuant to Rule
         415 under the Securities Act (the "Shelf Registration Statement"),
         which Shelf Registration Statement shall provide for resales of all
         Transfer Restricted Securities held by Holders that have provided the
         information required pursuant to the terms of Section 2(b) hereof;

            (ii) use its best efforts to cause the Shelf Registration Statement
         to be declared effective by the Commission as promptly as reasonably
         practicable, but in no event later than 180 days after the date hereof
         (the "Effectiveness Target Date"); and

            (iii) use its best efforts to keep the Shelf Registration Statement
         continuously effective, supplemented and amended as required by the
         provisions of Section 4(b) hereof to the extent necessary to ensure
         that (A) it is available for resales by the Holders of Transfer
         Restricted Securities entitled to the benefit of this Agreement and (B)
         conforms with the requirements of this Agreement and the Securities Act
         and the rules and regulations of the Commission promulgated thereunder
         as announced from time to time for a period (the "Effectiveness
         Period") of:

                                       3
<PAGE>

                (1) two years following the last date of original issuance of
            Notes; or

                (2) such shorter period that will terminate when (x) all of the
            Holders of Transfer Restricted Securities are able to sell all
            Transfer Restricted Securities immediately without restriction
            pursuant to Rule 144(k) under the Securities Act or any successor
            rule thereto, (y) when all Transfer Restricted Securities have
            ceased to be outstanding (whether as a result of redemption,
            repurchase and cancellation, conversion or otherwise) or (z) all
            Transfer Restricted Securities registered under the Shelf
            Registration Statement have been sold.

         (b) No Holder of Transfer Restricted Securities may include any of its
Transfer Restricted Securities in the Shelf Registration Statement pursuant to
this Agreement unless such Holder furnishes to the Issuer in writing, prior to
or on the 20th Business Day after receipt of a request therefor (the
"Questionnaire Deadline"), such information as the Issuer may reasonably request
for use in connection with the Shelf Registration Statement or the Prospectus or
preliminary Prospectus included therein and in any application to be filed with
or under state securities laws. In connection with all such requests for
information from Holders of Transfer Restricted Securities, the Issuer shall
notify such Holders of the requirements set forth in the preceding sentence. No
Holder of Transfer Restricted Securities shall be entitled to Liquidated Damages
pursuant to Section 3 hereof unless such Holder shall have provided all such
reasonably requested information prior to or on the Questionnaire Deadline. Each
Holder as to which the Shelf Registration Statement is being effected agrees to
furnish promptly to the Issuer all information required to be disclosed in order
to make information previously furnished to the Issuer by such Holder not
materially misleading.

         3. LIQUIDATED DAMAGES.

         (a) If:

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

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

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

            (iv) prior to or on the 45th or 60th day, as the case may be, of any
         Suspension Period, such suspension has not been terminated,

                                       4
<PAGE>

         (each such event referred to in foregoing clauses (i) through (iv),
         a "Registration Default"), the Issuer hereby agrees to pay liquidated
         damages ("Liquidated Damages") with respect to the Transfer Restricted
         Securities from and including the day following the Registration
         Default to but excluding the day on which the Registration Default has
         been cured:

                (A) in respect of the Notes, to each holder of Notes, (x) with
             respect to the first 90-day period during which a Registration
             Default shall have occurred and be continuing, in an amount per
             year equal to an additional 0.25% of the principal amount of the
             Notes, and (y) with respect to the period commencing on the 91st
             day following the day the Registration Default shall have occurred
             and be continuing, in an amount per year equal to an additional
             0.50% of the principal amount of the Notes; provided that in no
             event shall Liquidated Damages accrue at a rate per year exceeding
             0.50% of the principal amount of the Notes; and

                (B) in respect of any shares of Common Stock, to each holder of
             shares of Common Stock issued upon conversion of Notes, (x) with
             respect to the first 90-day period in which a Registration Default
             shall have occurred and be continuing, in an amount per year equal
             to 0.25% of the principal amount of the converted Notes, and (y)
             with respect to the period commencing the 91st day following the
             day the Registration Default shall have occurred and be continuing,
             in an amount per year equal to 0.50% of the principal amount of the
             converted Notes; provided that in no event shall Liquidated Damages
             accrue at a rate per year exceeding 0.50% of the principal amount
             of the converted Notes.

         (b) All accrued Liquidated Damages shall be paid in arrears to Record
Holders by the Issuer on each Damages Payment Date by wire transfer of
immediately available funds or by federal funds check. Following the cure of all
Registration Defaults relating to any particular Note or share of Common Stock,
the accrual of Liquidated Damages with respect to such Note or share of Common
Stock will cease.

         All obligations of the Issuer set forth in this Section 3 that are
outstanding with respect to any Transfer Restricted Security at the time such
security ceases to be a Transfer Restricted Security shall survive until such
time as all such obligations with respect to such Transfer Restricted Security
shall have been satisfied in full.

         The Liquidated Damages set forth above shall be the exclusive monetary
remedy available to the Holders of Transfer Restricted Securities for such
Registration Default.

         4. REGISTRATION PROCEDURES.

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

                                       5
<PAGE>

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

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

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

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

PROVIDED that in the event the disclosure relates to a previously undisclosed
proposed or pending material business transaction, the disclosure of which would
impede the Issuer's ability to consummate such transaction, the Issuer may
extend a Suspension Period from 45 days to 60 days; provided, however, that
Suspension Periods shall not exceed an aggregate of 90 days in any 360-day
period.

            (ii) Prepare and file with the Commission such amendments and
         post-effective amendments to the Shelf Registration Statement as may be
         necessary to keep the Shelf Registration Statement effective during the
         Effectiveness Period; cause the Prospectus to be supplemented by any
         required Prospectus supplement, and as so supplemented to be filed
         pursuant to Rule 424 under the Securities Act, and to comply fully with
         the applicable provisions of Rules 424 and 430A under the Securities
         Act in a timely manner; and comply with the provisions of the
         Securities Act with respect to the disposition of all securities
         covered by the Shelf Registration Statement during the applicable
         period in accordance with the intended method or methods of
         distribution by the sellers thereof set forth in the Shelf Registration
         Statement or supplement to the Prospectus.

                                       6
<PAGE>

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

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

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

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

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

If at any time the Commission shall issue any stop order suspending the
effectiveness of the Shelf Registration Statement, or any state securities
commission or other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Transfer Restricted
Securities under state securities or Blue Sky laws, the Issuer shall use its
reasonable best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.

             (iv) Furnish to each of the selling Holders and each of the
         underwriter(s), if any, before filing with the Commission, a copy of
         the Shelf Registration Statement and copies of any Prospectus included
         therein or any amendments or supplements to the Shelf Registration
         Statement or Prospectus (other than documents incorporated by reference
         after the initial filing of the Shelf Registration Statement), which
         documents will be subject to the review of such holders and
         underwriter(s), if any, for a period of at least ten Business Days, and
         the Issuer will not file any Shelf Registration Statement or Prospectus
         or any amendment or supplement to the Shelf Registration Statement or
         Prospectus (other than documents incorporated by reference) to which a
         selling Holder of Transfer Restricted Securities covered by the Shelf
         Registration Statement or the underwriter(s), if any, shall reasonably
         object within five Business Days after the receipt thereof. A selling
         Holder or underwriter, if any, shall be deemed to have reasonably
         objected to such filing if the Shelf Registration Statement, amendment,
         Prospectus or supplement, as applicable, as proposed to be filed,
         contains a material misstatement or omission. Notwithstanding the
         foregoing, the Issuer shall not be required to furnish the selling
         Holders with any

                                       7
<PAGE>

         amendment or supplement to the Shelf Registration Statement or
         Prospectus filed solely to reflect changes to the amount of Notes held
         by any particular Holder at the request of such Holder or immaterial
         revisions to the information contained therein.

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

             (vi) If requested by any selling Holders or the underwriter(s), if
         any, promptly incorporate in the Shelf Registration Statement or
         Prospectus, pursuant to a supplement or post-effective amendment if
         necessary, such information as such selling Holders and underwriter(s),
         if any, may reasonably request to have included therein, including,
         without limitation: (1) information relating to the "Plan of
         Distribution" of the Transfer Restricted Securities, (2) information
         with respect to the principal amount of Notes or number of shares of
         Common Stock being sold to such underwriter(s), (3) the purchase price
         being paid therefor and (4) any other terms of the offering of the
         Transfer Restricted Securities to be sold in such offering; and make
         all required filings of such Prospectus supplement or post-effective
         amendment as soon as reasonably practicable after the Issuer is
         notified of the matters to be incorporated in such Prospectus
         supplement or post-effective amendment. Notwithstanding the foregoing,
         following the effective date of the Shelf Registration Statement, the
         Issuer shall not be required to file more than one such supplement or
         post-effective amendment to reflect changes in the amount of Notes held
         by any particular Holder at the request of such Holder in any 30-day
         period.

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

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

                                       8
<PAGE>

         selling Holders and each of the underwriter(s), if any, in connection
         with the offering and the sale of the Transfer Restricted Securities
         covered by the Prospectus or any amendment or supplement thereto.

             (ix) If an underwriting agreement is entered into and the
         registration is an Underwritten Registration, the Issuer shall:

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

                     (1) a certificate, dated the date of such closing, signed
                 by the Chief Financial Officer of the Issuer confirming, as of
                 the date thereof, the matters set forth in Section 5(g) of the
                 Purchase Agreement and such other matters as such parties may
                 reasonably request;

                     (2) opinions, each dated the date of such closing, of
                 counsel to the Issuer covering such of the matters set forth in
                 Sections 5(c) and 5(d) of the Purchase Agreement as are
                 customarily covered in legal opinions to underwriters in
                 connection with primary underwritten offerings of securities;
                 and

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

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

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

             (x) Before any public offering of Transfer Restricted Securities,
         cooperate with the selling Holders, the underwriter(s), if any, and
         their respective counsel in connection with the registration and
         qualification of the Transfer Restricted Securities under the
         securities or Blue Sky laws of such jurisdictions as the selling
         Holders or underwriter(s), if any, may reasonably request and do any
         and all other acts or things necessary or advisable to enable the
         disposition in such jurisdictions of the Transfer Restricted Securities
         covered by the Shelf Registration Statement; provided, however,

                                       9
<PAGE>

         that the Issuer shall not be required (A) to register or qualify as a
         foreign corporation or a dealer of securities where it is not now so
         qualified or to take any action that would subject it to the service of
         process in any jurisdiction where it is not now so subject or (B) to
         subject themselves to taxation in any such jurisdiction if they are not
         now so subject.

             (xi) Cooperate with the selling Holders and the underwriter(s), if
         any, to facilitate the timely preparation and delivery of certificates
         representing Transfer Restricted Securities to be sold and not bearing
         any restrictive legends (unless required by applicable securities
         laws); and enable such Transfer Restricted Securities to be in such
         denominations and registered in such names as the Holders or the
         underwriter(s), if any, may request at least two Business Days before
         any sale of Transfer Restricted Securities made by such underwriter(s).

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

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

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

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

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

             (xvii) Cause the Indenture to be qualified under the TIA not later
         than the effective date of the Shelf Registration Statement required by
         this Agreement, and, in connection therewith, cooperate with the
         trustee and the holders of Notes to effect such changes to the
         Indenture as may be required for such Indenture to be so qualified in
         accordance with the terms of the TIA; and execute and use its best
         efforts to cause the trustee thereunder to execute all documents that
         may be required to effect such changes

                                       10
<PAGE>

         and all other forms and documents required to be filed with the
         Commission to enable such Indenture to be so qualified in a timely
         manner.

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

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

             (xx) If requested by the underwriters, make appropriate officers of
         the Issuer available to the underwriters for meetings with prospective
         purchasers of the Transfer Restricted Securities and prepare and
         present to potential investors customary "road show" material in a
         manner consistent with other new issuances of other securities similar
         to the Transfer Restricted Securities.

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

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

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

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

         (d) Each Holder who intends to be named as a selling Holder in the
Shelf Registration Statement shall furnish to the Issuer in writing, within 20
Business Days after receipt of a request therefor as set forth in a
questionnaire, such information regarding such Holder and the proposed
distribution by such Holder of its Transfer Restricted Securities as the Issuer
may reasonably request for use in connection with the Shelf Registration
Statement or Prospectus or preliminary Prospectus included therein. (The form of
the questionnaire is attached hereto as Exhibit A.) Holders that do not complete
the questionnaire and deliver it to the Issuer shall not be named as selling
securityholders in the Prospectus or preliminary Prospectus included in the
Shelf Registration Statement and therefore shall not be permitted to sell any
Transfer Restricted Securities pursuant to the Shelf Registration Statement.
Each Holder who intends to be named as a selling Holder in the Shelf
Registration Statement shall promptly furnish to the Issuer in writing such
other information as the Issuer may from time to time reasonably request in
writing.

                                       11
<PAGE>

         (e) Upon the effectiveness of the Shelf Registration Statement, each
Holder shall notify the Issuer at least three Business Days prior to any
intended distribution of Transfer Restricted Securities pursuant to the Shelf
Registration Statement (a "Sale Notice"), which notice shall be effective for
five Business Days. Each Holder of this Security, by accepting the same, agrees
to hold any communication by the Company in response to a Sale Notice in
confidence.

         5. REGISTRATION EXPENSES.

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

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

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

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

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

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

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

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

         (b) In connection with the Shelf Registration Statement required by
this Agreement, the Issuer shall reimburse the Initial Purchasers and the
Holders of Transfer Restricted Securities being registered pursuant to the Shelf
Registration Statement, as applicable, for the reasonable fees and disbursements
of not more than one counsel, which shall be Brown & Wood LLP, or such other
counsel as may be chosen by a Majority of Holders for whose benefit the Shelf
Registration Statement is being prepared.

                                       12
<PAGE>

         6. INDEMNIFICATION AND CONTRIBUTION.

         (a) The Issuer shall indemnify and hold harmless each Holder, such
Holder's officers and employees and each person, if any, who controls such
Holder within the meaning of the Securities Act (each, an "Indemnified Holder"),
from and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof (including, but not limited to, any loss, claim,
damage, liability or action relating to resales of the Transfer Restricted
Securities), to which such Indemnified Holder may become subject, insofar as any
such loss, claim, damage, liability or action arises out of, or is based upon:

             (i) any untrue statement or alleged untrue statement of a material
         fact contained in (A) the Shelf Registration Statement or Prospectus or
         any amendment or supplement thereto or (B) any blue sky application or
         other document or any amendment or supplement thereto prepared or
         executed by the Issuer (or based upon written information furnished by
         or on behalf of the Issuer expressly for use in such blue sky
         application or other document or amendment on supplement) filed in any
         jurisdiction specifically for the purpose of qualifying any or all of
         the Transfer Restricted Securities under the securities law of any
         state or other jurisdiction (such application or document being
         hereinafter called a "Blue Sky Application"); or

             (ii) the omission or alleged omission to state therein any material
         fact required to be stated therein or necessary to make the statements
         therein, in the light of the circumstances under which they were made,
         not misleading,

and shall reimburse each Indemnified Holder promptly upon demand for any legal
or other expenses reasonably incurred by such Indemnified Holder in connection
with investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
however, that the Issuer shall not be liable in any such case to the extent that
any such loss, claim, damage, liability or action arises out of, or is based
upon, any untrue statement or alleged untrue statement or omission or alleged
omission made in the Shelf Registration Statement or Prospectus or amendment or
supplement thereto or Blue Sky Application in reliance upon and in conformity
with written information furnished to the Issuer by or on behalf of any Holder
(or its related Indemnified Holder) specifically for use therein. The foregoing
indemnity agreement is in addition to any liability which the Issuer may
otherwise have to any Indemnified Holder.

         (b) Each Holder, severally and not jointly, shall indemnify and hold
harmless the Issuer, its officers and employees and each person, if any, who
controls the Issuer within the meaning of the Securities Act, from and against
any loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which the Issuer or any such officer, employee or controlling person
may become subject, insofar as any such loss, claim, damage or liability or
action arises out of, or is based upon:

             (i) any untrue statement or alleged untrue statement of any
         material fact contained in the Shelf Registration Statement or
         Prospectus or any amendment or supplement thereto or any Blue Sky
         Application; or

                                       13
<PAGE>

             (ii) the omission or the alleged omission to state therein any
         material fact required to be stated therein or necessary to make the
         statements therein, in light of the circumstances under which they were
         made, not misleading,

but in each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Issuer by or on behalf of
such Holder (or its related Indemnified Holder) specifically for use therein,
and shall reimburse the Issuer and any such officer, employee or controlling
person promptly upon demand for any legal or other expenses reasonably incurred
by the Issuer or any such officer, employee or controlling person in connection
with investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred. The foregoing
indemnity agreement is in addition to any liability which any Holder may
otherwise have to the Issuer and any such officer, employee or controlling
person.

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

             (i) without the prior written consent of the indemnified parties
         (which consent shall not be unreasonably withheld) settle or compromise
         or consent to the entry of any judgment with respect to any pending or
         threatened claim, action, suit or proceeding in respect of which
         indemnification or contribution may be sought hereunder (whether or not
         the indemnified parties are actual or potential parties to such claim
         or action) unless such settlement, compromise or consent (1) includes
         an unconditional release of each

                                       14
<PAGE>

         indemnified party from all liability arising out of such claim, action,
         suit or proceeding and (2) does not include a statement as to or an
         admission of fault, culpability or a failure to act by or on behalf of
         any indemnified party, or

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

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

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

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

         The relative benefits received by the Issuer on the one hand and a
Holder on the other with respect to such offering and such sale shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Notes purchased under the Purchase Agreement (before deducting expenses)
received by the Issuer as set forth in the table on the cover of the Offering
Memorandum, dated October 11, 2000, on the one hand, bear to the total proceeds
received by such Holder with respect to its sale if Transfer Restricted
Securities on the other.

         The relative fault of the parties shall be determined by reference to
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Issuer on the one hand or the Holders on the other, the intent
of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission.

         The Issuer and each Holder agree that it would not be just and
equitable if the amount of contribution pursuant to this Section 6(d) were
determined by pro rata allocation or by any other method of allocation that does
not take into account the equitable considerations referred to in the first
sentence of this paragraph (d). The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this

                                       15
<PAGE>

Section 6 shall be deemed to include, for purposes of this Section 6, any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating, or defending or preparing to defend any such litigation,
investigation or proceeding by any governmental agency or body, or commenced or
threatened action or claim. Notwithstanding the provisions of this Section 6, no
Holder shall be required to contribute any amount in excess of the amount by
which the total price at which the Transfer Restricted Securities purchased by
it were resold exceeds the amount of any damages which such Holder has otherwise
been required to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission.

         No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute as provided in this Section 6(d) are several and not
joint.

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

         8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may
participate in any Underwritten Registration hereunder unless such Holder:

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

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

         9. SELECTION OF UNDERWRITERS. The Holders of Transfer Restricted
Securities covered by the Shelf Registration Statement who desire to do so may
sell such Transfer Restricted Securities in an Underwritten Offering. In any
such Underwritten Offering, the investment banker or investment bankers and
manager or managers that will administer the offering will be selected by a
Majority of Holders whose Transfer Restricted Securities are included in such
offering; provided, that such investment bankers and managers must be reasonably
satisfactory to the Issuer.

         10. MISCELLANEOUS.

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

                                       16
<PAGE>

enforce the Issuer's obligations under Section 2 hereof. The
Issuer further agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.

         (b) ADJUSTMENTS AFFECTING TRANSFER RESTRICTED SECURITIES. The Issuer
shall not, directly or indirectly, take any action with respect to the Transfer
Restricted Securities as a class that would adversely affect the ability of the
Holders of Transfer Restricted Securities to include such Transfer Restricted
Securities in a registration undertaken pursuant to this Agreement.

         (c) NO INCONSISTENT AGREEMENTS. The Issuer will not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. In addition, the Issuer shall
not grant to any of its security holders (other than the holders of Transfer
Restricted Securities in such capacity) the right to include any of its
securities in the Shelf Registration Statement provided for in this Agreement
other than the Transfer Restricted Securities. Other than the Stock Purchase
Agreement, dated January 18, 1995, between the Issuer and Pfizer, Inc., the
Stock Purchase Agreement, dated March 1, 1996, as amended, between the Issuer
and Baxter Healthcare Corporation and the Stock Issuance Agreement, dated
November 4, 1999, between the Issuer and Alliance Pharmaceutical Corp., the
Issuer has not previously entered into any agreement (which has not expired or
been terminated) granting any registration rights with respect to its securities
to any Person which rights conflict with the provisions hereof.

         (d) AMENDMENTS AND WAIVERS. This Agreement may not be amended, modified
or supplemented, and waivers or consents to or departures from the provisions
hereof may not be given, unless the Issuer has obtained the written consent of a
Majority of Holders.

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

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

             (ii) if to the Issuer:

                                            Inhale Therapeutic Systems, Inc.
                                            150 Industrial Road
                                            San Carlos, California 94070
                                            Attention: Stephen L. Hurst, Esq.

                                            With a copy to:

                                            Cooley Godward LLP
                                            Five Palo Alto Square
                                            3000 El Camino Real
                                            Palo Alto, CA 94306
                                            Attention:  Mark P. Tanoury, Esq.

                                       17
<PAGE>

         All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next Business Day, if timely delivered to an air courier guaranteeing overnight
delivery.

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

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

         (h) SECURITIES HELD BY THE ISSUER OR THEIR AFFILIATES. Whenever the
consent or approval of Holders of a specified percentage of Transfer Restricted
Securities is required hereunder, Transfer Restricted Securities held by the
Issuer or its "affiliates" (as such term is defined in Rule 405 under the
Securities Act) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.

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

         (j) GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the law of the State of New York, without regard to conflict
of laws principles thereof.

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

         (l) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to

                                       18
<PAGE>

herein with respect to the registration rights granted by the Issuer with
respect to the Transfer Restricted Securities. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.

                                       19
<PAGE>

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

                              INHALE THERAPEUTIC SYSTEMS, INC.

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

                              MERRILL LYNCH, PIERCE, FENNER & SMITH
                                          INCORPORATED
                              DEUTSCHE BANK SECURITIES INC.
                              LEHMAN BROTHERS INC.
                              U.S. BANCORP PIPER JAFFRAY INC.

                              By: Merrill Lynch, Pierce, Fenner & Smith
                                              Incorporated

                              By
                                --------------------------------------
                                       Authorized Signatory

                                       20
<PAGE>

                                                                       EXHIBIT A

                        INHALE THERAPEUTIC SYSTEMS, INC.

         FORM OF SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE

         The undersigned beneficial holder of 3 1/2% Convertible Subordinated
Notes due 2007 (the "Notes") of Inhale TherapeutIC Systems, Inc. (the "Issuer"),
or common stock, par value $0.0001 per share (the "Shares" and together with the
Notes, the "Transfer Restricted Securities") of the Issuer understands that the
Issuer has filed, or intends to file, with the Securities and Exchange
Commission (the "Commission") a registration statement (the "Shelf Registration
Statement"), for the registration and resale under Rule 415 of the Securities
Act of 1933, as amended (the "Securities Act"), of the Transfer Restricted
Securities in accordance with the terms of the Registration Rights Agreement,
dated as of October 17, 2000 (the "Registration Rights Agreement") between the
Issuer and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers
Inc., Deutsche Bank Securities Inc. and U.S. Bancorp Piper Jaffray Inc. A copy
of the Registration Rights Agreement is available from the Issuer upon request
at the address set forth below. All capitalized terms not otherwise defined
herein have the meaning ascribed thereto in the Registration Rights Agreement.

         Each beneficial owner of Transfer Restricted Securities is entitled to
the benefits of the Registration Rights Agreement. In order to sell or otherwise
dispose of any Transfer Restricted Securities pursuant to the Shelf Registration
Statement, a beneficial owner of Transfer Restricted Securities generally will
be required to be named as a selling securityholder in the related Prospectus,
deliver a Prospectus to purchasers of Transfer Restricted Securities and be
bound by those provisions of the Registration Rights Agreement applicable to
such beneficial owner (including certain indemnification provisions, as
described below). BENEFICIAL OWNERS THAT DO NOT COMPLETE THIS NOTICE AND
QUESTIONNAIRE WITHIN 20 BUSINESS DAYS OF RECEIPT HEREOF AND DELIVER IT TO THE
ISSUER AS PROVIDED BELOW WILL NOT BE NAMED AS SELLING SECURITYHOLDERS IN THE
PROSPECTUS AND THEREFORE WILL NOT BE PERMITTED TO SELL ANY TRANSFER RESTRICTED
SECURITIES PURSUANT TO THE SHELF REGISTRATION STATEMENT.

         Certain legal consequences arise from being named as a selling
securityholder in the Shelf Registration Statement and the related Prospectus.
Accordingly, holders and beneficial owners of Transfer Restricted Securities are
advised to consult their own securities law counsel regarding the consequences
of being named or not being named as a selling securityholder in the Shelf
Registration Statement and the related Prospectus.

                                     NOTICE

         The undersigned beneficial owner (the "Selling Securityholder") of
Transfer Restricted Securities hereby gives notice to the Issuer of its
intention to sell or otherwise dispose of Transfer Restricted Securities
beneficially owned by it and listed below in Item 3 (unless otherwise specified
under Item 3) pursuant to the Shelf Registration Statement. The undersigned, by
signing and returning this Notice and Questionnaire, understands that it will be

                                       1
<PAGE>

bound by the terms and conditions of this Notice and Questionnaire and the
Registration Rights Agreement.

         Pursuant to the Registration Rights Agreement, the undersigned has
agreed to indemnify and hold harmless the Issuer, the Issuer's directors, the
Issuer's officers who sign the Shelf Registration Statement and each person, if
any, who controls the Issuer within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against certain
losses arising in connection with statements concerning the undersigned made in
the Shelf Registration Statement or the related Prospectus in reliance upon the
information provided in this Notice and Questionnaire.

         The undersigned hereby provides the following information to the Issuer
and represents and warrants that such information is accurate and complete:

                                  QUESTIONNAIRE

1.       (a)      Full legal name of Selling Securityholder:

         (b)      Full legal name of registered holder (if not the same as (a)
                  above) through which Transfer Restricted Securities listed in
                  (3) below are held:

         (c)      Full legal name of DTC participant (if applicable and if not
                  the same as (b) above) through which Transfer Restricted
                  Securities listed in (3) are held:

2. Address for notices to Selling Securityholders:

         Telephone:

         Fax:

         Contact Person:

3.       Beneficial ownership of Transfer Restricted Securities:

          (a)     Type of Transfer Restricted Securities beneficially owned, and
                  principal amount of Notes or number of shares of Common Stock,
                  as the case may be, beneficially owned:

         (b)       CUSIP No(s). of such Transfer Restricted Securities
                   beneficially owned:

                                       2
<PAGE>

4.       Beneficial ownership of the Issuer's securities owned by the Selling
         Securityholder:

         EXCEPT AS SET FORTH BELOW IN THIS ITEM (4), THE UNDERSIGNED IS NOT THE
         BENEFICIAL OR REGISTERED OWNER OF ANY SECURITIES OF THE ISSUER OTHER
         THAN THE TRANSFER RESTRICTED SECURITIES LISTED ABOVE IN ITEM (3)
         ("OTHER SECURITIES").

         (a)      Type and amount of Other Securities beneficially owned by the
                  Selling Securityholder:

         (b)      CUSIP No(s). of such Other Securities beneficially owned:

5.       Relationship with the Issuer

         Except as set forth below, neither the undersigned nor any of its
         affiliates, officers, directors or principal equity holders (5% or
         more) has held any position or office or has had any other material
         relationship with the Issuer (or their predecessors or affiliates)
         during the past three years.

         State any exceptions here:

6.       Plan of Distribution

         Except as set forth below, the undersigned (including its donees or
         pledgees) intends to distribute the Transfer Restricted Securities
         listed above in Item (3) pursuant to the Shelf Registration Statement
         only as follows (if at all). Such Transfer Restricted Securities may be
         sold from time to time directly by the undersigned or, alternatively,
         through underwriters, broker-dealers or agents. If the Transfer
         Restricted Securities are sold through underwriters or broker-dealers,
         the Selling Securityholder will be responsible for underwriting
         discounts or commissions or agent's commissions. Such Transfer
         Restricted Securities may be sold in one or more transactions at fixed
         prices, at prevailing market prices at the time of sale, at varying
         prices determined at the time of sale, or at negotiated prices. Such
         sales may be effected in transactions (which may involve crosses or
         block transactions):

         (i) on any national securities exchange or quotation service on which
the Transfer Restricted Securities may be listed or quoted at the time of sale;

         (ii)     in the over-the-counter market;

         (iii)    in transactions otherwise than on such exchanges or services
                  or in the over-the-counter market; or

                                       3
<PAGE>

         (iv)     through the writing of options.

In connection with sales of the Transfer Restricted Securities or otherwise, the
undersigned may enter into hedging transactions with broker-dealers, which may
in turn engage in short sales of the Transfer Restricted Securities and deliver
Transfer Restricted Securities to close out such short positions, or loan or
pledge Transfer Restricted Securities to broker-dealers that in turn may sell
such securities.

State any exceptions here:

Note: In no event will such method(s) of distribution take the form of an
underwritten offering of the Transfer Restricted Securities without the prior
agreement of the Issuer.

         The undersigned acknowledges that it understands its obligation to
comply with the provisions of the Exchange Act and the rules and regulations
promulgated thereunder relating to stock manipulation, particularly Regulation M
thereunder (or any successor rules or regulations), in connection with any
offering of Transfer Restricted Securities pursuant to the Shelf Registration
Statement. The undersigned agrees that neither it nor any person acting on its
behalf will engage in any transaction in violation of such provisions.

         The Selling Securityholder hereby acknowledges its obligations under
the Registration Rights Agreement to indemnify and hold harmless certain persons
as set forth therein.

         Pursuant to the Registration Rights Agreement, the Issuer has agreed
under certain circumstances to indemnify the Selling Securityholders against
certain liabilities.

         In accordance with the undersigned's obligation under the Registration
Rights Agreement to provide such information as may be required by law for
inclusion in the Shelf Registration Statement, the undersigned agrees to
promptly notify the Issuer of any inaccuracies or changes in the information
provided herein that may occur subsequent to the date hereof at any time while
the Shelf Registration Statement remains effective. All notices hereunder and
pursuant to the Registration Rights Agreement shall be made in writing at the
address set forth below.

         By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to items (1) through (6) above and
the inclusion of such information in the Shelf Registration Statement and the
related Prospectus. The undersigned understands that such information will be
relied upon by the Issuer in connection with the preparation or amendment of the
Shelf Registration Statement and the related Prospectus.

                                       4
<PAGE>

         IN WITNESS WHEREOF, the undersigned, by authority duly given, has
caused this Notice and Questionnaire to be executed and delivered either in
person or by its duly authorized agent.

Dated:

Beneficial Owner

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

Please return the completed and executed Notice and Questionnaire to Inhale
Therapeutic Systems, Inc. at:

                  Inhale Therapeutic Systems, Inc.
                  150 Industrial Road
                  San Carlos, California 94070
                  Attention: Stephen L. Hurst, Esq.

                                       5<PAGE>

         INDENTURE, dated as of October 17, 2000, between INHALE THERAPEUTIC
SYSTEMS, INC., a corporation duly organized and existing under the laws of the
State of Delaware, having its principal office at 150 Industrial Road, San
Carlos, California 94070 (the "Company"), and CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION, a national banking association, as Trustee (the
"Trustee"), having its principal corporate trust office at 101 California
Street, Suite 2725, San Francisco, California 94111.

                             RECITALS OF THE COMPANY

         The Company has duly authorized the creation of an issue of its 3 1/2%
Convertible Subordinated Notes due 2007 (herein called the "Securities") of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.

         All things necessary to make the Securities, when the Securities are
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company, and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms, have been done.

                  NOW, THEREFORE, THIS INDENTURE WITNESSETH:

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

<PAGE>

                                   ARTICLE 1

                          DEFINITIONS AND INCORPORATION
                                  BY REFERENCE

SECTION 1.1       DEFINITIONS.

         For all purposes of this Indenture and the Securities, the following
terms are defined as follows:

                 "Act", when used with respect to any Holder of a Security, has
         the meaning specified in Section 14.4(a) hereof.

                 "Adjusted Interest Rate" means, with respect to any Reset
         Transaction, the rate per annum that is the arithmetic average of the
         rates quoted by two Reference Dealers selected by the Company or its
         successor as the rate at which interest on the Securities should accrue
         so that the fair market value, expressed in dollars, of a Security
         immediately after the later of:

                           (1) the public announcement of such Reset
         Transaction; or

                           (2) the public announcement of a change in dividend
         policy in connection with such Reset Transaction,

will equal the average Trading Price of a Security for the 20 Trading Days
preceding the date of public announcement of such Reset Transaction; provided
that the Adjusted Interest Rate shall not be less than 5% per annum.

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

                 "Bankruptcy Law" means Title 11 of the U.S. Code or any similar
         federal or state law for the relief of debtors.

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

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

                                      2
<PAGE>

                 "Business Day", when used with respect to any Place of Payment
         or Place of Conversion, means each Monday, Tuesday, Wednesday, Thursday
         and Friday which is not a day on which banking institutions in that
         Place of Payment or Place of Conversion, as the case may be, are
         authorized or obligated by law to close.

                 "Change of Control" means the occurrence of any of the
         following after the original issuance of the Securities:

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

                           (2) any consolidation or merger of the Company with
         or into any other person, any merger of another person into the
         Company, or any conveyance, transfer, sale, lease or other disposition
         of all or substantially all of the properties and assets of the Company
         to another person, other than (a) any such transaction (x) that does
         not result in any reclassification, conversion, exchange or
         cancellation of outstanding shares of capital stock of the Company and
         (y) pursuant to which holders of capital stock of the Company
         immediately prior to such transaction have the entitlement to exercise,
         directly or indirectly, 50% or more of the total voting power of all
         shares of capital stock of the Company entitled to vote generally in
         the election of directors of the continuing or surviving person
         immediately after such transaction and (b) any merger which is effected
         solely to change the jurisdiction of incorporation of the Company and
         results in a reclassification, conversion or exchange of outstanding
         shares of Common Stock solely into shares of common stock of the
         surviving entity;

provided, however, that a Change of Control shall not be deemed to have occurred
if the closing sales price per share of the Common Stock for any five Trading
Days within the period of 10 consecutive Trading Days ending immediately after
the later of the Change of Control or the public announcement of the Change of
Control, in the case of a Change of Control under clause (1) above, or the
period of 10 consecutive Trading Days ending immediately before the Change of
Control, in the case of a Change of Control under clause (2) above, shall equal
or exceed 110% of the Conversion Price of the Securities in effect on each such
Trading Day. Beneficial ownership shall be determined in accordance with Rule
13d-3 promulgated by the SEC under the Exchange Act. The term "person" shall
include any syndicate or group which would be deemed to be a "person" under
Section 13(d)(3) of the Exchange Act.

                 "Chief Executive Officer" means any co-chief executive officer
         of the Company.

                 "close of business" means 5:00 p.m., New York City time.

                                       3
<PAGE>

                 "Closing Date" means October 17, 2000 or such later date on
         which the Securities may be delivered pursuant to the Purchase
         Agreement.

                 "Closing Price" of any security on any date of determination
         means:

                           (1) the closing sale price (or, if no closing sale
         price is reported, the last reported sale price) of such security on
         the New York Stock Exchange on such date;

                           (2) if such security is not listed for trading on the
         New York Stock Exchange on any such date, the closing sale price as
         reported in the composite transactions for the principal U.S.
         securities exchange on which such security is so listed;

                           (3) if such security is not so listed on a U.S.
         national or regional securities exchange, the closing sale price as
         reported by the NASDAQ National Market;

                           (4) if such security is not so reported, the last
         quoted bid price for such security in the over-the-counter market as
         reported by the National Quotation Bureau or similar organization; or

                           (5) if such bid price is not available, the average
         of the mid-point of the last bid and ask prices of such security on
         such date from at least three nationally recognized independent
         investment banking firms retained for this purpose by the Company.

                 "Common Stock" means any stock of any class of the Company
         which has no preference in respect of dividends or of amounts payable
         in the event of any voluntary or involuntary liquidation, dissolution
         or winding up of the Company and which is not subject to redemption by
         the Company. However, subject to the provisions of Section 12.11
         hereof, shares issuable on conversion of Securities shall include only
         shares of the class designated as Common Stock, par value $0.0001 per
         share, of the Company at the date of this Indenture or shares of any
         class or classes resulting from any reclassification or
         reclassifications thereof and which have no preference in respect of
         dividends or of amounts payable in the event of any voluntary or
         involuntary liquidation, dissolution or winding up of the Company and
         which are not subject to redemption by the Company, provided that if at
         any time there shall be more than one such resulting class, the shares
         of each such class then so issuable shall be substantially in the
         proportion which the total number of shares of such class resulting
         from all such reclassifications bears to the total number of shares of
         all such classes resulting from all such reclassifications.

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

                 "Company Notice" has the meaning specified in Section 11.3
         hereof.

                 "Company Order" means a written order signed in the name of the
         Company by both (1) the Chairman of the Board, the Chief Executive
         Officer, the President or a Vice

                                       4

<PAGE>

         President and (2) so long as not the same as the officer signing
         pursuant to clause (1), the Chief Financial Officer, the Treasurer
         or the Secretary of the Company, and delivered to the Trustee.

                 "Conversion Agent" means any Person authorized by the Company
         to convert Securities in accordance with Article 12 hereof.

                 "Conversion Price" has the meaning specified in Section 12.1
         hereof.

                 "Corporate Trust Office" means for purposes of presentation or
         surrender of Securities for payment, registration, transfer, exchange
         or conversion or for service of notices or demands upon the Company,
         the office of the Trustee located in The City of New York at which at
         any particular time its corporate trust business shall be administered
         (which at the date of this Indenture is located at 55 Water Street,
         Room 234, North Building, New York, New York 10041), and for all other
         purposes, the office of the Trustee located in the City of San
         Francisco (which at the date of this Indenture is located at 101
         California Street, Suite 2725, San Francisco, CA 94111).

                 "Corporation" means corporations, associations, limited
         liability companies, companies and business trusts.

                 "Current Market Price" has the meaning set forth in Section
         12.4(g).

                 "Custodian" means any receiver, trustee, assignee, liquidator,
         sequestrator or similar official under any Bankruptcy Law.

                 "Default" means an event which is, or after notice or lapse of
         time or both would be, an Event of Default.

                 "Default Exception" has the meaning specified in Section 4.1(d)
         hereof.

                 "Defaulted Interest" has the meaning specified in Section 2.17
         hereof.

                 "Depositary" means The Depository Trust Company, its nominees
         and their respective successors.

                 "Designated Senior Debt" means Senior Debt of the Company
         which, at the date of determination, has an aggregate amount
         outstanding of, or under which, at the date of determination, the
         holders thereof are committed to lend up to, at least $25 million and
         is specifically designated in the instrument, agreement or other
         document evidencing or governing that Senior Debt as "Designated Senior
         Debt" for purposes of this Indenture (provided that such instrument,
         agreement or other document may place limitations and conditions on the
         right of such Senior Debt to exercise the rights of Designated Senior
         Debt).

                 "Dividend Yield" on any security for any period means the
         dividends paid or proposed to be paid pursuant to an announced dividend
         policy on such security for such period divided by, if with respect to
         dividends paid on such security, the average Closing

                                       5
<PAGE>

         Price of such security during such period and, if with respect to
         dividends proposed to be paid on such security, the Closing Price of
         such security on the effective date of the related Reset Transaction.

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

                 "DTC Participants" has the meaning specified in Section 2.8
         hereof.

                 "Event of Default" has the meaning specified in Section 4.1
         hereof.

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

                 "Expiration Time" has the meaning specified in Section 12.4(f)
         hereof.

                 "Fair market value" has the meaning set forth in Section 12.4
         (g) hereof.

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

                 "Guarantee" means any obligation, contingent or otherwise, of
         any Person, directly or indirectly guaranteeing any Indebtedness of any
         other Person and any obligation, direct or indirect, contingent or
         otherwise, of such Person:

                           (1) to purchase or pay (or advance or supply funds
         for the purchase or payment of) such Indebtedness of such other Person
         (whether arising by virtue of partnership arrangements, or by agreement
         to keep-well, to purchase assets, goods, securities or services, to
         take-or-pay, or maintain financial statement conditions or otherwise);
         or

                           (2) entered into for purposes of assuring in any
         other manner the obligee of such Indebtedness of the payment thereof or
         to protect such obligee against loss in respect thereof (in whole or in
         part);

provided, however, that the term "guarantee" will not include endorsements for
collection or deposit in the ordinary course of business. The term "guarantee"
used as a verb has a corresponding meaning.

                 "Holder", when used with respect to any Security, means the
         Person in whose name the Security is registered in the Register.

                 "Indebtedness", when used with respect to any Person, and
         without duplication means:

                           (1) all indebtedness, obligations and other
         liabilities (contingent or otherwise) of such Person for borrowed money
         (including obligations of the Company in respect of overdrafts, foreign
         exchange contracts, currency exchange agreements, Interest Rate
         Protection Agreements, and any loans or advances from banks, whether or
         not

                                       6

<PAGE>

         evidenced by notes or similar instruments) or evidenced by bonds,
         debentures, notes or other instruments for the payment of money, or
         incurred in connection with the acquisition of any property, services
         or assets (whether or not the recourse of the lender is to the whole of
         the assets of such Person or to only a portion thereof), other than any
         account payable or other accrued current liability or obligation to
         trade creditors incurred in the ordinary course of business in
         connection with the obtaining of materials or services;

                           (2) all reimbursement obligations and other
         liabilities (contingent or otherwise) of such Person with respect to
         letters of credit, bank guarantees, bankers' acceptances, surety bonds,
         performance bonds or other guaranty of contractual performance;

                           (3) all obligations and liabilities (contingent or
         otherwise) in respect of (a) leases of such Person required, in
         conformity with generally accepted accounting principles, to be
         accounted for as capitalized lease obligations on the balance sheet of
         such Person and (b) any lease or related documents (including a
         purchase agreement) in connection with the lease of real property which
         provides that such Person is contractually obligated to purchase or
         cause a third party to purchase the leased property and thereby
         guarantee a minimum residual value of the leased property to the
         landlord and the obligations of such Person under such lease or related
         document to purchase or to cause a third party to purchase the leased
         property;

                           (4) all obligations of such Person (contingent or
         otherwise) with respect to an interest rate, currency or other swap,
         cap, floor or collar agreement or other similar instrument or agreement
         or foreign currency hedge, exchange, purchase or similar instrument or
         agreement;

                           (5) all direct or indirect guaranties or similar
         agreements by such Person in respect of, and obligations or liabilities
         (contingent or otherwise) of such Person to purchase or otherwise
         acquire or otherwise assure a creditor against loss in respect of,
         indebtedness, obligations or liabilities of another Person of the kind
         described in clauses (1) through (4);

                           (6) any indebtedness or other obligations described
         in clauses (1) through (4) secured by any mortgage, pledge, lien or
         other encumbrance existing on property which is owned or held by such
         Person, regardless of whether the indebtedness or other obligation
         secured thereby shall have been assumed by such Person; and

                           (7) any and all deferrals, renewals, extensions and
         refundings of, or amendments, modifications or supplements to, any
         indebtedness, obligation or liability of the kind described in clauses
         (1) through (6).

                 "Indenture" means this instrument as originally executed or as
         it may from time to time be supplemented or amended by one or more
         indentures supplemental hereto entered into pursuant to the applicable
         provisions hereof.

                                       7

<PAGE>

                 "Initial Purchasers" mean Merrill Lynch, Pierce, Fenner & Smith
         Incorporated, Deutsche Bank Securities Inc., Lehman Brothers Inc. and
         U.S. Bancorp Piper Jaffray Inc.

                 "Interest Payment Date" means each April 17 and October 17.

                 "Interest Rate" means, (a) if a Reset Transaction has not
         occurred, 5% per annum, or (b) following the occurrence of a Reset
         Transaction, the Adjusted Interest Rate related to such Reset
         Transaction to, but not including the effective date of any succeeding
         Reset Transaction.

                 "Interest Rate Protection Agreement" means, with respect to any
         Person, any interest rate swap agreement, interest rate cap or collar
         agreement or other financial agreement or arrangement designed to
         protect such person against fluctuations in interest rates, as in
         effect from time to time.

                 "Internal Revenue Code" means the Internal Revenue Code of
         1986, as amended.

                 "Liquidated Damages" means all liquidated damages, if any,
         payable pursuant to Section 3 of the Registration Rights Agreement.

                 "Maturity" means the date on which the principal of such
         Security becomes due and payable as therein or herein provided, whether
         at the Stated Maturity or by acceleration, conversion, call for
         redemption, exercise of a Repurchase Right or otherwise.

                 "Nasdaq National Market" means the National Association of
         Securities Dealers Automated Quotation National Market or any successor
         national securities exchange or automated over-the-counter trading
         market in the United States.

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

                 "Officer" of the Company means the Chairman of the Board, the
         Chief Executive Officer, the President, the Chief Financial Officer,
         the Treasurer, any Vice President or the Secretary of the Company.

                 "Officers' Certificate" means a certificate signed by both (1)
         the Chairman of the Board, the Chief Executive Officer, the President
         or a Vice President and (2) so long as not the same as the officer
         signing pursuant to clause (1), the Chief Financial Officer or the
         Secretary of the Company, and delivered to the Trustee.

                 "Opinion of Counsel" means a written opinion of counsel, who
         may be counsel to the Company (and may include directors or employees
         of the Company) and which opinion is acceptable to the Trustee which
         acceptance shall not be unreasonably withheld.

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

                                       8

<PAGE>

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

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

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

                 "Paying Agent" has the meaning specified in Section 2.5 hereof.

                 "Payment Blockage Notice" has the meaning specified in Section
         13.1(d) hereof.

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

                 "Physical Securities" has the meaning specified in Section 2.2
         hereof.

                 "Place of Conversion" means any city in which any Conversion
         Agent is located.

                 "Place of Payment" means any city in which any Paying Agent is
         located.

                 "Predecessor Security" of any particular Security means every
         previous Security evidencing all or a portion of the same debt as that
         evidenced by such particular Security; and, for the purposes of this
         definition, any Security authenticated and delivered under Section 2.12
         hereof in exchange for or in lieu of a mutilated, destroyed, lost or
         stolen Security shall be deemed to evidence the same debt as the
         mutilated, destroyed, lost or stolen Security.

                 "Provisional Redemption" has the meaning specified in Section
         10.1 hereof.

                 "Purchase Agreement" means the Purchase Agreement, dated
         October 11, 2000, between the Company and the Initial Purchasers.

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

                 "Quoted Price" of the Common Stock means the last reported sale
         price of the Common Stock on the Nasdaq National Market, or, if the
         Common Stock is listed on a national securities exchange, then on such
         exchange, or if the Common Stock is not quoted on Nasdaq National
         Market or listed on an exchange, the average of the last bid

                                       9

<PAGE>

         and asked price on the National Association of Securities Dealers
         Automated Quotation System.

                 "Record Date" means either a Regular Record Date or a Special
         Record Date, as the case may be, provided that, for purposes of Section
         12.4 hereof, Record Date has the meaning specified in 12.4(g) hereof.

                 "Redemption Date", when used with respect to any Security to be
         redeemed, means the Optional Redemption Date in the event of an
         Optional Redemption or the Provisional Redemption Date, in the event of
         a Provisional Redemption, as the case may be.

                 "Redemption Price", means the Optional Redemption Price, in the
         event of an Optional Redemption, or the Provisional Redemption Price,
         in the event of a Provisional Redemption, as the case may be.

                 "Reference Dealer" means a dealer engaged in the trading of
         convertible securities.

                 "Reference Period" has the meaning set forth in Section 12.4(d)
         hereof.

                 "Register" has the meaning specified in Section 2.5 hereof.

                 "Registrar" has the meaning specified in Section 2.5 hereof.

                 "Registration Rights Agreement" means the Registration Rights
         Agreement dated as of October 17, 2000, between the Company and the
         Initial Purchasers.

                 "Regular Record Date" for the interest on the Securities
         (including Liquidated Damages, if any) payable means the April 2
         (whether or not a Business Day) next preceding an April 17 Interest
         Payment Date and the October 2 (whether or not a Business Day) next
         preceding an October 17 Interest Payment Date.

                 "Repurchase Date" has the meaning specified in Section 11.1
         hereof.

                 "Repurchase Price" has the meaning specified in Section 11.1
         hereof.

                 "Repurchase Right" has the meaning specified in Section 11.1
         hereof.

                 "Reset Transaction" means a merger, consolidation or statutory
         share exchange to which the entity that is the issuer of the shares of
         common stock into which the Securities are then convertible into is a
         party, a sale of all or substantially all the assets of that entity, a
         recapitalization of those shares of common stock or a distribution
         described in Section 12.4(d) hereof, after the effective date of which
         transaction or distribution the Securities would be convertible into:

                           (1) shares of an entity the common stock of which had
         a Dividend Yield for the four fiscal quarters of such entity
         immediately preceding the public announcement of such transaction or
         distribution that was more than 2.5% higher than the

                                       10

<PAGE>

         Dividend Yield on the Common Stock (or other common stock then issuable
         upon conversion of the Securities) for the four fiscal quarters
         preceding the public announcement of such transaction or distribution,
         or

                           (2) shares of an entity that announces a dividend
         policy prior to the effective date of such transaction or distribution
         which policy, if implemented, would result in a Dividend Yield on such
         entity's common stock for the next four fiscal quarters that would
         result in such a 2.5% basis point increase.

                 "Responsible Officer", when used with respect to the Trustee,
         means any officer of the Trustee, including any vice president,
         assistant vice president, secretary, assistant secretary, the
         treasurer, any assistant treasurer, the managing director or any other
         officer of the Trustee customarily performing functions similar to
         those performed by any of the above designated officers and also means,
         with respect to a particular corporate trust matter, any other officer
         to whom such matter is referred because of such officer's knowledge of
         and familiarity with the particular subject.

                 "Restricted Securities" means the Securities defined as such
         in Section 2.3 hereof.

                 "Restricted Securities Legend" has the meaning set forth in
         Section 2.3(a) hereof.

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

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

                 "SEC" means the Securities and Exchange Commission.

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

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

                 "Senior Debt" means the principal of, premium, if any, interest
         (including all interest accruing subsequent to the commencement of any
         bankruptcy or similar proceeding, whether or not a claim for
         post-petition interest is allowable as a claim in any such proceeding)
         and rent payable on or termination payment with respect to or in
         connection with, and all fees, costs, expenses and other amounts
         accrued or due on or in connection with, Indebtedness of the Company,
         whether outstanding on the date of this Indenture or thereafter
         created, incurred, assumed, guaranteed or in effect guaranteed by the
         Company (including all deferrals, renewals, extensions or refundings
         of, or amendments, modifications or supplements to, the foregoing),
         unless in the case of any particular Indebtedness the instrument
         creating or evidencing the same or the assumption or guarantee thereof
         expressly provides that such Indebtedness shall not be senior in right
         of payment to the Securities or expressly provides that such
         Indebtedness is PARI PASSU or junior to the Securities. The Securities
         shall not be senior in right of payment to the outstanding 6 3/4 %
         Convertible Subordinated Debentures due October 2006 (the "2006

                                       11
<PAGE>

         Debentures") or the 5% Convertible Subordinated Notes due February 2007
         (the "February 2007 Notes") and shall rank PARI PASSU with the 2006
         Debentures and the February 2007 Notes. Neither the 2006 Debentures nor
         the February 2007 Notes shall be Senior Debt, as that term is defined
         herein. Notwithstanding the foregoing, the term "Senior Debt" shall
         include, without limitation, all Designated Senior Debt, and shall not
         include Indebtedness of the Company to any Subsidiary.

                 "Significant Subsidiary" means any Subsidiary which is a
         "significant subsidiary" within the meaning of Rule 405 under the
         Securities Act.

                 "Special Record Date" for the payment of any Defaulted Interest
         means a date fixed by the Trustee pursuant to Section 2.17 hereof.

                 "Stated Maturity" means the date specified in any Security as
         the fixed date for the payment of principal on such Security or on
         which an installment of interest (including Liquidated Damages, if any)
         on such Security is due and payable.

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

                 "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
         Section 77aaa-77bbbb), as in effect on the date of this Indenture;
         provided, however, that in the event the TIA is amended after such
         date, "TIA" means, to the extent required by such amendment, the Trust
         Indenture Act of 1939, as so amended, or any successor statute.

                 "Trading Day" means:

                           (1) if the applicable security is listed or admitted
         for trading on the New York Stock Exchange or another national security
         exchange, a day on which the New York Stock Exchange or such other
         national security exchange is open for business;

                           (2) if the applicable security is quoted on the
         Nasdaq National Market, a day on which trades may be made thereon; or

                           (3) if the applicable security is not so listed,
         admitted for trading or quoted, any day other than a Saturday or Sunday
         or a day on which banking institutions in the State of New York are
         authorized or obligated by law or executive order to close.

                 "Trading Price" of a security on any date of determination
         means:

                           (1) the closing sale price (or, if no closing sale
         price is reported, the last reported sale price) of such security on
         the New York Stock Exchange on such date;

                                       12
<PAGE>

                           (2) if such security is not listed for trading on the
         New York Stock Exchange on any such date, the closing sale price as
         reported in the composite transactions for the principal U.S.
         securities exchange on which such security is so listed;

                           (3) if such security is not so listed on a U.S.
         national or regional securities exchange, the closing sale price as
         reported by the NASDAQ National Market;

                           (4) if such security is not so reported, the last
         price quoted by Interactive Data Corporation for such security or, if
         Interactive Data Corporation is not quoting such price, a similar
         quotation service selected by the Company;

                           (5) if such security is not so quoted, the average of
         the mid-point of the last bid and ask prices for such security from at
         least two dealers recognized as market-makers for such security; or

                           (6) if such security is not so quoted, the average of
         the last bid and ask prices for such security from a Reference Dealer.

                 "Transfer Agent" means any Person, which may be the Company,
         authorized by the Company to exchange or register the transfer of
         Securities.

                 "Trigger Event" has the meaning specified in Section 12.4(d)
         hereof.

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

                 "U.S. Government Obligations" means: (1) direct obligations of
         the United States of America for the payment of which the full faith
         and credit of the United States of America is pledged or (2)
         obligations of a person controlled or supervised by and acting as an
         agency or instrumentality of the United States of America, the payment
         of which is unconditionally guaranteed as a full faith and credit
         obligation by the United States of America and which in either case,
         are non-callable at the option of the issuer thereof.

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

         SECTION 1.2       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:

         "indenture securities" means the Securities;

         "indenture security holder" means a Holder;

                                       13
<PAGE>

         "indenture to be qualified" means this Indenture;

         "indenture trustee" or "institutional trustee" means the Trustee; and

         "obligor" on the Securities means the Company and any other obligor on
the indenture securities.

         All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.

         SECTION 1.3       RULES OF CONSTRUCTION.

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

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

                  (2) all accounting terms not otherwise defined herein have
         the meanings assigned to them in accordance with accounting principles
         generally accepted in the United States prevailing at the time of any
         relevant computation hereunder; and

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

                                     14
<PAGE>

                                   ARTICLE 2
                                 THE SECURITIES

         SECTION 2.1       TITLE AND TERMS.

         The Securities shall be known and designated as the "3 1/2% Convertible
Subordinated Notes due 2007"of the Company. The aggregate principal amount of
Securities which may be authenticated and delivered under this Indenture is
limited to $200,000,000 (or $250,000,000 if the over-allotment option set forth
in Section 2 of the Purchase Agreement is exercised in full), except for
securities authenticated and delivered upon registration of, transfer of, or in
exchange for, or in lieu of other Securities pursuant to Section 2.7, 2.8, 2.9,
2.12, 7.5, 10.8, 11.1 or 12.2 hereof. The Securities shall be issuable in
denominations of $1,000 or integral multiples thereof.

         The Securities shall mature on October 17, 2007.

         Interest shall accrue from October 17, 2000 at the Interest Rate until
the principal thereof is paid or made available for payment. Interest shall be
payable semiannually in arrears on April 17 and October 17, in each year,
commencing April 17, 2001.

         Interest on the Securities shall be computed (i) for any full
semiannual period for which a particular Interest Rate is applicable on the
basis of a 360-day year of twelve 30-day months and (ii) for any period for
which a particular Interest Rate is applicable shorter than a full semiannual
period for which interest is calculated, on the basis of a 30-day month and, for
such periods of less than a month, the actual number of days elapsed over a
30-day month. For purposes of determining the Interest Rate, the Trustee may
assume that a Reset Transaction has not occurred unless the Trustee has received
an Officers' Certificate stating that a Reset Transaction has occurred and
specifying the Adjusted Interest Rate then in effect.

         A Holder of any Security at the close of business on a Regular Record
Date shall be entitled to receive interest (including Liquidated Damages, if
any) on such Security on the corresponding Interest Payment Date. A Holder of
any Security which is converted after the close of business on a Regular Record
Date and prior to the corresponding Interest Payment Date (other than any
Security whose Maturity is prior to such Interest Payment Date) shall be
entitled to receive interest (including Liquidated Damages, if any) on the
principal amount of such Security, notwithstanding the conversion of such
Security prior to such Interest Payment Date. However, any such Holder which
surrenders any such Security for conversion during the period between the close
of business on such Regular Record Date and ending with the opening of business
on the corresponding Interest Payment Date shall be required to pay the Company
an amount equal to the interest (including Liquidated Damages, if any) on the
principal amount of such Security so converted, which is payable by the Company
to such Holder on such Interest Payment Date, at the time such Holder surrenders
such Security for conversion. Notwithstanding the foregoing, any such Holder
which surrenders for conversion any Security which has been called for
redemption by the Company in a notice of redemption given by the Company
pursuant to Section 10.5 hereof shall be entitled to receive (and retain) such
interest (including Liquidated Damages, if any) and need not pay the Company an
amount equal to the

                                       15

<PAGE>

interest (including Liquidated Damages, if any) on the principal amount of
such Security so converted at the time such Holder surrenders such Security
for conversion.

         Principal of, and premium, if any, and interest on, Global Securities
shall be payable to the Depositary in immediately available funds.

         Principal and premium, if any, on Physical Securities shall be payable
at the office or agency of the Company maintained for such purpose, initially
the Corporate Trust Office of the Trustee. Interest on Physical Securities will
be payable by (i) U.S. Dollar check drawn on a bank in The City of New York
mailed to the address of the Person entitled thereto as such address shall
appear in the Register, or (ii) upon application to the Registrar not later than
the relevant Record Date by a Holder of an aggregate principal amount in excess
of $5,000,000, wire transfer in immediately available funds.

         The Securities shall be redeemable at the option of the Company as
provided in Article 10 hereof.

         The Securities shall have a Repurchase Right exercisable at the option
of Holders as provided in Article 11 hereof.

         The Securities shall be convertible as provided in Article 12 hereof.

         The Securities shall be subordinated in right of payment to Senior Debt
of the Company as provided in Article 13 hereof.

         SECTION 2.2       FORM OF SECURITIES.

         The Securities and the Trustee's certificate of authentication to be
borne by such Securities shall be substantially in the form annexed hereto as
Exhibit A, which is incorporated in and made a part of this Indenture. The terms
and provisions contained in the form of Security shall constitute, and are
hereby expressly made, a part of this Indenture and to the extent applicable,
the Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.

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

         The Securities will be offered and sold only to QIBs in reliance on
Rule 144A and shall be issued initially only in the form of one or more
permanent Global Securities (each, a "Global Security") in registered form
without interest coupons. The Global Securities shall be:

                  (1) duly executed by the Company and authenticated by the
         Trustee as hereinafter provided;

                                       16
<PAGE>

                  (2) registered in the name of the Depositary (or its nominee)
         for credit to the respective accounts of the Holders at the
         Depositary; and

                  (3) deposited with the Trustee, as custodian for the
         Depositary.

         The Global Securities shall be substantially in the form of Security
set forth in Exhibit A annexed hereto (including the text and schedule called
for by footnotes 1 and 2 thereto). The aggregate principal amount of the Global
Securities may from time to time be increased or decreased by adjustments made
on the records of the Trustee, as custodian for the Depositary (or its nominee),
in accordance with the instructions given by the Holder thereof, as hereinafter
provided.

         Securities issued in exchange for interests in the Global Securities
pursuant to Section 2.8(d) hereof shall be issued in the form of permanent
definitive Securities (the "Physical Securities") in registered form without
interest coupons. The Physical Securities shall be substantially in the form set
forth in Exhibit A annexed hereto.

         The Securities shall be typed, printed, lithographed or engraved or
produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Securities
may be listed, all as determined by the Officers executing such Securities, as
evidenced by their execution of such Securities.

         SECTION 2.3       LEGENDS.

         (a) RESTRICTED SECURITIES LEGENDS.

         Each Security issued hereunder shall, upon issuance, bear the legend
set forth in Section 2.3(a)(i) or Section 2.3(a)(ii) (each, a "Restricted
Securities Legend"), as the case may be, and such legend shall not be removed
except as provided in Section 2.3(a)(iii). Each Security that bears or is
required to bear the Restricted Securities Legend set forth in Section 2.3(a)(i)
(together with any Common Stock issued upon conversion of the Securities and
required to bear the Restricted Securities Legend set forth in Section
2.3(a)(ii), collectively, the "Restricted Securities") shall be subject to the
restrictions on transfer set forth in this Section 2.3(a) (including the
Restricted Securities Legend set forth below), and the Holder of each such
Restricted Security, by such Holder's acceptance thereof, shall be deemed to
have agreed to be bound by all such restrictions on transfer.

         As used in Section 2.3(a), the term "transfer" encompasses any sale,
pledge, transfer or other disposition whatsoever of any Restricted Security.

         (i) Restricted Securities Legend for Securities.

         Except as provided in Section 2.3(a)(iii), until two years after the
original issuance date of any Security, any certificate evidencing such Security
(and all securities issued in exchange therefor or substitution thereof, other
than Common Stock, if any, issued upon conversion thereof which shall bear the
legend set forth in Section 2.3(a)(ii), if applicable) shall bear a Restricted
Securities Legend in substantially the following form:

                                       17
<PAGE>

         THE SECURITY EVIDENCED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
         ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE
         UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
         EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF,
         THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER"
         AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT; (2) AGREES THAT IT
         WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY
         RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR THE
         COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY EXCEPT (A) TO
         THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL
         BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C)
         PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
         THE SECURITIES ACT (IF AVAILABLE) OR (D) PURSUANT TO A REGISTRATION
         STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT
         AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER; AND
         (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY
         EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO
         CLAUSE 2(D) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
         IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY WITHIN
         TWO YEARS AFTER THE ORIGINAL ISSUANCE OF SUCH SECURITY (OTHER THAN A
         TRANSFER PURSUANT TO CLAUSE (2)(D) ABOVE), THE HOLDER MUST CHECK THE
         APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER
         OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE (OR ANY
         SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFER IS PURSUANT
         TO CLAUSE (2)(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
         FURNISH TO THE TRUSTEE (OR ANY SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH
         CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY
         REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT
         TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
         REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE
         REMOVED UPON THE EARLIER OF THE TRANSFER OF THE SECURITY EVIDENCED
         HEREBY PURSUANT TO CLAUSE (2)(D) ABOVE OR THE EXPIRATION OF TWO YEARS
         FROM THE ORIGINAL ISSUANCE OF THE SECURITY EVIDENCED HEREBY. AS USED
         HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
         GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.

         (ii) Restricted Securities Legend for Common Stock Issued Upon
Conversion of the Securities.

                                       18
<PAGE>

         Until two years after the original issuance date of any Security, any
stock certificate representing Common Stock issued upon conversion of such
Security shall bear a Restricted Securities Legend in substantially the
following form:

         THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
         SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
         STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS
         SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT
         UNTIL THE EXPIRATION OF TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE
         SECURITY UPON THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY
         WAS ISSUED, (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE SECURITY
         EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO
         THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
         SECURITIES ACT (IF AVAILABLE) OR (C) PURSUANT TO A REGISTRATION
         STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT
         AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER; (2)
         PRIOR TO ANY SUCH TRANSFER OTHER THAN A TRANSFER PURSUANT TO CLAUSE
         1(C) ABOVE, IT WILL FURNISH TO SUCH TRANSFER AGENT (OR ANY SUCCESSOR
         TRANSFER AGENT, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR
         OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT
         SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
         TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
         SECURITIES ACT; AND (3) IT WILL DELIVER TO EACH PERSON TO WHOM THE
         COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER
         PURSUANT TO A CLAUSE (1)(C) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT
         OF THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE
         TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE (1)(C)
         ABOVE OR THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE
         SECURITY UPON THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY
         WAS ISSUED. AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON"
         HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES
         ACT.

        (iii) Removal of the Restricted Securities Legends.

         Each Security or share of Common Stock issued upon conversion of such
Security shall bear the Restricted Securities Legend set forth in Section
2.3(a)(i) or 2.3(a)(ii), as the case may be, until the earlier of:

                           (A) two years after the original issuance date of
                       such Security;

                                       19
<PAGE>

                           (B) such Security or Common Stock has been sold
                       pursuant to a registration statement that has been
                       declared effective under the Securities Act (and which
                       continues to be effective at the time of such sale);
                       or

                           (C) such Common Stock has been issued upon
                       conversion of Securities that have been sold pursuant
                       to a registration statement that has been declared
                       effective under the Securities Act (and which
                       continues to be effective at the time of such sale).

The Holder must give notice thereof to the Trustee and any transfer agent for
the Common Stock, as applicable.

         Notwithstanding the foregoing, the Restricted Securities Legend may be
removed if there is delivered to the Company such satisfactory evidence, which
may include an opinion of independent counsel, as may be reasonably required by
the Company that neither such legend nor the restrictions on transfer set forth
therein are required to ensure that transfers of such Security will not violate
the registration requirements of the Securities Act. Upon provision of such
satisfactory evidence, the Trustee, at the written direction of the Company,
shall authenticate and deliver in exchange for such Securities another Security
or Securities having an equal aggregate principal amount that does not bear such
legend. If the Restricted Securities Legend has been removed from a Security as
provided above, no other Security issued in exchange for all or any part of such
Security shall bear such legend, unless the Company has reasonable cause to
believe that such other Security is a "restricted security" within the meaning
of Rule 144 and instructs the Trustee in writing to cause a Restricted
Securities Legend to appear thereon.

         Any Security (or security issued in exchange or substitution thereof)
as to which such restrictions on transfer shall have expired in accordance with
their terms or as to which the conditions for removal of the Restricted
Securities Legend set forth in Section 2.3(a)(i) as set forth therein have been
satisfied may, upon surrender of such Security for exchange to the Registrar in
accordance with the provisions of Section 2.7 hereof, be exchanged for a new
Security or Securities, of like tenor and aggregate principal amount, which
shall not bear the Restricted Securities Legend required by Section 2.3(a)(i).

         Any such Common Stock as to which such restrictions on transfer shall
have expired in accordance with their terms or as to which the conditions for
removal of the Restricted Securities Legend set forth in Section 2.3(a)(ii) as
set forth therein have been satisfied may, upon surrender of the certificates
representing such shares of Common Stock for exchange in accordance with the
procedures of the transfer agent for the Common Stock, be exchanged for a new
certificate or certificates for a like aggregate number of shares of Common
Stock, which shall not bear the Restricted Securities Legend required by Section
2.3(a)(ii).

         (b) GLOBAL SECURITY LEGEND.

         Each Global Security shall also bear the following legend on the face
thereof:

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY ("DTC") TO INHALE THERAPEUTIC

                                       20

<PAGE>

SYSTEMS, INC. (OR ITS SUCCESSOR) OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, CONVERSION OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON 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 SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

         SECTION 2.4       EXECUTION, AUTHENTICATION, DELIVERY AND DATING.

         Two Officers shall execute the Securities on behalf of 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 be valid nevertheless.

         At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.

         Each Security shall be dated the date of its authentication.

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

         The Trustee may appoint an authenticating agent or agents reasonably
acceptable to the Company with respect to the Securities. Unless limited by the
terms of such appointment, 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.

          SECTION 2.5       REGISTRAR AND PAYING AGENT.

         The Company shall maintain an office or agency where Securities may be
presented for registration of transfer or for exchange (the "Registrar") and an
office or agency where Securities may be presented for payment (the "Paying
Agent"). The Registrar shall keep a register of the Securities (the "Register")
and of their transfer and exchange. The Company may appoint one or more
co-Registrars and one or more additional Paying Agents for the Securities. The
term "Paying Agent" includes any additional paying agent and the term
"Registrar" includes any additional registrar. The Company may change any Paying
Agent or Registrar without prior notice to any Holder.

                                       21
<PAGE>

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

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

                       (2) give the Trustee notice of any Default by the Company
         in the making of any payment of principal and premium, if any, or
         interest (including Liquidated Damages, if any); and

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

         The Company shall give prompt written notice to the Trustee of the name
and address of any Agent who is not a party to this Indenture. If the Company
fails to appoint or maintain another entity as Registrar or Paying Agent, the
Trustee shall act as such. The Company or any Affiliate of the Company may act
as Paying Agent or Registrar; provided, however, that none of the Company, its
subsidiaries or the Affiliates of the foregoing shall act:

               (i) as Paying Agent in connection with redemptions, offers to
         purchase and discharges, as otherwise specified in this Indenture, and

               (ii) as Paying Agent or Registrar if a Default or Event of
         Default has occurred and is continuing.

         The Company hereby initially appoints the Trustee as Registrar and
Paying Agent for the Securities.

         SECTION 2.6       PAYING AGENT TO HOLD ASSETS IN TRUST.

         Not later than 11:00 a.m. (New York City time) on each due date of the
principal, premium, if any, and interest (including Liquidated Damages, if any)
on any Securities, the Company shall deposit with one or more Paying Agents
money in immediately available funds sufficient to pay such principal, premium,
if any, and interest (including Liquidated Damages, if any) so becoming due. 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 (if other than
the Company) shall have no further liability for the money so paid over to the
Trustee.

         If the Company shall act as a Paying Agent, it shall, prior to or on
each due date of the principal of and premium, if any, or interest (including
Liquidated Damages, if any) on any of the Securities, segregate and hold in
trust for the benefit of the Holders a sum sufficient with monies held by all
other Paying Agents, to pay the principal and premium, if any, or interest
(including Liquidated Damages, if any) so becoming due until such sums shall be
paid to such

                                       22
<PAGE>

Persons or otherwise disposed of as provided in this Indenture, and
shall promptly notify the Trustee of its action or failure to act.

         SECTION 2.7       GENERAL PROVISIONS RELATING TO TRANSFER AND EXCHANGE.

         The Securities are issuable only in registered form. A Holder may
transfer a Security only by written application to the Registrar stating the
name of the proposed transferee and otherwise complying with the terms of this
Indenture. No such transfer shall be effected until, and such transferee shall
succeed to the rights of a Holder only upon, final acceptance and registration
of the transfer by the Registrar in the Register. Furthermore, any Holder of a
Global Security shall, by acceptance of such Global Security, agree that
transfers of beneficial interests in such Global Security may be effected only
through a book-entry system maintained by the Holder of such Global Security (or
its agent) and that ownership of a beneficial interest in the Security shall be
required to be reflected in a book-entry. Notwithstanding the foregoing, in the
case of a Restricted Security, a beneficial interest in a Global Security being
transferred in reliance on an exemption from the registration requirements of
the Securities Act other than in accordance with Rule 144 and Rule 144A may only
be transferred for a Physical Security.

         When Securities are presented to the Registrar with a request to
register the transfer or to exchange them for an equal aggregate principal
amount of Securities of other authorized denominations, the Registrar shall
register the transfer or make the exchange as requested if its requirements for
such transactions are met (including that such Securities are duly endorsed or
accompanied by a written instrument of transfer duly executed by the Holder
thereof or by an attorney who is authorized in writing to act on behalf of the
Holder). Subject to Section 2.4 hereof, to permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall authenticate
Securities at the Registrar's request. No service charge shall be made for any
registration of transfer or exchange or redemption of the Securities, but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than any such
transfer taxes or other similar governmental charge payable upon exchanges
pursuant to Section 2.14, 7.5 or 10.8 hereof).

         Neither the Company nor the Registrar shall be required to exchange or
register a transfer of any Securities:

                       (1) for a period of 15 Business Days prior to the day of
         any selection of Securities for redemption under Article 10 hereof;

                       (2) so selected for redemption or, if a portion of any
         Security is selected for redemption, such portion thereof selected for
         redemption; or

                       (3) surrendered for conversion or, if a portion of any
         Security is surrendered for conversion, such portion thereof
         surrendered for conversion.

         SECTION 2.8       BOOK-ENTRY PROVISIONS FOR THE GLOBAL SECURITIES.

         (a) The Global Securities initially shall:

               (i) be registered in the name of the Depositary (or a nominee
         thereof);

                                       23
<PAGE>

               (ii) be delivered to the Trustee as custodian for such
         Depositary; and

               (iii) bear the Restricted Securities Legend as set forth in
         Section 2.3(a)(i) hereof.

         Members of, or participants in, the Depositary ("DTC 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 such 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
such Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing contained herein shall prevent the Company, the Trustee or any agent of
the Company or Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depositary or impair, as between the
Depositary and the DTC Participants, the operation of customary practices
governing the exercise of the rights of a Holder of any Security.

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

         (c) A Global Security may not be transferred, in whole or in part, to
any Person other than the Depositary (or a nominee thereof), and no such
transfer to any such other Person may be registered. Beneficial interests in a
Global Security may be transferred in accordance with the rules and procedures
of the Depositary and the provisions of Section 2.9 hereof.

         (d) If at any time:

               (i) the Depositary notifies the Company in writing that it is no
         longer willing or able to continue to act as Depositary for the Global
         Securities, or the Depositary ceases to be a "clearing agency"
         registered under the Exchange Act and a successor depositary for the
         Global Securities is not appointed by the Company within 90 days of
         such notice or cessation;

               (ii) the Company, at its option, notifies the Trustee in writing
         that it elects to cause the issuance of the Securities in definitive
         form under this Indenture in exchange for all or any part of the
         Securities represented by a Global Security or Global Securities; or

               (iii) an Event of Default has occurred and is continuing and the
         Registrar has received a request from the Depositary for the issuance
         of Physical Securities in exchange for such Global Security or Global
         Securities,

the Depositary shall surrender such Global Security or Global Securities to the
Trustee for cancellation and the Company shall execute, and the Trustee, upon
receipt of an Officers' Certificate and Company Order for the authentication and
delivery of Securities, shall authenticate and deliver in exchange for such
Global Security or Global Securities, Physical Securities of like tenor as that
of the Global Securities in an aggregate principal amount equal to the aggregate
principal amount of such Global Security or Global Securities. Such Physical
Securities shall be registered in such names as the Depositary shall identify in
writing as

                                       24
<PAGE>

the beneficial owners of the Securities represented by such Global
Security or Global Securities (or any nominee thereof).

         Notwithstanding the foregoing, in connection with any transfer of
beneficial interests in a Global Security to beneficial owners pursuant to
Section 2.8(d) hereof, the Registrar shall reflect on its books and records the
date and a decrease in the principal amount of such Global Security in an amount
equal to the principal amount of the beneficial interest in such Global Security
to be transferred.

         SECTION 2.9       SPECIAL TRANSFER PROVISIONS.

         Unless a Security is transferred after the time period referred to in
Rule 144(k) under the Securities Act or otherwise sold pursuant to a
registration statement that has been declared effective under the Securities Act
(and which continues to be effective at the time of such sale), the following
provisions shall apply.

         With respect to the registration of any proposed transfer of Securities
to a QIB:

               (i) If the Securities to be transferred consist of an interest in
         the Global Securities, the transfer of such interest may be effected
         only through the book-entry system maintained by the Depositary.

               (ii) If the Securities to be transferred consist of Physical
         Securities, the Registrar shall register the transfer if 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:

               (A) it is purchasing the Securities for its own account or an
         account with respect to which it exercises sole investment discretion,
         in each case for investment and not with a view to distribution;

               (B) it and any such account is a QIB within the meaning of
         Rule 144A;

               (C) it is aware that the sale to it is being made in reliance on
         Rule 144A;

               (D) it 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

               (E) it is aware that the transferor is relying upon its foregoing
         representations in order to claim the exemption from registration
         provided by Rule 144A.

                                       25
<PAGE>

         In addition, the Registrar shall reflect on its books and records the
date and an increase in the principal amount of the Global Securities in an
amount equal to the principal amount of the Physical Securities to be
transferred, and the Trustee shall cancel the Physical Securities so
transferred.

         By its acceptance of any Security bearing the Restricted Securities
Legend, each Holder of such a Security acknowledges the restrictions on transfer
of such Security set forth in this Indenture and agrees that it will transfer
such Security only as provided in this Indenture. The Registrar shall not
register a transfer of any Security unless such transfer complies with the
restrictions on transfer of such Security set forth in this Indenture. The
Registrar shall be entitled to receive and rely on written instructions from the
Company verifying that such transfer complies with such restrictions on
transfer. In connection with any transfer of Securities, each Holder agrees by
its acceptance of the Securities to furnish the Registrar or the Company such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; provided that the Registrar shall not be required to
determine (but may rely on a determination made by the Company with respect to)
the sufficiency of any such certifications, legal opinions or other information.

         The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.8 hereof or this Section
2.9. 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.

         SECTION 2.10      HOLDER 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
Holders and shall otherwise comply with Section 312(a) of the TIA. If the
Trustee is not the Registrar, the Company shall furnish to the Trustee prior to
or on 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 Holders relating to such
Interest Payment Date or request, as the case may be.

         SECTION 2.11      PERSONS DEEMED OWNERS.

         The Company, the Trustee and any agent of the Company or the Trustee
may treat the registered Holder of a Global Security as the absolute owner of
such Global Security for the purpose of receiving payment thereof or on account
thereof and for all other purposes whatsoever, whether or not such Security be
overdue, and notwithstanding any notice of ownership or writing thereon, or any
notice of previous loss or theft or other interest therein. The Company, the
Trustee and any agent of the Company or the Trustee may treat the Person in
whose name any Security is registered as the owner of such Security for the
purpose of receiving payment of principal of and premium, if any, and interest
(including Liquidated Damages, if any) on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and
notwithstanding any notice of ownership or writing thereon, or any notice of
previous loss or theft or other interest therein.

                                       26
<PAGE>

         SECTION 2.12      MUTILATED, DESTROYED, LOST OR STOLEN SECURITIES.

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

         If there is delivered to the Company and the Trustee

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

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

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

         Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.

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

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

         SECTION 2.13      TREASURY SECURITIES.

         In determining whether the Holders of the requisite principal amount of
Outstanding Securities are present at a meeting of Holders for quorum purposes
or have given any request, demand, authorization, direction, notice, consent or
waiver hereunder, Securities owned by the Company or any Affiliate of the
Company shall be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any such
determination as to the presence of a quorum or upon any such request, demand,
authorization, direction, notice, consent or waiver, only such Securities of
which the Trustee has received written notice and are so owned shall be so
disregarded.

                                       27
<PAGE>

         SECTION 2.14      TEMPORARY SECURITIES.

         Pending the preparation of Securities in definitive form, the Company
may execute and the Trustee shall, upon written request of the Company,
authenticate and deliver temporary Securities (printed or lithographed).
Temporary Securities shall be issuable in any authorized denomination, and
substantially in the form of the Securities in definitive form but with such
omissions, insertions and variations as may be appropriate for temporary
Securities, all as may be determined by the Company. Every such temporary
Security shall be executed by the Company and authenticated by the Trustee upon
the same conditions and in substantially the same manner, and with the same
effect, as the Securities in definitive form. Without unreasonable delay, the
Company will execute and deliver to the Trustee Securities in definitive form
(other than in the case of Securities in global form) and thereupon any or all
temporary Securities (other than any such Securities in global form) may be
surrendered in exchange therefor, at each office or agency maintained by the
Company pursuant to Section 9.2 and the Trustee shall authenticate and deliver
in exchange for such temporary Securities an equal aggregate principal amount of
Securities in definitive form. Such exchange shall be made by the Company at its
own expense and without any charge therefor. Until so exchanged, the temporary
Securities shall in all respects be entitled to the same benefits and subject to
the same limitations under this Indenture as Securities in definitive form
authenticated and delivered hereunder.

         SECTION 2.15      CANCELLATION.

         All securities surrendered for payment, redemption, repurchase,
conversion, registration of transfer or exchange shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee. All Securities so
delivered shall be canceled promptly by the Trustee, and no Securities shall be
issued in lieu thereof except as expressly permitted by any of the provisions of
this Indenture. Upon written instructions of the Company, the Trustee shall
destroy canceled Securities and, after such destruction, shall deliver a
certificate of such destruction to the Company. If the Company shall acquire any
of the Securities, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Securities unless the same
are delivered to the Trustee for cancellation.

         SECTION 2.16      CUSIP NUMBERS.

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

                                       28
<PAGE>

         SECTION 2.17      DEFAULTED INTEREST.

         If the Company fails to make a payment of interest (including
Liquidated Damages, if any) on any Security when due and payable ("Defaulted
Interest"), it shall pay such Defaulted Interest plus (to the extent lawful) any
interest payable on the Defaulted Interest, in any lawful manner. It may elect
to pay such Defaulted Interest, plus any such interest payable on it, to the
Persons who are Holders of such Securities on which the interest is due on a
subsequent Special Record Date. The Company shall notify the Trustee in writing
of the amount of Defaulted Interest proposed to be paid on each such Security.
The Company shall fix any such Special Record Date and payment date for such
payment. At least 15 days before any such Special Record Date, the Company shall
mail to Holders affected thereby a notice that states the Special Record Date,
the Interest Payment Date, and amount of such interest (and such Liquidated
Damages, if any) to be paid.

                                       29
<PAGE>

                                   ARTICLE 3

                           SATISFACTION AND DISCHARGE

         SECTION 3.1       SATISFACTION AND DISCHARGE OF INDENTURE.

         When:

               (1) The Company shall deliver to the trustee for cancellation all
         securities previously authenticated (other than any securities which
         have been destroyed, lost or stolen and in lieu of, or in substitution
         for which, other securities shall have been authenticated and
         delivered) and not previously canceled, or

               (2) (A) all the securities not previously canceled or delivered
         to the trustee for cancellation shall have become due and payable, or
         are by their terms to become due and payable within one year or are to
         be called for redemption within one year under arrangements
         satisfactory to the Trustee for the giving of notice of redemption,

                   (B) the Company shall deposit with the Trustee, in trust,
         cash in U.S. dollars and/or U.S. Government Obligations which through
         the payment of interest and principal in respect thereof, in accordance
         with their terms, will provide (and without reinvestment and assuming
         no tax liability will be imposed on such Trustee), not later than one
         day before the due date of any payment of money, an amount in cash,
         sufficient, in the opinion of a nationally recognized firm of
         independent public accountants expressed in a written certification
         thereof delivered to the Trustee, to pay principal of, premium, if any,
         or interest (including Liquidated Damages, if any) on all of the
         Securities (other than any Securities which shall have been mutilated,
         destroyed, lost or stolen and in lieu of or in substitution for which
         other Securities shall have been authenticated and delivered) not
         previously canceled or delivered to the Trustee for cancellation, on
         the dates such payments of principal, premium, if any, or interest
         (including Liquidated Damages, if any) are due to such date of
         maturity or redemption, as the case may be, and

                   (C) the Company shall have delivered to the Trustee an
         Officers' Certificate and an Opinion of Counsel to the effect that (x)
         the Company has received from, or there has been published by, the
         Internal Revenue Service a ruling or (y) since the date of execution of
         this Indenture, there has been a change in the applicable federal
         income tax law, in the case of either clause (x) or (y) to the effect
         that, and based thereon such Opinion of Counsel shall confirm that, the
         Holders will not recognize income, gain or loss for federal income tax
         purposes as a result of such deposit and discharge and will be subject
         to federal income tax on the same amount and in the same manner and at
         the same times as would have been the case if such deposit and
         discharge had not occurred, and

if, in the case of either clause (1) or (2), the Company shall also pay or cause
to be paid all other sums payable hereunder by the Company, then this Indenture
shall cease to be of further effect (except as to:

                                       30

<PAGE>

                (i)   remaining rights of registration of transfer, substitution
          and exchange and conversion of Securities,

               (ii)   rights hereunder of Holders to receive payments of
         principal of and premium, if any, and interest (including Liquidated
         Damages, if any) on, the Securities and the other rights, duties and
         obligations of Holders, as beneficiaries hereof with respect to the
         amounts, if any, so deposited with the Trustee, and

                (iii) the rights, obligations and immunities of the Trustee
          hereunder),

and the Trustee, on demand of the Company accompanied by an Officers'
Certificate and an Opinion of Counsel and at the cost and expense of the
Company, shall execute proper instruments acknowledging satisfaction of and
discharging this Indenture; provided, however, the Company shall reimburse
the Trustee for all amounts due the Trustee under Section 5.8 hereof and for
any costs or expenses thereafter reasonably and properly incurred by the
Trustee and to compensate the Trustee for any services thereafter reasonably
and properly rendered by the Trustee in connection with this Indenture or the
Securities.

         SECTION 3.2   DEPOSITED MONIES TO BE HELD IN TRUST.

         Subject to Section 3.3 hereof, all monies deposited with the Trustee
pursuant to Section 3.1 hereof shall be held in trust and applied by it to the
payment, notwithstanding the provisions of Article 13 hereof, either directly or
through any Paying Agent (including the Company if acting as its own Paying
Agent), to the Holders of the particular Securities for the payment or
redemption of which such monies have been deposited with the Trustee, of all
sums due and to become due thereon for principal, premium, if any, and interest
(including Liquidated Damages, if any). All monies deposited with the Trustee
pursuant to Section 3.1 hereof (and held by it or any Paying Agent) for the
payment of Securities subsequently converted shall be returned to the Company
upon request of the Company.

         SECTION 3.3   RETURN OF UNCLAIMED MONIES.

         The Trustee and the Paying Agent shall pay to the Company any money
held by them for the payment of principal or premium, if any, or interest
(including Liquidated Damages, if any) that remains unclaimed for two years
after the date upon which such payment shall have become due. After payment to
the Company, Holders entitled to the money must look to the Company for payment
as general creditors unless an applicable abandoned property law designates
another Person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.

                                      31

<PAGE>

                                   ARTICLE 4

                             DEFAULTS AND REMEDIES

         SECTION 4.1   EVENTS OF DEFAULT.

         An "Event of Default" with respect to the Securities occurs when any of
the following occurs (whatever the reason for such Event of Default and whether
it shall be occasioned by the provisions of Article 13 hereof or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):

         (a) the Company defaults in the payment of the principal of or
premium, if any, on any of the Securities when it becomes due and payable at
Maturity, upon redemption or exercise of a Repurchase Right or otherwise,
whether or not such payment is prohibited by Article 13 hereof; or

         (b) the Company defaults in the payment of interest (including
Liquidated Damages, if any) on any of the Securities when it becomes due and
payable and such default continues for a period of 30 days, whether or not
such payment is prohibited by Article 13 hereof; or

         (c) the Company fails to perform or observe any other term, covenant
or agreement contained in the Securities or this Indenture and the default
continues for a period of 60 days after written notice of such failure,
requiring the Company to remedy the same, shall have been given to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in aggregate principal amount of the Outstanding Securities; or

         (d) (i) the Company fails to make any payment by the end of the
applicable grace period, if any, after the maturity of any Indebtedness for
borrowed money in an amount in excess of $5,000,000 (provided that such
failure shall not constitute an Event of Default if (1) the Company
determines, in good faith, that a lessor under a lease described in clause
(3)(a) of the definition of Indebtedness breached a covenant under the lease
and the Company has given notice of the breach to the lessor and the Trustee
and (2) as a result of the breach, the Company withholds payment under the
lease) (a "Default Exception"), or (ii) there is an acceleration of any
Indebtedness for borrowed money in an amount in excess of $5,000,000 because
of a default with respect to such Indebtedness (other than a Default
Exception) without such Indebtedness having been discharged or such
acceleration having been cured, waived, rescinded or annulled, in the case of
either (i) or (ii) above, for a period of 30 days after written notice to the
Company by the Trustee or to the Company and the Trustee by Holders of at
least 25% in aggregate principal amount of the Outstanding Securities; or

         (e) the entry by a court having jurisdiction in the premises of (i)
a decree or order for relief in respect of the Company in an involuntary case
or proceeding under any applicable U.S. federal or state bankruptcy,
insolvency, reorganization or other similar law or (ii) a decree or order
adjudging the Company a bankrupt or insolvent, or approving as properly filed
a petition seeking reorganization, arrangement, adjustment or composition of
or in respect of the Company under any applicable U.S. federal or state law,
or appointing a custodian, receiver, liquidator,

                                      32

<PAGE>

assignee, trustee, sequestrator or other similar official of the Company or
of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or order
for relief or any such other decree or order unstayed and in effect for a
period of 60 consecutive days; or

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

         SECTION 4.2   ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.

         If an Event of Default with respect to Outstanding Securities (other
than an Event of Default specified in Section 4.1(e) or 4.1(f) hereof) occurs
and is continuing, the Trustee or the Holders of at least 25% in aggregate
principal amount of the Outstanding Securities, by written notice to the
Company, may declare due and payable 100% of the principal amount of all
Outstanding Securities plus any accrued and unpaid interest to the date of
payment. Upon a declaration of acceleration, such principal and accrued and
unpaid interest to the date of payment shall be immediately due and payable.

         If an Event of Default specified in Section 4.1(e) or 4.1(f) hereof
occurs, all unpaid principal and accrued and unpaid interest (including
Liquidated Damages, if any) on the Outstanding Securities shall become and be
immediately due and payable, without any declaration or other act on the part
of the Trustee or any Holder.

         Any payments by the Company on the Securities following any such
acceleration will be subject to the subordination provisions of Article 13 to
the extent provided therein.

         The Holders of a majority in aggregate principal amount of the
Outstanding Securities by written notice to the Trustee and the Company may
rescind and annul an acceleration and waive such defaults and their
consequences if:

                (1) all existing Events of Default, other than the nonpayment of
          principal of or interest on the Securities which have become due
          solely because of the acceleration, have been remedied, cured or
          waived,

                (2) the rescission would not conflict with any judgment or
          decree of a court of competent jurisdiction, and

                                      33

<PAGE>

                (3) the principal of any Securities which has become due
          otherwise than by such declaration of acceleration and any interest
          thereon at the rate or rates prescribed therefor has been deposited
          with the Trustee;

provided, however, that in the event such declaration of acceleration has
been made based on the existence of an Event of Default under Section 4.1(d)
hereof and such Event of Default has been remedied, cured or waived in
accordance with Section 4.1(d) hereof, then, without any further action by
the Holders, such declaration of acceleration shall be rescinded
automatically and the consequences of such declaration shall be annulled. No
such rescission or annulment shall affect any subsequent Default or impair
any right consequent thereon.

         SECTION 4.3   OTHER REMEDIES.

         If an Event of Default with respect to Outstanding Securities occurs
and is continuing, the Trustee may pursue any available remedy by proceeding
at law or in equity to collect the payment of principal of or interest on the
Securities or to enforce the performance of any provision of the Securities.

         The Trustee may maintain a proceeding in which it may prosecute and
enforce all rights of action and claims under this Indenture or the
Securities, even if it does not possess any of the Securities or does not
produce any of them in the proceeding.

         SECTION 4.4   WAIVER OF PAST DEFAULTS.

         The Holders, either (a) through the written consent of not less than
a majority in aggregate principal amount of the Outstanding Securities, or
(b) by the adoption of a resolution, at a meeting of Holders of the
Outstanding Securities at which a quorum is present, by the Holders of at
least a majority in aggregate principal amount of the Outstanding Securities
represented at such meeting, may, on behalf of the Holders of all of the
Securities, waive an existing Default or Event of Default, except a Default
or Event of Default:

                   (1) in the payment of the principal of or premium, if any,
         or interest (including Liquidated Damages, if any) on any Security
         (provided, however, that subject to Section 4.7 hereof, the Holders
         of a majority in aggregate principal amount of the Outstanding
         Securities may rescind an acceleration and its consequences,
         including any related payment default that resulted from such
         acceleration); or

                   (2) in respect of a covenant or provision hereof which,
         under Section 7.2 hereof, cannot be modified or amended without the
         consent of the Holders of each Outstanding Security affected.

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

                                      34

<PAGE>

         SECTION 4.5   CONTROL BY MAJORITY.

         The Holders of a majority in aggregate principal amount of the
Outstanding Securities (or such lesser amount as shall have acted as a meeting
pursuant to the provisions of this Indenture) shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee. However,
the Trustee may refuse to follow any direction that:

                (1) conflicts with any law or with this Indenture;

                (2) the Trustee determines may be unduly prejudicial to the
          rights of the Holders not joining therein, or

                (3) may expose the Trustee to personal liability.

The Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.

          SECTION 4.6   LIMITATION ON SUIT.

No Holder of any Security shall have any right to pursue any remedy with respect
to this indenture or the Securities (including, instituting any proceeding,
judicial or otherwise, with respect to this Indenture or for the appointment of
a receiver or trustee) unless:

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

                (2) the Holders of at least 25% in aggregate principal amount of
          the Outstanding Securities shall have made written request to the
          Trustee to pursue the remedy;

                (3) such Holder or Holders have offered to the Trustee indemnity
          satisfactory to it against any costs, expenses and liabilities
          incurred in complying with such request;

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

                (5) during such 60-day period, no direction inconsistent with
          such written request has been given to the Trustee by the Holders of a
          majority in aggregate principal amount of the Outstanding Securities
          (or such amount as shall have acted at a meeting pursuant to the
          provisions of this Indenture);

provided, however, that no one or more of such Holders may use this Indenture to
prejudice the rights of another Holder or to obtain preference or priority over
another Holder.

                                      35

<PAGE>

         SECTION 4.7  UNCONDITIONAL RIGHTS OF HOLDERS TO RECEIVE PAYMENT AND TO
                      CONVERT.

         Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of and premium, if any, and interest (including
Liquidated Damages, if any) on such Security on the Stated Maturity expressed in
such Security (or, in the case of redemption, on the Redemption Date, or in the
case of the exercise of a Repurchase Right, on the Repurchase Date) and to
convert such Security in accordance with Article 12, and to bring for the
enforcement of any such payment on or after such respective dates and right to
convert, and such rights shall not be impaired or affected without the consent
of such Holder.

         SECTION 4.8  COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
                      THE TRUSTEE.

         The Company covenants that if:

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

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

the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable (as expressed
therein or as a result of any acceleration effected pursuant to Section 4.2
hereof) on such Securities for principal and premium, if any, and interest
(including Liquidated Damages, if any) and, to the extent that payment of such
interest shall be legally enforceable, interest on any overdue principal and
premium, if any, and on any overdue interest (including Liquidated Damages, if
any), calculated using the Interest Rate, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.

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

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

                                     36

<PAGE>

         SECTION 4.9  TRUSTEE MAY FILE PROOFS OF CLAIM.

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

                (1) to file and prove a claim for the whole amount of principal
          and premium, if any, and interest (including Liquidated Damages, if
          any) owing and unpaid in respect of the Securities and to file such
          other papers or documents as may be necessary or advisable in order to
          have the claims of the Trustee (including any claim for the reasonable
          compensation, expenses, disbursements and advances of the Trustee, its
          agents and counsel) and of the Holders of Securities allowed in such
          judicial proceeding, and

                (2) to collect and receive any moneys or other property payable
          or deliverable on any such claim and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceedings is hereby authorized by
each Holder of Securities to make such payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly to the
Holders of Securities, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and any other amounts due the Trustee under Section 5.8.

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

         SECTION 4.10  RESTORATION OF RIGHTS AND REMEDIES.

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

         SECTION 4.11  RIGHTS AND REMEDIES CUMULATIVE.

         Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 2.12, no right or remedy

                                      37

<PAGE>

conferred in this Indenture upon or reserved to the Trustee or to the Holders
of Securities is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.

         SECTION 4.12  DELAY OR OMISSION NOT WAIVER.

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

         SECTION 4.13  APPLICATION OF MONEY COLLECTED.

         Subject to Article 13, any money collected by the Trustee pursuant to
this Article shall be applied in the following order, at the date or dates fixed
by the Trustee and, in case of the distribution of such money on account of
principal or premium, if any, or interest (including Liquidated Damages, if
any), upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:

                  FIRST:  To the payment of all amounts due the Trustee;

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

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

         SECTION 4.14  UNDERTAKING FOR COSTS.

         All parties to this Indenture agree, and each Holder of any Security by
such Holder's acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in aggregate
principal amount of the Outstanding Securities, or to any suit instituted by any
Holder of any Security for the

                                     38

<PAGE>

enforcement of the payment of the principal of or premium, if any, or
interest (including Liquidated Damages, if any) on any Security on or after
the Stated Maturity expressed in such Security (or, in the case of redemption
or exercise of a Repurchase Right, on or after the Redemption Date) or for
the enforcement of the right to convert any Security in accordance with
Article 12.

         SECTION 4.15  WAIVER OF STAY OR EXTENSION LAWS.

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

                                      39

<PAGE>

                                  ARTICLE 5

                                 THE TRUSTEE

         SECTION 5.1  CERTAIN DUTIES AND RESPONSIBILITIES.

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

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

                   (2) In the absence of bad faith on its part, the Trustee
         may conclusively rely, as to the truth of the statements and the
         correctness of the opinions expressed therein, upon certificates or
         opinions furnished to the Trustee and conforming to the requirements
         of this Indenture; provided, however, that 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 or opinions to determine whether or
         not, on their face, they conform to the requirements to this
         Indenture (but need not investigate or confirm the accuracy of any
         facts stated therein).

         (b) In case an Event of Default actually known to a Responsible
Officer of the Trustee 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 such person's
own affairs.

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

                (1) This paragraph (c) shall not be construed to limit the
          effect of paragraph (a) of this Section 5.1;

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

                (3) The Trustee shall not be liable with respect to any action
          taken or omitted to be taken by it in good faith in accordance with a
          direction received by it of the Holders of a majority in principal
          amount of the Outstanding Securities (or such lesser amount as shall
          have acted at a meeting pursuant to the provisions of this Indenture)
          relating to the time, method and place of conducting any proceeding
          for any remedy available to the Trustee, or exercising any trust or
          power conferred upon the Trustee, under this Indenture.

                                      40
<PAGE>

         (d) Whether or not herein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section 5.1.

         (e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers. 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, cost or expense (including, without limitation,
reasonable fees of counsel).

         (f) The Trustee shall not be obligated to pay interest on any money
or other assets received by it unless otherwise agreed in writing with the
Company. Assets held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.

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

         (h) The Trustee shall not be deemed to have notice or actual
knowledge of any Event of Default or a Registration Default (as such term is
defined in Section 3(a) of the Registration Rights Agreement) or the
obligation of the Company to pay Liquidated Damages unless a Responsible
Officer of the Trustee has actual knowledge thereof or unless written notice
of any event which is in fact a Default is received by the Trustee pursuant
to Section 14.2 hereof, and such notice references the Securities and this
Indenture.

         (i) The rights, privileges, protections, immunities and benefits
given to the Trustee hereunder, including, without limitation, its right to
be indemnified, are extended to, and shall be enforceable by, the Trustee in
each of its capacities hereunder, and each Paying Agent, authenticating
agent, Conversion Agent or Registrar acting hereunder.

         SECTION 5.2  CERTAIN RIGHTS OF TRUSTEE.

         Subject to the provisions of Section 5.1 hereof and subject to Section
315(a) through (d) of the TIA:

                   (1) The Trustee may rely on any document reasonably
         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.

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

                                      41

<PAGE>

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

                   (4) The Trustee shall not be liable for any action taken
         or omitted to be taken by it in good faith which it believed to be
         authorized or within the discretion or rights or powers conferred
         upon it by this Indenture, unless the Trustee's conduct constitutes
         negligence.

                   (5) The Trustee may consult with counsel of its selection
         and the written advice of such counsel as to matters of law shall be
         full and complete authorization and protection in respect of any
         action taken, omitted or suffered by it hereunder in good faith and
         in accordance with the advice or opinion of such counsel; provided,
         however, that the provisions shall not protect the Trustee from
         liability for its own gross negligence or willful misconduct.

                   (6) Unless otherwise specifically provided in this
         Indenture, any demand, request, direction or notice from the Company
         shall be sufficient if signed by an Officer of the Company.

                   (7) The permissive rights of the Trustee to do things
         enumerated in this Indenture shall not be construed as a duty unless
         so specified herein.

         SECTION 5.3  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
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest (as such term is defined in Section 310(b) of the TIA), it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue as trustee (to the extent permitted under Section 310(b) of the TIA) or
resign. Any agent may do the same with like rights and duties. The Trustee is
also subject to Sections 5.11 and 5.12 hereof.

         Subject to the limitations imposed by the Trustee Indenture Act,
nothing in this Indenture shall prohibit the Trustee from becoming and acting as
trustee under other indentures under which other securities, or certificates of
interest of participation in other securities, of the Company are outstanding in
the same manner as if it were not Trustee hereunder.

         SECTION 5.4  MONEY HELD IN TRUST.

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

         SECTION 5.5  TRUSTEE'S DISCLAIMER.

         The recitals contained herein and in the Securities (except for those
in the certificate of authentication) shall be taken as the statements of the
Company, and the Trustee assumes no

                                     42

<PAGE>

responsibility for their correctness. The Trustee makes no representations as
to the validity, sufficiency or priority of this Indenture or of the
Securities. The Trustee shall not be accountable for the use or application
by the Company of Securities or the proceeds thereof.

         SECTION 5.6  NOTICE OF DEFAULTS.

         Within 90 days after the occurrence of any Default or Event of
Default hereunder of which the Trustee has received written notice, the
Trustee shall give notice to Holders pursuant to Section 14.2 hereof, unless
such Default or Event of Default shall have been cured or waived; provided,
however, that, except in the case of a Default or Event of Default in the
payment of the principal of or premium, if any, or interest (including
Liquidated Damages, if any), or in the payment of any redemption or
repurchase obligation on any Security, the Trustee shall be protected in
withholding such notice if and so long as Responsible Officers of the Trustee
in good faith determine that the withholding of such notice is in the
interest of the Holders.

         SECTION 5.7  REPORTS BY TRUSTEE TO HOLDERS.

         The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required by Section
313 of the TIA at the times and in the manner provided by the TIA.

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

         SECTION 5.8  COMPENSATION AND INDEMNIFICATION.

         The Company covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, reasonable compensation (which
shall not be limited by any provision of law in regard to the compensation of
a trustee of an express trust) and the Company covenants and agrees to pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by or on behalf of it in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and
of all agents and other persons not regularly in its employ), except to the
extent that any such expense, disbursement or advance is due to its
negligence or bad faith. When the Trustee incurs expenses or renders services
in connection with an Event of Default specified in Section 4.1 hereof, the
expenses (including the reasonable charges and expenses of its counsel) and
the compensation for the services are intended to constitute expenses of
administration under any bankruptcy law. The Company also covenants to
indemnify the Trustee and its officers, directors, employees and agents for,
and to hold such Persons harmless against, any loss, liability or expense
incurred by them, arising out of or in connection with the acceptance or
administration of this Indenture or the trusts hereunder or the performance
of their duties hereunder, including the costs and expenses of defending
themselves against or investigating any claim of liability in the premises,
except to the extent that any such loss, liability or expense was due to the
negligence or willful misconduct of such Persons. The obligations of the
Company under this Section 5.8 to compensate and indemnify the Trustee and
its officers, directors, employees and agents and to pay or reimburse such
Persons for expenses,

                                     43

<PAGE>

disbursements and advances shall constitute additional indebtedness hereunder
and shall survive the satisfaction and discharge of this Indenture or the
earlier resignation or removal of the Trustee. Such additional indebtedness
shall be a senior claim to that of the Securities upon all property and funds
held or collected by the Trustee as such, except funds held in trust for the
benefit of the Holders of particular Securities, and the Securities are
hereby subordinated to such senior claim. "Trustee" for purposes of this
Section 5.8 shall include any predecessor Trustee, but the negligence or
willful misconduct of any Trustee shall not affect the indemnification of any
other Trustee.

         SECTION 5.9  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 5.9.

         The Trustee may resign and be discharged from the trust hereby
created by so notifying the Company in writing. The Holders of at least a
majority in aggregate principal amount of Outstanding Securities may remove
the Trustee by so notifying the Trustee and the Company in writing. The
Company must remove the Trustee if:

                  (i) the Trustee fails to comply with Section 5.11 hereof or
          Section 310 of the TIA;

                 (ii) the Trustee becomes incapable of acting.

                (iii) the Trustee is adjudged a bankrupt or an insolvent or an
          order for relief is entered with respect to the Trustee under any
          Bankruptcy Law; or

                 (iv) a Custodian or public officer takes charge of the Trustee
          or its property.

         If the Trustee resigns or is removed or if a vacancy exists in the
office of the Trustee for any reason, the Company shall promptly appoint a
successor Trustee. The Trustee shall be entitled to payment of its fees and
reimbursement of its expenses while acting as Trustee. Within one year after the
successor Trustee takes office, the Holders of at least a majority in aggregate
principal amount of Outstanding Securities may appoint a successor Trustee to
replace the successor Trustee appointed by the Company.

         In the event the Trustee fails to comply with Section 5.11 hereof, (a)
the Company may remove the Trustee or (b) any Holder may, on behalf of himself
or herself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.

         If an instrument of acceptance by a successor Trustee shall not have
been delivered to the Trustee within 30 days after the giving of such notice of
resignation or removal, the resigning or removed Trustee, as the case may be,
may petition, at the expense of the Company, any court of competent jurisdiction
for the appointment of a successor Trustee.

                                      44

<PAGE>

         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 Company shall mail a notice of the successor Trustee's
succession to the Holders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee. Notwithstanding
replacement of the Trustee pursuant to this Section 5.9, the Company's
obligations under Section 5.8 hereof shall continue for the benefit of the
retiring Trustee with respect to expenses, losses and liabilities incurred by it
prior to such replacement.

         SECTION 5.10  SUCCESSOR TRUSTEE BY MERGER, ETC.

         Subject to Section 5.11 hereof, if the Trustee consolidates with,
merges or converts into, or transfers or sells all or substantially all of its
corporate trust business to, another corporation or national banking
association, the successor entity without any further act shall be the successor
Trustee as to the Securities.

         SECTION 5.11  CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.

         The Trustee shall at all times satisfy the requirements of Section
310(a)(1), (2) and (5) of the TIA. The Trustee shall at all times have (or, in
the case of a corporation included in a bank holding company system, the related
bank holding company shall at all times have), a combined capital and surplus of
at least $100 million as set forth in its (or its related bank holding
company's) most recent published annual report of condition. The Trustee is
subject to Section 310(b) of the TIA.

         SECTION 5.12  COLLECTION OF CLAIMS AGAINST THE COMPANY.

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

                                     45

<PAGE>

                                  ARTICLE 6

              CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

         SECTION 6.1  COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.

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

                   (1) in the event that the Company shall consolidate with
         or merge into another Person or convey, transfer or lease its
         properties and assets substantially as an entirety to any Person,
         the Person formed by such consolidation or into which the Company is
         merged or the Person which acquires by conveyance or transfer, or
         which leases, the properties and assets of the Company substantially
         as an entirety shall be a corporation, limited liability company,
         partnership or trust organized and validly existing under the laws
         of the United States of America, any State thereof or the District
         of Columbia and, if the entity surviving such transaction or
         transferee entity is not the Company, then such surviving or
         transferee entity shall expressly assume, by an indenture
         supplemental hereto, executed and delivered to the Trustee, in form
         satisfactory to the Trustee, the due and punctual payment of the
         principal of and premium, if any and interest (including Liquidated
         Damages, if any), on all the Securities and the performance of every
         covenant of this Indenture on the party of the Company to be
         performed or observed and shall have provided for conversion rights
         in accordance with Section 12.11 hereof;

                   (2) at the time of consummation of such transaction, no
         Event of Default, and no event which, after notice or lapse of time
         or both, would become an Event of Default, shall have happened and
         be continuing; and

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

         SECTION 6.2  SUCCESSOR CORPORATION SUBSTITUTED.

         Upon any consolidation or merger by the Company with or into any other
corporation or any conveyance, transfer or lease of the properties and assets of
the Company substantially as an entirety to any Person, in accordance with
Section 6.1 hereof, the successor corporation formed by such consolidation or
into which the Company is merged or to which such conveyance, transfer or lease
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Indenture with the same effect as if such
successor corporation had been named as the Company herein, and thereafter,
except in the case of a lease

                                      46

<PAGE>

to another Person, the predecessor corporation shall be relieved of all
obligations and covenants under this Indenture and the Securities.

                                     47

<PAGE>

                                   ARTICLE 7

                       AMENDMENTS, SUPPLEMENTS AND WAIVERS

         SECTION 7.1  WITHOUT CONSENT OF HOLDERS OF SECURITIES.

         Without the consent of any Holders of Securities, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may amend this Indenture and the Securities to:

                (a) add to the covenants of the Company for the benefit of
the Holders of Securities;

                (b) surrender any right or power herein conferred upon the
Company;

                (c) make provision with respect to the conversion rights of
Holders of Securities pursuant to Section 12.11 hereof;

                (d) provide for the assumption of the Company's obligations
to the Holders of Securities in the case of a merger, consolidation,
conveyance, transfer or lease pursuant to Article 6 hereof;

                (e) reduce the Conversion Price; provided, that such
reduction in the Conversion Price shall not adversely affect the interest of
the Holders of Securities (after taking into account tax and other
consequences of such reduction) in any material respect;

                (f) comply with the requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the TIA;

                (g) make any changes or modifications to this Indenture
necessary in connection with the registration of any Securities under the
Securities Act as contemplated in the Registration Rights Agreement,
provided, that such action pursuant to this clause (g) does not adversely
affect the interests of the Holders of Securities in any material respect;

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

                (i) add or modify any other provisions with respect to
matters or questions arising under this Indenture which the Company and the
Trustee may deem necessary or desirable and which shall not be inconsistent
with the provisions of this Indenture, provided, that such action pursuant to
this clause (i) does not adversely affect the interests of the Holders of
Securities in any material respect; or

                (j) make provision for the establishment of a book-entry
system, in which Holders would have the option to participate, for the
clearance and settlement of transactions in Securities originally issued in
definitive form.

                                      48

<PAGE>

         SECTION 7.2  WITH CONSENT OF HOLDERS OF SECURITIES.

         Except as provided below in this Section 7.2, this Indenture or the
Securities may be amended or supplemented, and noncompliance in any particular
instance with any provision of this Indenture or the Securities may be waived,
in each case (i) with the written consent of the Holders of at least a majority
in aggregate principal amount of the Outstanding Securities or (ii) by the
adoption of a resolution, at a meeting of Holders of the Outstanding Securities
at which a quorum is present, by the Holders of a majority in aggregate
principal amount of the Outstanding Securities represented at such meeting.

         Without the written consent or the affirmative vote of each Holder of
Securities, an amendment or waiver under this Section 7.2 may not:

                (a) change the Stated Maturity of the principal of, or any
          installment of interest (including Liquidated Damages, if any) on, any
          Security;

                (b) reduce the principal amount of, or premium, if any, on any
          Security;

                (c) reduce the Interest Rate or interest (including Liquidated
          Damages, if any) on any Security;

                (d) change the currency of payment of principal of, premium, if
          any, or interest (including Liquidated Damages, if any) on any
          Security;

                (e) impair the right of any Holder to institute suit for the
          enforcement of any payment in or with respect to any Security;

                (f) modify the obligation of the Company to maintain an office
          or agency in The City of New York pursuant to Section 9.2 hereof;

                (g) except as permitted by Section 12.11 hereof, adversely
          affect the Repurchase Right or the right to convert any Security as
          provided in Article 12 hereof;

                (h) modify the subordination provisions of the Securities in a
          manner adverse to the Holders of Securities,

                (i) modify any of the provisions of this Section, Section 4.4 or
          Section 14.11, except to increase any percentage contained herein or
          therein or to provide that certain other provisions of this Indenture
          cannot be modified or waived without the consent of the Holder of each
          Outstanding Security affected thereby; or

                (j) reduce the requirements of Section 8.4 hereof for quorum or
          voting, or reduce the percentage in aggregate principal amount of the
          Outstanding Securities the consent of whose Holders is required for
          any such supplemental indenture or the consent of whose Holders is
          required for any waiver provided for in this Indenture.

                                      49

<PAGE>

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

         SECTION 7.3  COMPLIANCE WITH TRUST INDENTURE ACT.

         Every amendment to this Indenture or the Securities shall be set forth
in a supplemental indenture that complies with the TIA as then in effect.

         SECTION 7.4  REVOCATION OF CONSENTS AND EFFECT OF CONSENTS OR VOTES.

         Until an amendment, supplement or waiver becomes effective, a written
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; provided, however, that unless a record date shall have
been established, any such Holder or subsequent Holder may revoke the consent as
to its Security or portion of a Security if the Trustee receives written notice
of revocation before the date the amendment, supplement or waiver becomes
effective.

         An amendment, supplement or waiver becomes effective on receipt by the
Trustee of written consents from or affirmative votes by, as the case may be,
the Holders of the requisite percentage of aggregate principal amount of the
Outstanding Securities, and thereafter shall bind every Holder of Securities;
provided, however, if the amendment, supplement or waiver makes a change
described in any of the clauses (a) through (j) of Section 7.2 hereof, the
amendment, supplement or waiver shall bind only each Holder of a Security which
has consented to it or voted for it, as the case may be, and every subsequent
Holder of a Security or portion of a Security that evidences the same
indebtedness as the Security of the consenting or affirmatively voting, as the
case may be, Holder.

         SECTION 7.5  NOTATION ON OR EXCHANGE OF SECURITIES.

         If an amendment, supplement or waiver changes the terms of a Security:

         (a) the Trustee may require the Holder of a Security to deliver such
Securities to the Trustee, the Trustee may place an appropriate notation on
the Security about the changed terms and return it to the Holder and the
Trustee may place an appropriate notation on any Security thereafter
authenticated; or

         (b) if the Company or the Trustee so determines, the Company in
exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms.

         Failure to make the appropriate notation or issue a new Security shall
not affect the validity and effect of such amendment, supplement or waiver.

                                      50

<PAGE>

         SECTION 7.6       TRUSTEE TO SIGN AMENDMENT, ETC.

         The Trustee shall sign any amendment authorized pursuant to this
Article 7 if the amendment does not adversely affect the rights, duties,
liabilities or immunities of the Trustee in any material respects. If the
amendment does adversely affect the rights, duties, liabilities or immunities of
the Trustee, the Trustee may but need not sign it. In signing or refusing to
sign such amendment, the Trustee shall be entitled to receive and shall be fully
protected in relying upon an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that such amendment is authorized or permitted by this
Indenture.

                                      51

<PAGE>

                                    ARTICLE 8

                        MEETING OF HOLDERS OF SECURITIES

         SECTION 8.1       PURPOSES FOR WHICH MEETINGS MAY BE CALLED.

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

         SECTION 8.2       CALL NOTICE AND PLACE OF MEETINGS.

         (a) The Trustee may at any time call a meeting of Holders of
Securities for any purpose specified in Section 8.1 hereof, to be held at
such time and at such place in The City of New York. Notice of every meeting
of Holders of Securities, setting forth the time and the place of such
meeting and in general terms the action proposed to be taken at such meeting,
shall be given, in the manner provided in Section 14.2 hereof, not less than
21 nor more than 180 days prior to the date fixed for the meeting.

         (b) In case at any time the Company, pursuant to a Board Resolution,
or the Holders of at least 10% in principal amount of the Outstanding
Securities shall have requested the Trustee to call a meeting of the Holders
of Securities for any purpose specified in Section 8.1 hereof, by written
request setting forth in reasonable detail the action proposed to be taken at
the meeting, and the Trustee shall not have made the first publication of the
notice of such meeting within 21 days after receipt of such request or shall
not thereafter proceed to cause the meeting to be held as provided herein,
then the Company or the Holders of Securities in the amount specified, as the
case may be, may determine the time and the place in The City of New York for
such meeting and may call such meeting for such purposes by giving notice
thereof as provided in paragraph (a) of this Section.

         SECTION 8.3       PERSONS ENTITLED TO VOTE AT MEETINGS.

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

         SECTION 8.4       QUORUM; ACTION.

         The Persons entitled to vote a majority in principal amount of the
Outstanding Securities shall constitute a quorum. In the absence of a quorum
within 30 minutes of the time appointed for any such meeting, the meeting shall,
if convened at the request of Holders of Securities, be dissolved. In any other
case, the meeting may be adjourned for a period of not less than 10 days as
determined by the chairman of the meeting prior to the adjournment of such
meeting. In the

                                      52

<PAGE>

absence of a quorum at any such adjourned meeting, such adjourned meeting may
be further adjourned for a period of not less than 10 days as determined by
the chairman of the meeting prior to the adjournment of such adjourned
meeting. Notice of the reconvening of any adjourned meeting shall be given as
provided in Section 8.2(a) hereof, except that such notice need be given only
once and not less than five days prior to the date on which the meeting is
scheduled to be reconvened. Notice of the reconvening of an adjourned meeting
shall state expressly the percentage of the principal amount of the
Outstanding Securities which shall constitute a quorum.

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

         At a meeting or an adjourned meeting duly reconvened and at which a
quorum is present as aforesaid, any resolution and all matters (except as
limited by the proviso to Section 7.2 hereof) shall be effectively passed and
decided if passed or decided by the Persons entitled to vote not less than a
majority in principal amount of Outstanding Securities represented and voting at
such meeting.

         Any resolution passed or decisions taken at any meeting of Holders of
Securities duly held in accordance with this Section shall be binding on all the
Holders of Securities, whether or not present or represented at the meeting.

         SECTION 8.5       DETERMINATION OF VOTING RIGHTS; CONDUCT AND
ADJOURNMENT OF MEETINGS.

         (a) Notwithstanding any other provisions of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for any
meeting of Holders of Securities in regard to proof of the holding of
Securities and of the appointment of proxies and in regard to the appointment
and duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall deem appropriate. Except as
otherwise permitted or required by any such regulations, the holding of
Securities shall be proved in the manner specified in Section 2.2 hereof and
the appointment of any proxy shall be proved in the manner specified in
Section 2.2 hereof. Such regulations may provide that written instruments
appointing proxies, regular on their face, may be presumed valid and genuine
without the proof specified in Section 2.2 hereof or other proof.

         (b) The Trustee shall, by an instrument in writing, appoint a
temporary chairman (which may be the Trustee) of the meeting, unless the
meeting shall have been called by the Company or by Holders of Securities as
provided in Section 8.2(b) hereof, in which case the Company or the Holders
of Securities calling the meeting, as the case may be, shall in like manner
appoint a temporary chairman. A permanent chairman and a permanent secretary
of the meeting shall be elected by vote of the Persons entitled to vote a
majority in principal amount of the Outstanding Securities represented at the
meeting.

                                      53

<PAGE>

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

         (d) Any meeting of Holders of Securities duly called pursuant to
Section 8.2 hereof at which a quorum is present may be adjourned from time to
time by Persons entitled to vote a majority in principal amount of the
Outstanding Securities represented at the meeting, and the meeting may be
held as so adjourned without further notice.

         SECTION 8.6       COUNTING VOTES AND RECORDING ACTION OF MEETINGS.

         The vote upon any resolution submitted to any meeting of Holders of
Securities shall be by written ballots on which shall be subscribed the
signatures of the Holders of Securities or of their representatives by proxy
and the principal amounts and serial numbers of the Outstanding Securities
held or represented by them. The permanent chairman of the meeting shall
appoint two inspectors of votes who shall count all votes cast at the meeting
for or against any resolution and who shall make and file with the secretary
of the meeting their verified written reports in duplicate of all votes cast
at the meeting. A record, at least in duplicate, of the proceedings of each
meeting of Holders of Securities shall be prepared by the secretary of the
meeting and there shall be attached to said record the original reports of
the inspectors of votes on any vote by ballot taken thereat and affidavits by
one or more Persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was given as provided in
Section 8.2 hereof and, if applicable, Section 8.4 hereof. Each copy shall be
signed and verified by the affidavits of the permanent chairman and secretary
of the meeting and one such copy shall be delivered to the Company and
another to the Trustee to be preserved by the Trustee, the latter to have
attached thereto the ballots voted at the meeting. Any record so signed and
verified shall be conclusive evidence of the matters therein stated.

                                      54

<PAGE>

                                   ARTICLE 9

                                   COVENANTS

         SECTION 9.1       PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.

         The Company will duly and punctually pay the principal of and
premium, if any, and interest (including Liquidated Damages, if any) in
respect of the Securities in accordance with the terms of the Securities and
this Indenture. The Company will deposit or cause to be deposited with the
Trustee as directed by the Trustee, no later than the day of the Stated
Maturity of any Security or installment of interest (including Liquidated
Damages, if any), all payments so due.

         SECTION 9.2       MAINTENANCE OF OFFICES OR AGENCIES.

         The Company hereby appoints the Trustee's Corporate Trust Office as
its office in The City of New York, where Securities may be:

                   (i)   presented or surrendered for payment;

                  (ii)   surrendered for registration of transfer or exchange;

                 (iii)   surrendered for conversion;

and where notices and demands to or upon the Company in respect of the
Securities and this Indenture maybe served.

         The Company may at any time and from time to time vary or terminate
the appointment of any such office or appoint any additional offices for any
or all of such purposes; provided, however, that until all of the Securities
have been delivered to the Trustee for cancellation, or moneys sufficient to
pay the principal of and premium, if any, and interest (including Liquidated
Damages, if any) on the Securities have been made available for payment and
either paid or returned to the Company pursuant to the provisions of Section
9.3 hereof, the Company will maintain in The City of New York, an office or
agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange, where
Securities may be surrendered for 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, and
notice to the Holders in accordance with Section 14.2 hereof, of the
appointment or termination of any such agents and of the location and any
change in the location of any such office or agency.

         If at any time the Company shall fail to maintain any such required
office or agency in The City of New York, or shall fail to furnish the
Trustee with the address thereof, presentations and surrenders may be made
at, and notices and demands may be served on, the Corporate Trust Office of
the Trustee.

                                      55

<PAGE>

         SECTION 9.3       CORPORATE EXISTENCE.

         Subject to Article 6 hereof, the Company will do or cause to be done
all things necessary to preserve and keep in full force and effect its
corporate existence, rights (charter and statutory) and franchises; provided,
however, that the Company shall not be required to preserve any such right or
franchise if the Company determines that the preservation thereof is no
longer desirable in the conduct of the business of the Company and that the
loss thereof is not disadvantageous in any material respect to the Holders.

         SECTION 9.4       MAINTENANCE OF PROPERTIES.

         The Company will maintain and keep its properties and every part
thereof in such repair, working order and condition, and make or cause to be
made all such needful and proper repairs, renewals and replacements thereto,
as in the judgment of the Company are necessary in the interests of the
Company; provided, however, that nothing contained in this Section shall
prevent the Company from selling, abandoning or otherwise disposing of any of
its properties or discontinuing a part of its business from time to time if,
in the judgment of the Company, such sale, abandonment, disposition or
discontinuance is advisable and does not materially adversely affect the
interests or business of the Company.

         SECTION 9.5       PAYMENT OF TAXES AND OTHER CLAIMS.

         The Company will, and will cause any Significant Subsidiary to,
promptly pay and discharge or cause to be paid and discharged all material
taxes, assessments and governmental charges or levies lawfully imposed upon
it or upon its income or profits or upon any of its property, real or
personal, or upon any part thereof, as well as all material claims for labor,
materials and supplies which, if unpaid, might by law become a lien or charge
upon its property; provided, however, that neither the Company nor any
Significant Subsidiary shall be required to pay or discharge or cause to be
paid or discharged any such tax, assessment, charge, levy, or claim if the
amount, applicability or validity thereof shall currently be contested in
good faith by appropriate proceedings and if the Company or such Significant
Subsidiary, as the case may be, shall have set aside on its books reserves
deemed by it adequate with respect thereto.

         SECTION 9.6       REPORTS.

         (a) The Company shall deliver to the Trustee within 15 days after it
files them with the SEC copies of the annual reports and of the information,
documents, and other reports (or copies of such portions of any of the
foregoing as the SEC may by rules and regulations prescribe) which the
Company is required to file with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act; provided, however, the Company shall not be required to
deliver to the Trustee any materials for which the Company has sought and
received confidential treatment by the SEC. The Company also shall comply
with the other provisions of Section 314(a) of the TIA.

         (b) If at any time the Company is not subject to Section 13 or 15(d)
of the Exchange Act, upon the request of a Holder of a Security, the Company
will promptly furnish or cause to be furnished to such Holder or to a
prospective purchaser of such Security designated by such Holder, as the case
may be, the information, if any, required to be delivered by it pursuant to
Rule 144A(d)(4) under the Securities Act to permit compliance with Rule 144A
in connection

                                      56

<PAGE>

with the resale of such Security; provided, however, that the Company shall
not be required to furnish such information in connection with any request
made on or after the date which is two years from the later of the date such
security was last acquired from the Company or an "affiliate" of the Company.

         SECTION 9.7       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 that
in the course of the performance by the signers of their duties as Officers
of the Company, they would normally have knowledge of any failure by the
Company to comply with all conditions, or Default by the Company with respect
to any covenants, under this Indenture, and further stating whether or not
they have knowledge of any such failure or default and, if so, specifying
each such failure or Default and the nature thereof. In the event an Officer
of the Company comes to have actual knowledge of a Default, regardless of the
date, the Company shall deliver an Officers' Certificate to the Trustee
specifying such Default and the nature and status thereof.

         SECTION 9.8       RESALE OF CERTAIN SECURITIES.

         During the period of two years after the last date of original
issuance of any Securities, the Company shall not, and shall not permit any
of its "affiliates" (as defined under Rule 144 under the Securities Act) to,
resell any Securities, or shares of Common Stock issuable upon conversion of
the Securities, which constitute "restricted securities" under Rule 144, that
are acquired by any of them within the United States or to "U.S. persons" (as
defined in Regulation S) except pursuant to an effective registration
statement under the Securities Act or an applicable exemption therefrom. The
Trustee shall have no responsibility or liability in respect of the Company's
performance of its agreement in the preceding sentence.

                                      57

<PAGE>

                                  ARTICLE 10

                           REDEMPTION OF SECURITIES

         SECTION 10.1      PROVISIONAL REDEMPTION.

         Any time prior to October 17, 2003, the Company may, at its option,
redeem the Securities in whole or in part on any date from time to time, upon
notice as set forth in Section 10.5, 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 described below, the "Provisional Redemption
Price"), on the date of redemption (the "Provisional Redemption Date") if (i)
the Closing Price of the Common Stock has exceeded 150% of the Conversion
Price (as defined in Article 12 and as such may be adjusted from time to
time) then in effect for at least 20 Trading Days in any consecutive
30-Trading Day period ending on the Trading Day prior to the date of mailing
of the provisional notice of redemption pursuant to Section 10.5 (the "Notice
Date"), and (ii) a 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 for the 30 days
following the Provisional Redemption Date (such redemption, a "Provisional
Redemption").

         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 Notice Date in an amount equal to
$105.00 per $1,000 principal amount of the Securities, less the amount of any
interest actually paid on such Securities 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 may elect to pay the Make-Whole Payment or any portion
thereof (i) in cash or, (ii) subject to the fulfillment by the Company of the
conditions set forth in the following paragraph, by delivering the number of
shares of Common Stock equal to (x) the Make-Whole Payment (or any portion
thereof that the Company elects to pay in shares of Common Stock) divided by
(y) 97% of the average of the Closing Prices per share of Common Stock for
the five consecutive Trading Days immediately preceding and including the
first Trading Day prior to the Provisional Redemption Date.

         The following shall constitute the conditions to any election by the
Company pursuant to this Section 10.1 to pay the Make-Whole Payment (or any
portion thereof) in shares of Common Stock:

         (a) The shares of Common Stock to be issued in payment of the
Make-Whole Payment (or any portion thereof) hereunder shall not require
registration under any federal securities law before such shares may be
freely transferable without being subject to any transfer restrictions under
the Securities Act, or, if registration is required, such registration shall
be completed and shall become effective prior to the Provisional Redemption
Date (and the Company shall state in the notice of Provisional Redemption
that the Company expects that such registration shall remain effective for at
least 30 days following the Provisional Redemption Date);

                                      58

<PAGE>

         (b) The shares of Common Stock to be issued in payment of the
Make-Whole Payment (or any portion thereof) hereunder shall not require
registration with, or approval of, any governmental authority under any state
law or any other federal law before such shares may be validly issued or
delivered or if such registration is required or such approval must be
obtained, such registration shall be completed or such approval shall be
obtained prior to the Provisional Redemption Date;

         (c) The shares of Common Stock to be issued upon payment of the
Make-Whole Payment (or any portion thereof) hereunder are, or shall have
been, approved for listing on the Nasdaq National Market or the New York
Stock Exchange or listed on another national securities exchange, in any
case, prior to the Provisional Redemption Date;

         (d) All shares of Common Stock which may be issued upon payment of
the Make-Whole Payment (or any portion thereof) will be issued out of the
Company's authorized but unissued Common Stock and will, upon issue, be duly
and validly issued and fully paid and nonassessable and free of any
preemptive or similar rights; and

         (e) If any of the conditions set forth in clauses (a) through (d) of
this paragraph are not satisfied in accordance with the terms thereof, the
Make-Whole Payment shall be paid by the Company only in cash.

         SECTION 10.2      OPTIONAL REDEMPTION.

         Except as set forth under Section 10.1, the Securities are not
redeemable prior to October 17, 2003 (the "Optional Redemption Date"). On or
after October 17, 2003, the Company may, at its option, redeem the Securities
in whole at any time or in part from time to time, on any date prior to
maturity, upon notice as set forth in Section 10.5, at the redemption price
(expressed as percentages of the principal amount) set forth below if
redeemed during the 12-month period beginning October 17 of the years
indicated and ending October 16 of the following year:

<TABLE>
<CAPTION>

                  During the Twelve
                  Months Commencing                     Redemption Price
                  -----------------                     ----------------
                 <S>                                            <C>
                  2003..............................             102.00%

                  2004..............................             101.50%

                  2005..............................             101.00%

                  2006..............................             100.50%
</TABLE>

("the Optional Redemption Price"), plus any interest accrued but not paid
prior to the Optional Redemption Date, only if the Closing Price of the
Common Stock has exceeded 120% of the Conversion Price (as defined in Article
12 and as such may be adjusted from time to time) then in effect for at least
20 Trading Days in any consecutive 30 Trading Day period ending on the
Trading Day immediately prior to the date of mailing of the notice of
optional redemption pursuant to Section 10.5.

                                      59

<PAGE>

         SECTION 10.3      NOTICE TO TRUSTEE.

         If the Company elects to redeem Securities pursuant to the
redemption provisions of Section 10.1 or Section 10.2 hereof, it shall notify
the Trustee at least 30 days prior to the Redemption Date of such intended
Redemption Date, the principal amount of Securities to be redeemed, the CUSIP
numbers of the Securities to be redeemed and, in the case of a Provisional
Redemption, of whether the Make-Whole Payment shall be paid by the Company
(x) in cash, (y) by delivery of shares of Common Stock or (z) in a
combination of cash and delivery of shares of Common Stock, in which case,
the portion of the Make-Whole Payment that will be paid in cash and the
portion that will be paid in shares of Common Stock.

         SECTION 10.4      SELECTION OF SECURITIES TO BE REDEEMED.

         If fewer than all the Securities are to be redeemed, the Trustee
shall select the particular Securities to be redeemed from the Outstanding
Securities by a method that complies with the requirements of any exchange on
which the Securities are listed, or, if the Securities are not listed on an
exchange, on a pro rata basis or by lot or in accordance with any other
method the Trustee considers fair and appropriate. Securities and portions
thereof that the Trustee selects shall be in amounts equal to the minimum
authorized denominations for Securities to be redeemed or any integral
multiple thereof.

         If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed
to be the portion selected for redemption (provided, however, that the Holder
of such Security so converted and deemed redeemed shall not be entitled to
any additional interest payment as a result of such deemed redemption than
such Holder would have otherwise been entitled to receive upon conversion of
such Security). Securities which have been converted during a selection of
Securities to be redeemed may be treated by the Trustee as Outstanding for
the purpose of such selection.

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

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

         SECTION 10.5      NOTICE OF REDEMPTION.

         Notice of redemption shall be given in the manner provided in
Section 14.2 hereof to the Holders of Securities to be redeemed. Such notice
shall be given not less than 20 nor more than 60 days prior to the Redemption
Date.

         All notices of redemption shall state:

                   (1)      the Redemption Date;

                                      60

<PAGE>

                          (2) the Redemption Price and interest accrued and
        unpaid to the Redemption Date, if any;

                          (3) with respect to a Provisional Redemption, whether
        the Make-Whole Payment shall be paid by the Company (x) in cash, (y) by
        delivery of shares of Common Stock or (z) in a combination of cash and
        delivery of shares of Common Stock, in which case, the portion of the
        Make-Whole Payment that will be paid in cash and the portion that will
        be paid in shares of Common Stock;

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

                          (5) that on the Redemption Date the Redemption Price
        and interest accrued and unpaid to the Redemption Date, if any, will
        become due and payable upon each such Security to be redeemed, and that
        interest thereon shall cease to accrue on and after such date;

                          (6) the Conversion Price, the date on which the right
        to convert the principal of the Securities to be redeemed will
        terminate and the places where such Securities may be surrendered for
        conversion;

                          (7) the place or places where such Securities are to
        be surrendered for payment of the Redemption Price and accrued and
        unpaid interest, if any;
        and

                          (8) the CUSIP number of the Securities.

         The notice given shall specify the last date on which exchanges or
transfers of Securities may be made pursuant to Section 2.1 hereof, and shall
specify the serial numbers of Securities and the portions thereof called for
redemption.

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

        SECTION 10.6 EFFECT OF NOTICE OF REDEMPTION.

        Notice of redemption having been given as provided in Section 10.5
hereof, the Securities so to be redeemed shall, on the Redemption Date, become
due and payable at the Redemption Price therein specified and from and after
such date (unless the Company shall default in the payment of the Redemption
Price and accrued and unpaid interest) such Securities shall cease to bear
interest. Upon surrender of any such Security for redemption in accordance with
such notice, such Security shall be paid by the Company at the Redemption Price;
provided, however, the installments of interest on Securities whose Stated
Maturity is prior to or on the Redemption Date shall be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as such on
the relevant Record Date according to their terms and the provisions of Section
2.1 hereof.

                                      61

<PAGE>

        If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and premium, if any, shall,
until paid, bear interest from the Redemption Date at the Interest Rate.

        SECTION 10.7 DEPOSIT OF REDEMPTION PRICE.

        Prior to or on any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent an amount of money sufficient to pay the
Redemption Price of all the Securities to be redeemed on that Redemption Date,
other than any Securities called for redemption on that date which have been
converted prior to the date of such deposit, and accrued and unpaid interest, if
any, on such Securities.

        If any Security called for redemption is converted, any money deposited
with the Trustee or with a Paying Agent or so segregated and held in trust for
the redemption of such Security shall (subject to any right of the Holder of
such Security or any Predecessor Security to receive interest as provided in the
fourth to last paragraph of Section 2.1 hereof) be paid to the Company at the
Company's request or, if then held by the Company, shall be discharged from such
trust.

        SECTION 10.8 SECURITIES REDEEMED IN PART.

        Any Security which is to be redeemed only in part shall be surrendered
at an office or agency of the Company designated for that purpose pursuant to
Section 9.2 hereof (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 the Holder's
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities of any authorized denomination as
requested by such Holder in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the Security so surrendered.

                                      62

<PAGE>

                                  ARTICLE 11

                      REPURCHASE AT THE OPTION OF A HOLDER
                           UPON A CHANGE OF CONTROL

        SECTION 11.1 REPURCHASE RIGHT.

        In the event that a Change in Control shall occur, each Holder shall
have the right (the "Repurchase Right"), at the Holder's option, but subject to
the provisions of Section 11.2 hereof, to require the Company to repurchase, and
upon the exercise of such right the Company shall repurchase, all of such
Holder's Securities not theretofore called for redemption, or any portion of the
principal amount thereof that is equal to $1,000 or any integral multiple
thereof (provided that no single Security may be repurchased in part unless the
portion of the principal amount of such Security to be Outstanding after such
repurchase is equal to $1,000 or integral multiples thereof), on the date (the
"Repurchase Date") that is 45 days after the date of the Company Notice (as
defined in Section 11.3) at a purchase price equal to 100% of the principal
amount of the Securities to be repurchased (the "Repurchase Price"), plus
interest accrued and unpaid to, but excluding, the Repurchase Date; provided,
however, that installments of interest on Securities whose Stated Maturity is
prior to or on the Repurchase Date shall be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such on the
relevant Record Date according to their terms and the provisions of Section 2.1
hereof.

        Subject to the fulfillment by the Company of the conditions set forth
in Section 11.2 hereof, the Company may elect to pay the Repurchase Price by
delivering the number of shares of Common Stock equal to (i) the Repurchase
Price divided by (ii) 95% of the average of the Closing Prices per share of
Common Stock for the five consecutive Trading Days immediately preceding and
including the third Trading Day prior to the Repurchase Date.

        Whenever in this Indenture (including Sections 2.2, 4.1(a) and 4.7
hereof) or Exhibit A annexed hereto there is a reference, in any context, to the
principal of any Security as of any time, such reference shall be deemed to
include reference to the Repurchase Price payable in respect to such Security to
the extent that such Repurchase Price is, was or would be so payable at such
time, and express mention of the Repurchase Price in any provision of this
Indenture shall not be construed as excluding the Repurchase Price in those
provisions of this Indenture when such express mention is not made; provided,
however, that, for the purposes of Article 13 hereof, such reference shall be
deemed to include reference to the Repurchase Price only to the extent the
Repurchase Price is payable in cash.

        SECTION 11.2 CONDITIONS TO THE COMPANY'S ELECTION TO PAY THE REPURCHASE
PRICE IN COMMON STOCK.

        (a) The shares of Common Stock to be issued upon repurchase of
Securities hereunder:

                 (i) shall not require registration under any federal securities
        law before such shares may be freely transferable without being subject
        to any transfer restrictions under the Securities Act upon repurchase
        or, if such registration is required, such registration shall be
        completed and shall become effective prior to the Repurchase Date; and

                                      63

<PAGE>

                 (ii) shall not require registration with, or approval of, any
        governmental authority under any state law or any other federal law
        before shares may be validly issued or delivered upon repurchase or if
        such registration is required or such approval must be obtained, such
        registration shall be completed or such approval shall be obtained prior
        to the Repurchase Date.

        (b) The shares of Common Stock to be listed upon repurchase of
Securities hereunder are, or shall have been, approved for listing on the
Nasdaq National Market or the New York Stock Exchange or listed on another
national securities exchange, in any case, prior to the Repurchase Date.

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

        (d) If any of the conditions set forth in clauses (a) through (c) of
this Section 11.2 are not satisfied in accordance with the terms thereof, the
Repurchase Price shall be paid by the Company only in cash.

        SECTION 11.3 NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC.

        (a) Unless the Company shall have theretofore called for redemption all
of the Outstanding Securities, prior to or on the 30th day after the occurrence
of a Change in Control, the Company, or, at the written request and expense of
the Company prior to or on the 30th day after such occurrence, the Trustee,
shall give to all Holders of Securities notice, in the manner provided in
Section 14.2 hereof, of the occurrence of the Change of Control and of the
Repurchase Right set forth herein arising as a result thereof (the "Company
Notice"). The Company shall also deliver a copy of such notice of a Repurchase
Right to the Trustee. Each notice of a Repurchase Right shall state:

                          (1) the Repurchase Date;

                          (2) the date by which the Repurchase Right must
        exercised;

                          (3) the Repurchase Price and accrued and unpaid
        interest, if any, and whether the Repurchase Price shall be paid by the
        Company in cash or by  delivery of shares of Common Stock;

                          (4) a description of the procedure which a Holder must
        follow to exercise a Repurchase Right, and the place or places where
        such Securities, are to be surrendered for payment of the Repurchase
        Price and accrued and unpaid interest, if any;

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

                                      64

<PAGE>

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

                          (7) the place or places where such Securities,
        together with the Option to Elect Repayment Upon a Change of Control
        certificate included in Exhibit A annexed hereto are to be delivered
        for payment of the Repurchase Price and accrued and unpaid interest,
        if any.

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

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

        (b) To exercise a Repurchase Right, a Holder shall deliver to the
Trustee prior to or on the 30th day after the date of the Company Notice:

                          (1) written notice of the Holder's exercise of such
        right, which notice shall set forth the name of the Holder, the
        principal amount of the Securities to be repurchased (and, if any
        Security is to be repurchased in part, the serial number thereof, the
        portion of the principal amount thereof to be repurchased) and a
        statement that an election to exercise the Repurchase Right is being
        made thereby, and, in the event that the Repurchase Price shall be paid
        in shares of Common Stock, the name or names (with addresses) in which
        the certificate or certificates for shares of Common Stock shall be
        issued, and

                          (2) the Securities with respect to which the
        Repurchase Right is being exercised.

Such written notice shall be irrevocable, except that the right of the Holder to
convert the Securities with respect to which the Repurchase Right is being
exercised shall continue until the close of business on the Business Day
immediately preceding the Repurchase Date.

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

        (d) If any Security (or portion thereof) surrendered for
repurchase shall not be so paid on the Repurchase Date, the principal amount of
such Security (or portion thereof, as the case may be) shall, until paid, bear
interest to the extent permitted by applicable law from the Repurchase

                                      66

<PAGE>

Date at the Interest Rate, and each Security shall remain convertible into
Common Stock until the principal of such Security (or portion thereof, as the
case may be) shall have been paid or duly provided for.

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

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

        (g) No fractions of shares of Common Stock shall be issued upon
repurchase of any Security or Securities. If more than one Security shall be
repurchased from the same Holder and the Repurchase Price shall be payable in
shares of Common Stock, the number of full shares which shall be issued upon
such repurchase shall be computed on the basis of the aggregate principal amount
of the Securities (or specified portions thereof) to be so repurchased. Instead
of any fractional share of Common Stock which would otherwise be issued on the
repurchase of any Security or Securities (or specified portions thereof), the
Company shall pay a cash adjustment in respect of such fraction (calculated to
the nearest one-100th of a share) in an amount equal to the same fraction of the
Quoted Price of the Common Stock as of the Trading Day preceding the Repurchase
Date.

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

                                      66

<PAGE>

        (i) All Securities delivered for repurchase shall be delivered to the
Trustee to be canceled at the direction of the Trustee, which shall dispose of
the same as provided in Section 2.15 hereof.

                                      67

<PAGE>

                                  ARTICLE 12

                            CONVERSION OF SECURITIES

        SECTION 12.1 CONVERSION RIGHT AND CONVERSION PRICE.

        Subject to and upon compliance with the provisions of this Article, at
the option of the Holder thereof, any Security or any portion of the principal
amount thereof which is $1,000 or an integral multiple of $1,000 may be
converted at the principal amount thereof, or of such portion thereof, into duly
authorized, fully paid and nonassessable shares of Common Stock, at the
Conversion Price, determined as hereinafter provided, in effect at the time of
conversion. Such conversion right shall expire at the close of business on
October 17, 2007.

         In case a Security or portion thereof is called for redemption, such
conversion right in respect of the Security or the portion so called, shall
expire at the close of business on the second Business Day preceding the
Redemption Date, unless the Company defaults in making the payment due upon
redemption. In the case of a Change of Control for which the Holder exercises
its Repurchase Right with respect to a Security or portion thereof, such
conversion right in respect of the Security or portion thereof shall expire at
the close of business on the Business Day immediately preceding the Repurchase
Date.

         The price at which shares of Common Stock shall be delivered upon
conversion (the "Conversion Price") shall be initially equal to $50.46 per share
of Common Stock. The Conversion Price shall be adjusted in certain instances as
provided in paragraphs (a), (b), (c), (d), (e), (f), (h) and (i) of Section 12.4
hereof.

        SECTION 12.2 EXERCISE OF CONVERSION RIGHT.

        To exercise the conversion right, the Holder of any Security to be
converted shall surrender such Security duly endorsed or assigned to the Company
or in blank, at the office of any Conversion Agent, accompanied by a duly signed
conversion notice substantially in the form attached to the Security to the
Company stating that the Holder elects to convert such Security or, if less than
the entire principal amount thereof is to be converted, the portion thereof to
be converted.

        Securities surrendered for conversion during the period from the close
of business on any Regular Record Date to the opening of business on the next
succeeding Interest Payment Date (except in the case of any Security whose
Maturity is prior to such Interest Payment Date) shall be accompanied by payment
in New York Clearing House funds or other funds acceptable to the Company of an
amount equal to the interest to be received on such Interest Payment Date on the
principal amount of Securities being surrendered for conversion.

        Securities shall be deemed to have been converted immediately prior to
the close of business on the day of surrender of such Securities for conversion
in accordance with the foregoing provisions, and at such time the rights of the
Holders of such Securities as Holders shall cease, and the Person or Persons
entitled to receive the Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such Common Stock at such
time. As promptly as practicable on or after the conversion date, the Company

                                      68

<PAGE>

shall cause to be issued and delivered to such Conversion Agent a certificate or
certificates for the number of full shares of Common Stock issuable upon
conversion, together with payment in lieu of any fraction of a share as provided
in Section 12.3 hereof.

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

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

        The Company hereby initially appoints the Trustee as the Conversion
Agent.

        SECTION 12.3 FRACTIONS OF SHARES.

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

        SECTION 12.4 ADJUSTMENT OF CONVERSION PRICE.

        The Conversion Price shall be subject to adjustments, calculated by the
Company, from time to time as follows:

        (a) In case the Company shall hereafter pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of Common
Stock, the Conversion Price in effect at the opening of business on the date
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction:

                          (i) the numerator of which shall be the number of
        shares of Common Stock outstanding at the close of business on the
        Record Date (as defined in Section 12.4(g)) fixed for such
        determination, and

                                      69

<PAGE>

                          (ii) the denominator of which shall be the sum of
        such number of shares and the total number of shares constituting such
        dividend or other distribution.

Such reduction shall become effective immediately after the opening of business
on the day following the Record Date. If any dividend or distribution of the
type described in this Section 12.4(a) is declared but not so paid or made, the
Conversion Price shall again be adjusted to the Conversion Price which would
then be in effect if such dividend or distribution had not been declared.

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

        (c) In case the Company shall issue rights or warrants (other than any
rights or warrants referred to in Section 12.4(d)) to all holders of its
outstanding shares of Common Stock entitling them to subscribe for or purchase
shares of Common Stock (or securities convertible into Common Stock) at a price
per share (or having a conversion price per share) less than the Current Market
Price (as defined in Section 12.4(g)) on the Record Date fixed for the
determination of stockholders entitled to receive such rights or warrants, the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect at the opening of
business on the date after such Record Date by a fraction:

                 (i) the numerator of which shall be the number of shares of
        Common Stock outstanding at the close of business on the Record Date
        plus the number of shares which the aggregate offering price of the
        total number of shares so offered for subscription or purchase (or the
        aggregate conversion price of the convertible securities so offered)
        would purchase at such Current Market Price, and

                 (ii) the denominator of which shall be the number of shares of
        Common Stock outstanding on the close of business on the Record Date
        plus the total number of additional shares of Common Stock so offered
        for subscription or purchase (or into which the convertible securities
        so offered are convertible).

Such adjustment shall become effective immediately after the opening of business
on the day following the Record Date fixed for determination of stockholders
entitled to receive such rights or warrants. To the extent that shares of Common
Stock (or securities convertible into Common Stock) are not delivered pursuant
to such rights or warrants, upon the expiration or termination of such rights or
warrants the Conversion Price shall be readjusted to the Conversion Price which
would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made on the basis of the delivery of only the number of
shares of Common Stock (or

                                      70

<PAGE>

securities convertible into Common Stock) actually delivered. In the event
that such rights or warrants are not so issued, the Conversion Price shall
again be adjusted to be the Conversion Price which would then be in effect if
such date fixed for the determination of stockholders entitled to receive
such rights or warrants had not been fixed. In determining whether any rights
or warrants entitle the holders to subscribe for or purchase shares of Common
Stock at less than such Current Market Price, and in determining the
aggregate offering price of such shares of Common Stock, there shall be taken
into account any consideration received for such rights or warrants, the
value of such consideration if other than cash, to be determined by the Board
of Directors.

         (d) In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock shares of any class of capital stock of
the Company (other than any dividends or distributions to which Section
12.4(a) applies) or evidences of its indebtedness, cash or other assets,
including securities, but excluding (1) any rights or warrants referred to in
Section 12.4(c), (2) any stock, securities or other property or assets
(including cash) distributed in connection with a reclassification, change,
merger, consolidation, statutory share exchange, combination, sale or
conveyance to which Section 12.11 hereof applies and (3) dividends and
distributions paid exclusively in cash (the securities described in foregoing
clauses (1), (2) and (3) hereinafter in this Section 12.4(d) called the
"securities"), then, in each such case, subject to the second succeeding
paragraph of this Section 12.4(d), the Conversion Price shall be reduced so
that the same shall be equal to the price determined by multiplying the
Conversion Price in effect immediately prior to the close of business on the
Record Date (as defined in Section 12.4(g)) with respect to such distribution
by a fraction:

                  (i) the numerator of which shall be the Current Market Price
         (determined as provided in Section 12.4(g)) on such date less the fair
         market value (as determined by the Board of Directors, whose
         determination shall be conclusive and set forth in a Board Resolution)
         on such date of the portion of the securities so distributed applicable
         to one share of Common Stock (determined on the basis of the number of
         shares of the Common Stock outstanding on the Record Date), and

                  (ii) the denominator of which shall be such Current Market
         Price.

Such reduction shall become effective immediately prior to the opening of
business on the day following the Record Date. However, in the event that the
then fair market value (as so determined) of the portion of the securities so
distributed applicable to one share of Common Stock is equal to or greater than
the Current Market Price on the Record Date, in lieu of the foregoing
adjustment, adequate provision shall be made so that each Holder shall have the
right to receive upon conversion of a Security (or any portion thereof) the
amount of securities such Holder would have received had such Holder converted
such Security (or portion thereof) immediately prior to such Record Date. In the
event that such dividend or distribution is not so paid or made, the Conversion
Price shall again be adjusted to be the Conversion Price which would then be in
effect if such dividend or distribution had not been declared.

         If the Board of Directors determines the fair market value of any
distribution for purposes of this Section 12.4(d) by reference to the actual or
when issued trading market for any securities

                                       71
<PAGE>

comprising all or part of such distribution, it must in doing so consider the
prices in such market over the same period (the "Reference Period") used in
computing the Current Market Price pursuant to Section 12.4(g) to the extent
possible, unless the Board of Directors in a Board Resolution determines in good
faith that determining the fair market value during the Reference Period would
not be in the best interest of the Holder.

         Rights or warrants distributed by the Company to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of the
Company's capital stock (either initially or under certain circumstances), which
rights or warrants, until the occurrence of a specified event or events
("Trigger Event"):

                  (i) are deemed to be transferred with such shares of Common
         Stock;

                  (ii) are not exercisable; and

                  (iii) are also issued in respect of future issuances of Common
         Stock,

shall be deemed not to have been distributed for purposes of this Section
12.4(d) (and no adjustment to the Conversion Price under this Section 12.4(d)
will be required) until the occurrence of the earliest Trigger Event. If such
right or warrant is subject to subsequent events, upon the occurrence of which
such right or warrant shall become exercisable to purchase different securities,
evidences of indebtedness or other assets or entitle the holder to purchase a
different number or amount of the foregoing or to purchase any of the foregoing
at a different purchase price, then the occurrence of each such event shall be
deemed to be the date of issuance and record date with respect to a new right or
warrant (and a termination or expiration of the existing right or warrant
without exercise by the holder thereof). In addition, in the event of any
distribution (or deemed distribution) of rights or warrants, or any Trigger
Event or other event (of the type described in the preceding sentence) with
respect thereto, that resulted in an adjustment to the Conversion Price under
this Section 12.4(d):

                           (1) in the case of any such rights or warrants which
                  shall all have been redeemed or repurchased without exercise
                  by any holders thereof, the Conversion Price shall be
                  readjusted upon such final redemption or repurchase to give
                  effect to such distribution or Trigger Event, as the case may
                  be, as though it were a cash distribution, equal to the per
                  share redemption or repurchase price received by a holder of
                  Common Stock with respect to such rights or warrant (assuming
                  such holder had retained such rights or warrants), made to all
                  holders of Common Stock as of the date of such redemption or
                  repurchase, and

                           (2) in the case of such rights or warrants all of
                  which shall have expired or been terminated without exercise,
                  the Conversion Price shall be readjusted as if such rights and
                  warrants had never been issued.

         For purposes of this Section 12.4(d) and Sections 12.4(a), 12.4(b) and
12.4(c), any dividend or distribution to which this Section 12.4(d) is
applicable that also includes shares of Common Stock, a subdivision or
combination of Common Stock to which Section 12.4(b) applies, or rights or
warrants to subscribe for or purchase shares of Common Stock to which Section
12.4(c) applies (or any combination thereof), shall be deemed instead to be:

                                       72
<PAGE>

                           (3) a dividend or distribution of the evidences of
                  indebtedness, assets, shares of capital stock, rights or
                  warrants other than such shares of Common Stock, such
                  subdivision or combination or such rights or warrants to which
                  Sections 12.4(a), 12.4(b) and 12.4(c) apply, respectively (and
                  any Conversion Price reduction required by this Section
                  12.4(d) with respect to such dividend or distribution shall
                  then be made), immediately followed by

                           (4) a dividend or distribution of such shares of
                  Common Stock, such subdivision or combination or such rights
                  or warrants (and any further Conversion Price reduction
                  required by Sections 12.4(a), 12.4(b) and 12.4(c) with respect
                  to such dividend or distribution shall then be made), except:

                                    (A) the Record Date of such dividend or
                           distribution shall be substituted as (x) "the date
                           fixed for the determination of stockholders entitled
                           to receive such dividend or other distribution",
                           "Record Date fixed for such determinations" and
                           "Record Date" within the meaning of Section 12.4(a),
                           (y) "the day upon which such subdivision becomes
                           effective" and "the day upon which such combination
                           becomes effective" within the meaning of Section
                           12.4(b), and (z) as "the date fixed for the
                           determination of stockholders entitled to receive
                           such rights or warrants", "the Record Date fixed for
                           the determination of the stockholders entitled to
                           receive such rights or warrants" and such "Record
                           Date" within the meaning of Section 12.4(c), and

                                    (B) any shares of Common Stock included in
                           such dividend or distribution shall not be deemed
                           "outstanding at the close of business on the date
                           fixed for such determination" within the meaning of
                           Section 12.4(a) and any reduction or increase in the
                           number of shares of Common Stock resulting from such
                           subdivision or combination shall be disregarded in
                           connection with such dividend or distribution.

         (e) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock cash (excluding any cash that is distributed
upon a reclassification, change, merger, consolidation, statutory share
exchange, combination, sale or conveyance to which Section 12.11 hereof applies
or as part of a distribution referred to in Section 12.4(d) hereof), in an
aggregate amount that, combined together with:

                           (1) the aggregate amount of any other such
                  distributions to all holders of Common Stock made exclusively
                  in cash within the 12 months preceding the date of payment of
                  such distribution, and in respect of which no adjustment
                  pursuant to this Section 12.4(e) has been made, and

                           (2) the aggregate of any cash plus the fair market
                  value (as determined by the Board of Directors, whose
                  determination shall be conclusive and set forth in a Board
                  Resolution) of consideration payable in respect of any tender
                  offer by the Company or any of its subsidiaries for all or any
                  portion of the Common Stock concluded within the 12 months
                  preceding the date of such distribution, and in respect of
                  which no adjustment pursuant to Section 12.4(f) hereof has
                  been made,

                                       73
<PAGE>

exceeds 10% of the product of the Current Market Price (determined as provided
in Section 12.4(g)) on the Record Date with respect to such distribution times
the number of shares of Common Stock outstanding on such date, then and in each
such case, immediately after the close of business on such date, the Conversion
Price shall be reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the close of
business on such Record Date by a fraction:

                  (i) the numerator of which shall be equal to the Current
         Market Price on the Record Date less an amount equal to the quotient of
         (x) the excess of such combined amount over such 10% and (y) the number
         of shares of Common Stock outstanding on the Record Date, and

                  (ii) the denominator of which shall be equal to the Current
         Market Price on such date.

However, in the event that the then fair market value (as so determined) of the
portion of the securities so distributed applicable to one share of Common Stock
is equal to or greater than the Current Market Price on the Record Date, in lieu
of the foregoing adjustment, adequate provision shall be made so that each
Holder shall have the right to receive upon conversion of a Security (or any
portion thereof) the amount of cash such Holder would have received had such
Holder converted such Security (or portion thereof) immediately prior to such
Record Date. In the event that such dividend or distribution is not so paid or
made, the Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such dividend or distribution had not been
declared.

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

                           (1) the aggregate of the cash plus the fair market
                  value (as determined by the Board of Directors, whose
                  determination shall be conclusive and set forth in a Board
                  Resolution), as of the expiration of such tender offer, of
                  consideration payable in respect of any other tender offers,
                  by the Company or any of its subsidiaries for all or any
                  portion of the Common Stock expiring within the 12 months
                  preceding the expiration of such tender offer and in respect
                  of which no adjustment pursuant to this Section 12.4(f) has
                  been made, and

                           (2) the aggregate amount of any distributions to all
                  holders of the Company's Common Stock made exclusively in cash
                  within 12 months preceding the expiration of such tender offer
                  and in respect of which no adjustment pursuant to Section
                  12.4(e) has been made, exceeds 10% of the product of the
                  Current Market Price (determined as provided in Section
                  12.4(g)) as of the last time (the "Expiration Time") tenders
                  could have been made pursuant to such tender offer

                                       74
<PAGE>

                  (as it may be amended) times the number of shares of Common
                  Stock outstanding (including any tendered shares) on the
                  Expiration Time, then, and in each such case, immediately
                  prior to the opening of business on the day after the date of
                  the Expiration Time, the Conversion Price shall be adjusted so
                  that the same shall equal the price determined by multiplying
                  the Conversion Price in effect immediately prior to close of
                  business on the date of the Expiration Time by a fraction:

                           (i)the numerator of which shall be the number of
                  shares of Common Stock outstanding (including any tendered
                  shares) at the Expiration Time multiplied by the Current
                  Market Price of the Common Stock on the Trading Day next
                  succeeding the Expiration Time, and

                           (ii) the denominator shall be the sum of (x) the fair
                  market value (determined as aforesaid) of the aggregate
                  consideration payable to stockholders based on the acceptance
                  (up to any maximum specified in the terms of the tender offer)
                  of all shares validly tendered and not withdrawn as of the
                  Expiration Time (the shares deemed so accepted, up to any such
                  maximum, being referred to as the "Purchased Shares") and (y)
                  the product of the number of shares of Common Stock
                  outstanding (less any Purchased Shares) on the Expiration Time
                  and the Current Market Price of the Common Stock on the
                  Trading Day next succeeding the Expiration Time.

Such reduction (if any) shall become effective immediately prior to the opening
of business on the day following the Expiration Time. In the event that the
Company is obligated to purchase shares pursuant to any such tender offer, but
the Company is permanently prevented by applicable law from effecting any such
purchases or all such purchases are rescinded, the Conversion Price shall again
be adjusted to be the Conversion Price which would then be in effect if such
tender offer had not been made. If the application of this Section 12.4(f) to
any tender offer would result in an increase in the Conversion Price, no
adjustment shall be made for such tender offer under this Section 12.4(f).

         (g) For purposes of this Section 12.4, the following terms shall have
the meanings indicated:

                  (1) "Current Market Price" shall mean the average of the daily
         Closing Prices per share of Common Stock for the ten consecutive
         Trading Days immediately prior to the date in question; provided,
         however, that if:

                           (i) the "ex" date (as hereinafter defined) for any
                  event (other than the issuance or distribution requiring such
                  computation) that requires an adjustment to the Conversion
                  Price pursuant to Section 12.4(a), (b), (c), (d), (e) or (f)
                  occurs during such ten consecutive Trading Days, the Closing
                  Price for each Trading Day prior to the "ex" date for such
                  other event shall be adjusted by multiplying such Closing
                  Price by the same fraction by which the Conversion Price is so
                  required to be adjusted as a result of such other event;

                                       75
<PAGE>

                           (ii) the "ex" date for any event (other than the
                  issuance or distribution requiring such computation) that
                  requires an adjustment to the Conversion Price pursuant to
                  Section 12.4(a), (b), (c), (d), (e) or (f) occurs on or after
                  the "ex" date for the issuance or distribution requiring such
                  computation and prior to the day in question, the Closing
                  Price for each Trading Day on and after the "ex" date for such
                  other event shall be adjusted by multiplying such Closing
                  Price by the reciprocal of the fraction by which the
                  Conversion Price is so required to be adjusted as a result of
                  such other event; and

                           (iii) the "ex" date for the issuance or distribution
                  requiring such computation is prior to the day in question,
                  after taking into account any adjustment required pursuant to
                  clause (i) or (ii) of this proviso, the Closing Price for each
                  Trading Day on or after such "ex" date shall be adjusted by
                  adding thereto the amount of any cash and the fair market
                  value (as determined by the Board of Directors in a manner
                  consistent with any determination of such value for purposes
                  of Section 12.4(d) or (f), whose determination shall be
                  conclusive and set forth in a Board Resolution) of the
                  evidences of indebtedness, shares of capital stock or assets
                  being distributed applicable to one share of Common Stock as
                  of the close of business on the day before such "ex" date.

For purposes of any computation under Section 12.4(f), the Current Market Price
of the Common Stock on any date shall be deemed to be the average of the daily
Closing Prices per share of Common Stock for such day and the next two
succeeding Trading Days; provided, however, that if the "ex" date for any event
(other than the tender offer requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section 12.4(a), (b), (c), (d),
(e) or (f) occurs on or after the Expiration Time for the tender or exchange
offer requiring such computation and prior to the day in question, the Closing
Price for each Trading Day on and after the "ex" date for such other event shall
be adjusted by multiplying such Closing Price by the reciprocal of the fraction
by which the Conversion Price is so required to be adjusted as a result of such
other event. For purposes of this paragraph, the term "ex" date, when used:

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

                  (B) 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

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

                                       76
<PAGE>

         Notwithstanding the foregoing, whenever successive adjustments to the
         Conversion Price are called for pursuant to this Section 12.4, such
         adjustments shall be made to the Current Market Price as may be
         necessary or appropriate to effectuate the intent of this Section 12.4
         and to avoid unjust or inequitable results as determined in good faith
         by the Board of Directors.

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

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

         (h) The Company may make such reductions in the Conversion Price, in
addition to those required by Sections 12.4(a), (b), (c), (d), (e) or (f), as
the Board of Directors considers to be advisable to avoid or diminish any income
tax to holders of Common Stock or rights to purchase Common Stock resulting from
any dividend or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes.

         To the extent permitted by applicable law, the Company from time to
time may reduce the Conversion Price by any amount for any period of time if the
period is at least 20 days and the reduction is irrevocable during the period
and the Board of Directors determines in good faith that such reduction would be
in the best interests of the Company, which determination shall be conclusive
and set forth in a Board Resolution. Whenever the Conversion Price is reduced
pursuant to the preceding sentence, the Company shall mail to the Trustee and
each Holder at the address of such Holder as it appears in the Register a notice
of the reduction at least 15 days prior to the date the reduced Conversion Price
takes effect, and such notice shall state the reduced Conversion Price and the
period during which it will be in effect.

         (i) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
provided, however, that any adjustments which by reason of this Section 12.4(i)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Article 12 shall be made
by the Company and shall be made to the nearest cent or to the nearest one
hundredth of a share, as the case may be. No adjustment need be made for a
change in the par value or no par value of the Common Stock.

         (j) In any case in which this Section 12.4 provides that an adjustment
shall become effective immediately after a Record Date for an event, the Company
may defer until the occurrence of such event (i) issuing to the Holder of any
Security converted after such Record Date and before the occurrence of such
event the additional shares of Common Stock issuable upon such conversion by
reason of the adjustment required by such event over and above the

                                       77
<PAGE>

Common Stock issuable upon such conversion before giving effect to such
adjustment and (ii) paying to such holder any amount in cash in lieu of any
fraction pursuant to Section 12.3 hereof.

         (k) For purposes of this Section 12.4, the number of shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Company but shall include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock. The Company will not pay
any dividend or make any distribution on shares of Common Stock held in the
treasury of the Company.

         (l) If the distribution date for the rights provided in the Company's
rights agreement, if any, occurs prior to the date a Security is converted, the
Holder of the Security who converts such Security after the distribution date is
not entitled to receive the rights that would otherwise be attached (but for the
date of conversion) to the shares of Common Stock received upon such conversion;
provided, however, that an adjustment shall be made to the Conversion Price
pursuant to clause 12.4(b) as if the rights were being distributed to the common
stockholders of the Company immediately prior to such conversion. If such an
adjustment is made and the rights are later redeemed, invalidated or terminated,
then a corresponding reversing adjustment shall be made to the Conversion Price,
on an equitable basis, to take account of such event.

         SECTION 12.5 NOTICE OF ADJUSTMENTS OF CONVERSION PRICE.

         Whenever the Conversion Price is adjusted as herein provided (other
than in the case of an adjustment pursuant to the second paragraph of Section
12.4(h) for which the notice required by such paragraph has been provided), the
Company shall promptly file with the Trustee and any Conversion Agent other than
the Trustee an Officers' Certificate setting forth the adjusted Conversion Price
and showing in reasonable detail the facts upon which such adjustment is based.
Promptly after delivery of such Officers' Certificate, the Company shall prepare
a notice stating that the Conversion Price has been adjusted and setting forth
the adjusted Conversion Price and the date on which each adjustment becomes
effective, and shall mail such notice to each Holder at the address of such
Holder as it appears in the Register within 20 days of the effective date of
such adjustment. Failure to deliver such notice shall not effect the legality or
validity of any such adjustment.

         SECTION 12.6 NOTICE PRIOR TO CERTAIN ACTIONS.

         In case at any time after the date hereof:

                           (1) the Company shall declare a dividend (or any
         other distribution) on its Common Stock payable otherwise than in cash
         out of its capital surplus or its consolidated retained earnings;

                           (2) the Company shall authorize the granting to the
         holders of its Common Stock of rights or warrants to subscribe for or
         purchase any shares of capital stock of any class (or of securities
         convertible into shares of capital stock of any class) or of any other
         rights;

                           (3) there shall occur any reclassification of the
         Common Stock of the Company (other than a subdivision or combination of
         its outstanding Common Stock, a

                                       78
<PAGE>

         change in par value, a change from par value to no par value or a
         change from no par value to par value), or any merger, consolidation,
         statutory share exchange or combination to which the Company is a party
         and for which approval of any shareholders of the Company is required,
         or the sale, transfer or conveyance of all or substantially all of the
         assets of the Company; or

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

the Company shall cause to be filed at each office or agency maintained for the
purpose of conversion of securities pursuant to Section 9.2 hereof, and shall
cause to be provided to the Trustee and all Holders in accordance with Section
14.2 hereof, at least 20 days (or 10 days in any case specified in clause (1) or
(2) above) prior to the applicable record or effective date hereinafter
specified, a notice stating:

                                    (A) the date on which a record is to be
                  taken for the purpose of such dividend, distribution, rights
                  or warrants, or, if a record is not to be taken, the date as
                  of which the holders of Common Stock of record to be entitled
                  to such dividend, distribution, rights or warrants are to be
                  determined, or

                                    (B) the date on which such reclassification,
                  merger, consolidation, statutory share exchange, combination,
                  sale, transfer, conveyance, dissolution, liquidation or
                  winding up is expected to become effective, and the date as of
                  which it is expected that holders of Common Stock of record
                  shall be entitled to exchange their shares of Common Stock for
                  securities, cash or other property deliverable upon such
                  reclassification, merger, consolidation, statutory share
                  exchange, sale, transfer, dissolution, liquidation or winding
                  up.

         Neither the failure to give such notice nor any defect therein shall
affect the legality or validity of the proceedings or actions described in
clauses (1) through (4) of this Section 12.6.

         SECTION 12.7 COMPANY TO RESERVE COMMON STOCK.

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

         SECTION 12.8 TAXES ON CONVERSIONS.

         Except as provided in the next sentence, the Company will pay any and
all taxes (other than taxes on income) and duties that may be payable in respect
of the issue or delivery of shares of Common Stock on conversion of Securities
pursuant hereto. A Holder delivering a Security for conversion shall be liable
for and will be required to pay any tax or duty which may be payable in respect
of any transfer involved in the issue and delivery of shares of Common Stock in
a name other than that of the Holder of the Security or Securities to be
converted, and no such issue or delivery shall be made unless the Person
requesting such issue has paid to the Company

                                       79
<PAGE>

the amount of any such tax or duty, or has established to the satisfaction of
the Company that such tax or duty has been paid.

         SECTION 12.9 COVENANT AS TO COMMON STOCK.

         The Company covenants that all shares of Common Stock which may be
issued upon conversion of Securities will upon issue be fully paid and
nonassessable and, except as provided in Section 12.8, the Company will pay all
taxes, liens and charges with respect to the issue thereof.

         SECTION 12.10 CANCELLATION OF CONVERTED SECURITIES.

         All Securities delivered for conversion shall be delivered to the
Trustee to be canceled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 2.9.

         SECTION 12.11 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE.

         If any of following events occur, namely:

                                    (i) any reclassification or change of the
                  outstanding shares of Common Stock (other than a change in par
                  value, or from par value to no par value, or from no par value
                  to par value, or as a result of a subdivision or combination),

                                    (ii) any merger, consolidation, statutory
                  share exchange or combination of the Company with another
                  corporation as a result of which holders of Common Stock shall
                  be entitled to receive stock, securities or other property or
                  assets (including cash) with respect to or in exchange for
                  such Common Stock or

                                    (iii) any sale or conveyance of the
                  properties and assets of the Company as, or substantially as,
                  an entirety to any other corporation as a result of which
                  holders of Common Stock shall be entitled to receive stock,
                  securities or other property or assets (including cash) with
                  respect to or in exchange for such Common Stock,

the Company or the successor or purchasing corporation, as the case may be,
shall execute with the Trustee a supplemental indenture (which shall comply
with the TIA as in force at the date of execution of such supplemental
indenture if such supplemental indenture is then required to so comply)
providing that such Security shall be convertible into the kind and amount of
shares of stock and other securities or property or assets (including cash)
which such Holder would have been entitled to receive upon such
reclassification, change, merger, consolidation, statutory share exchange,
combination, sale or conveyance had such Securities been converted into
Common Stock immediately prior to such reclassification, change, merger,
consolidation, statutory share exchange, combination, sale or conveyance
assuming such holder of Common Stock did not exercise its rights of election,
if any, as to the kind or amount of securities, cash or other property
receivable upon such reclassification, change, merger, consolidation,
statutory share exchange, combination, sale or conveyance (provided that, if
the kind or amount of securities, cash or other

                                       80
<PAGE>

property receivable upon such reclassification, change, merger,
consolidation, statutory share exchange, combination, sale or conveyance is
not the same for each share of Common Stock in respect of which such rights
of election shall not have been exercised ("Non-Electing Share"), then for
the purposes of this Section 12.11 the kind and amount of securities, cash or
other property receivable upon such reclassification, change, merger,
consolidation, statutory share exchange, combination, sale or conveyance for
each Non-Electing Share shall be deemed to be the kind and amount so
receivable per share by a plurality of the Non-Electing Shares). Such
supplemental indenture shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Article 12. If, in the case of any such reclassification, change, merger,
consolidation, statutory share exchange, combination, sale or conveyance, the
stock or other securities and assets receivable thereupon by a holder of
shares of Common Stock includes shares of stock or other securities and
assets of a corporation other than the successor or purchasing corporation,
as the case may be, in such reclassification, change, merger, consolidation,
statutory share exchange, combination, sale or conveyance, then such
supplemental indenture shall also be executed by such other corporation and
shall contain such additional provisions to protect the interests of the
Holders of the Securities as the Board of Directors shall reasonably consider
necessary by reason of the foregoing, including to the extent practicable the
provisions providing for the Repurchase Rights set forth in Article 11 hereof.

         The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each Holder, at the address of such Holder as it
appears on the Register, within 20 days after execution thereof. Failure to
deliver such notice shall not affect the legality or validity of such
supplemental indenture.

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

         If this Section 12.11 applies to any event or occurrence, Section 12.4
hereof shall not apply.

         SECTION 12.12     RESPONSIBILITY OF TRUSTEE FOR CONVERSION PROVISIONS.

         The Trustee, subject to the provisions of Section 5.1 hereof, and any
Conversion Agent shall not at any time be under any duty or responsibility to
any Holder of Securities to determine whether any facts exist which may require
any adjustment of the Conversion Price, or with respect to the nature or intent
of any such adjustments when made, or with respect to the method employed, or
herein or in any supplemental indenture provided to be employed, in making the
same. Neither the Trustee, subject to the provisions of Section 5.1 hereof, nor
any Conversion Agent shall be accountable with respect to the validity or value
(of the kind or amount) of any Common Stock, or of any other securities or
property, which may at any time be issued or delivered upon the conversion of
any Security; and it or they do not make any representation with respect
thereto. Neither the Trustee, subject to the provisions of Section 5.1 hereof,
nor any Conversion Agent shall be responsible for any failure of the Company to
make any cash payment or to issue, transfer or deliver any shares of stock or
share certificates or other securities or property upon the surrender of any
Security for the purpose of conversion; and the Trustee, subject to the
provisions of Section 5.1 hereof, and any Conversion Agent shall not be

                                      81
<PAGE>

responsible or liable for any failure of the Company to comply with any of the
covenants of the Company contained in this Article.

                                      82
<PAGE>

                                  ARTICLE 13

                                 SUBORDINATION

         SECTION 13.1      SECURITIES SUBORDINATED TO SENIOR DEBT.

         The Company covenants and agrees, and each Holder of Securities, by
such Holder's acceptance thereof, likewise covenants and agrees, that the
Indebtedness represented by the Securities and the payment of the principal of
and premium, if any, and interest (including Liquidated Damages, if any) on each
and all of the Securities is hereby expressly subordinated and junior, to the
extent and in the manner set forth and as set forth in this Section 13.1, in
right of payment to the prior payment in full of all Senior Debt.

         (a) In the event of any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization of the Company, whether
in bankruptcy, insolvency, reorganization or receivership proceedings or upon an
assignment for the benefit of creditors or any other marshalling of the assets
and liabilities of the Company or otherwise, the holders of all Senior Debt
shall first be entitled to receive payment of the full amount due thereon in
respect of all such Senior Debt and all other amounts due or provision shall be
made for such amount in cash, or other payments satisfactory to the holders of
Senior Debt, before the Holders of any of the Securities are entitled to receive
any payment or distribution of any character, whether in cash, securities or
other property, on account of the principal of or premium, if any, or interest
(including Liquidated Damages, if any) on the Indebtedness evidenced by the
Securities.

         (b) In the event of any acceleration of Maturity of the Securities
because of an Event of Default, unless the full amount due in respect of all
Senior Debt is paid in cash or other form of payment satisfactory to the
holders of Senior Debt, no payment shall be made by the Company with respect
to the principal of, premium, if any, or interest (including Liquidated
Damages, if any) on the Securities or to acquire any of the Securities
(including any redemption, conversion or cash repurchase pursuant to the
exercise of the Repurchase Right), and the Company shall give prompt written
notice of such acceleration to such holders of Senior Debt.

         (c) In the event of and during the continuance of any default in
payment of the principal of or premium, if any, or interest on, rent or other
payment obligation in respect of, any Senior Debt, unless all such payments
due in respect of such Senior Debt have been paid in full in cash or other
payments satisfactory to the holders of Senior Debt, no payment shall be made
by the Company with respect to the principal of, premium, if any, or interest
(including Liquidated Damages, if any) on the Securities or to acquire any of
the Securities (including any redemption, conversion or cash repurchase
pursuant to the exercise of the Repurchase Right). The Company shall give
prompt written notice to the Trustee of any default under any Senior Debt or
under any agreement pursuant to which Senior Debt may have been issued.

         (d) During the continuance of any event of default with respect to
any Designated Senior Debt, as such event of default is defined under any
such Designated Senior Debt or in any agreement pursuant to which any
Designated Senior Debt has been issued (other than a default in payment of
the principal of or premium, if any, or interest on, rent or other payment
obligation in respect of any Designated Senior Debt), permitting the holder
or holders of such Designated

                                      83
<PAGE>

Senior Debt to accelerate the maturity thereof (or in the case of any lease,
permitting the landlord either to terminate the lease or to require the
Company to make an irrevocable offer to terminate the lease following an
event of default thereunder), no payment shall be made by the Company,
directly or indirectly, with respect to principal of, premium, if any, or
interest (including Liquidated Damages, if any) on the Securities for 179
days following notice in writing (a "Payment Blockage Notice") to the
Company, from any holder or holders of such Designated Senior Debt or their
representative or representatives or the trustee or trustees under any
indenture or under which any instrument evidencing any such Designated Senior
Debt may have been issued, that such an event of default has occurred and is
continuing, unless such event of default has been cured or waived or such
Designated Senior Debt has been paid in full; provided, however, if the
maturity of such Designated Senior Debt is accelerated (or in the case of any
lease, as a result of such event of default, the landlord under the lease has
given the Company notice of its intention to terminate the lease or to
require the Company to make an irrevocable offer to terminate the lease), no
payment may be made on the Securities until such Designated Senior Debt has
been paid in full in cash or other payment satisfactory to the holders of
such Designated Senior Debt or such acceleration (or termination, in the case
of a lease) has been cured or waived.

         For purposes of this Section 13.1(d), such Payment Blockage Notice
shall be deemed to include notice of all other events of default under such
indenture or instrument which are continuing at the time of the event of default
specified in such Payment Blockage Notice. The provisions of this Section
13.1(d) shall apply only to one such Payment Blockage Notice given in any period
of 365 days with respect to any issue of Designated Senior Debt, and no such
continuing event of default that existed or was continuing on the date of
delivery of any Payment Blockage Notice shall be, or shall be made, the basis
for a subsequent Payment Blockage Notice.

         (e) In the event that, notwithstanding the foregoing provisions of
Sections 13.1(a), 13.1(b), 13.1(c) and 13.1(d), any payment on account of
principal, premium, if any, or interest (including Liquidated Damages, if
any) on the Securities shall be made by or on behalf of the Company and
received by the Trustee, by any Holder or by any Paying Agent (or, if the
Company is acting as its own Paying Agent, money for any such payment shall
be segregated and held in trust):

                   (i)      after the occurrence of an event specified in
         Section 13.1(a) or 13.1(b), then, unless all Senior Debt is paid in
         full in cash, or provision shall be made therefor,

                   (ii)     after the happening of an event of default of the
         type specified in Section 13.1(c) above, then, unless the amount of
         such Senior Debt then due shall have been paid in full, or provision
         made therefor or such event of default shall have been cured or
         waived, or

                   (iii)    after the happening of an event of default of the
         type specified in Section 13.1(d) above and delivery of a Payment
         Blockage Notice, then, unless such event of default shall have been
         cured or waived or the 179-day period specified in Section 13.1(d)
         shall have expired,

                                      84
<PAGE>

such payment (subject, in each case, to the provisions of Section 13.7 hereof)
shall be held in trust for the benefit of, and shall be immediately paid over
to, the holders of Designated Senior Debt (unless an event described in Section
13.1(a), (b) or (c) has occurred, in which case the payment shall be held in
trust for the benefit of, and shall be immediately paid over to all holders of
Senior Debt) or their representative or representatives or the trustee or
trustees under any indenture under which any instruments evidencing any of the
Designated Senior Debt or Senior Debt, as the case may be, may have been issued,
as their interests may appear.

         SECTION 13.2      SUBROGATION.

         Subject to the payment in full of all Senior Debt to which the
Indebtedness evidenced by the Securities is in the circumstances subordinated as
provided in Section 13.1 hereof, the Holders of the Securities shall be
subrogated to the rights of the holders of such Senior Debt to receive payments
or distributions of cash, property or securities of the Company applicable to
such Senior Debt until all amounts owing on the Securities shall be paid in
full, and, as between the Company, its creditors other than holders of such
Senior Debt, and the Holders of the Securities, no such payment or distribution
made to the holders of Senior Debt by virtue of this Article which otherwise
would have been made to the holders of the Securities shall be deemed to be a
payment by the Company on account of such Senior Debt, provided that the
provisions of this Article are and are intended solely for the purpose of
defining the relative rights of the Holders of the Securities, on the one hand,
and the holders of Senior Debt, on the other hand.

         SECTION 13.3      OBLIGATION OF THE COMPANY IS ABSOLUTE AND
UNCONDITIONAL.

         Nothing contained in this Article or elsewhere in this Indenture or in
the Securities is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Debt, and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of and premium, if any,
and interest (including Liquidated Damages, if any) on the Securities as and
when the same shall become due and payable in accordance with their terms, or 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 Senior Debt, nor shall
anything contained 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 this Article
of the holders of Senior Debt in respect of cash, property or securities of the
Company received upon the exercise of any such remedy.

         SECTION 13.4      MATURITY OF OR DEFAULT ON SENIOR DEBT.

         Upon the maturity of any Senior Debt by lapse of time, acceleration or
otherwise, all principal of or premium, if any, or interest on, rent or other
payment obligations in respect of all such matured Senior Debt shall first be
paid in full, or such payment shall have been duly provided for, before any
payment on account of principal, or premium, if any, or interest (including
Liquidated Damages, if any) is made upon the Securities.

                                      85
<PAGE>

         SECTION 13.5      PAYMENTS ON SECURITIES PERMITTED.

         Except as expressly provided in this Article, nothing contained in this
Article shall affect the obligation of the Company to make, or prevent the
Company from making, payments of the principal of, or premium, if any, or
interest (including Liquidated Damages, if any) on the Securities in accordance
with the provisions hereof and thereof, or shall prevent the Trustee or any
Paying Agent from applying any moneys deposited with it hereunder to the payment
of the principal of, or premium, if any, or interest (including Liquidated
Damages, if any) on the Securities.

         SECTION 13.6      EFFECTUATION OF SUBORDINATION BY TRUSTEE.

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

         Upon any payment or distribution of assets of the Company referred to
in this Article, the Trustee and the Holders of the Securities shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction in
which any such dissolution, winding up, liquidation or reorganization proceeding
affecting the affairs of the Company is pending or upon a certificate of the
trustee in bankruptcy, receiver, assignee for the benefit of creditors,
liquidating trustee or agent or other Person making any payment or distribution,
delivered to the Trustee or to the Holders of the Securities, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, and as to other facts pertinent to the right of such Persons under
this Article, and if such evidence is not furnished, the Trustee may defer any
payment to such Persons pending judicial determination as to the right of such
Persons to receive such payment.

         SECTION 13.7      KNOWLEDGE OF TRUSTEE.

         Notwithstanding the provision of this Article or any other provisions
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any Senior Debt, of any default in payment of principal of,
premium, if any, or interest on, rent or other payment obligation in respect of
any Senior Debt, or of any facts which would prohibit the making of any payment
of moneys to or by the Trustee, or the taking of any other action by the
Trustee, unless a Responsible Officer of the Trustee having responsibility for
the administration of the trust established by this Indenture shall have
received written notice thereof from the Company, any Holder of Securities, any
Paying or Conversion Agent of the Company or the holder or representative of any
class of Senior Debt, and, prior to the receipt of any such written notice, the
Trustee shall be entitled in all respects to assume that no such default or
facts exist; provided, however, that unless on the third Business Day prior to
the date upon which by the terms hereof any such moneys may become payable for
any purpose the Trustee shall have received the notice provided for in this
Section 13.7, then, anything herein contained to the contrary notwithstanding,
the Trustee shall have full power and authority to receive such moneys and apply
the same to the purpose for which they were received, and shall not be affected
by any notice to the contrary which may be received by it on or after such date.

                                      86
<PAGE>

         SECTION 13.8      TRUSTEE'S RELATION TO SENIOR DEBT.

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

         Nothing contained in this Article shall apply to claims of or payments
to the Trustee under or pursuant to Section 5.8 hereof.

         With respect to the holders of Senior Debt, the Trustee undertakes to
perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article, and no implied covenants or obligations
with respect to the holders of Senior Debt shall be read into this Indenture
against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty
to the holders of Senior Debt and the Trustee shall not be liable to any holder
of Senior Debt if it shall pay over or deliver to Holders, the Company or any
other Person moneys or assets to which any holder of Senior Debt shall be
entitled by virtue of this Article or otherwise.

         SECTION 13.9      RIGHTS OF HOLDERS OF SENIOR DEBT NOT IMPAIRED.

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

         SECTION 13.10     MODIFICATION OF TERMS OF SENIOR DEBT.

         Any renewal or extension of the time of payment of any Senior Debt or
the exercise by the holders of Senior Debt of any of their rights under any
instrument creating or evidencing Senior Debt, including without limitation the
waiver of default thereunder, may be made or done all without notice to or
assent from the Holders of the Securities or the Trustee.

         No compromise, alteration, amendment, modification, extension, renewal
or other change of, or waiver, consent or other action in respect of, any
liability or obligation under or in respect of, or of any of the terms,
covenants or conditions of any indenture or other instrument under which any
Senior Debt is outstanding or of such Senior Debt, whether or not such release
is in accordance with the provisions or any applicable document, shall in any
way alter or affect any of the provisions of this Article or of the Securities
relating to the subordination thereof.

         SECTION 13.11     CERTAIN CONVERSIONS NOT DEEMED PAYMENT.

         For the purposes of this Article 13 only:

               (1) the issuance and delivery of junior securities upon
         conversion of Securities in accordance with Article 12 hereof shall
         not be deemed to constitute a payment or distribution on account
         of the principal of, premium, if any, or interest (including
         Liquidated Damages, if any) on Securities or on account of the
         purchase or other acquisition of Securities, and

                                      87
<PAGE>

               (2) the payment, issuance or delivery of cash (except in
         satisfaction of fractional shares pursuant to Section 12.3 hereof),
         property or securities (other than junior securities) upon conversion
         of a Security shall be deemed to constitute payment on account of the
         principal of, premium, if any, or interest (including Liquidated
         Damages, if any) on such Security.

For the purposes of this Section 13.11, the term "junior securities" means:

         (a) shares of any common stock of the Company or

         (b) other securities of the Company that are subordinated in right of
  payment to all Senior Debt that may be outstanding at the time of issuance
  or delivery of such securities to substantially the same extent as, or to a
  greater extent that, the Securities are so subordinated as provided in this
  Article.

Nothing contained in this Article 13 or elsewhere in this Indenture or in the
Securities is intended to or shall impair, as among the Company, its creditors
(other than holders of Senior Debt) and the Holders of Securities, the right,
which is absolute and unconditional, of the Holder of any Security to convert
such Security in accordance with Article 12 hereof.

                                      88
<PAGE>

                                  ARTICLE 14

                     OTHER PROVISIONS OF GENERAL APPLICATION

         SECTION 14.1      TRUST INDENTURE ACT CONTROLS.

         This Indenture is subject to the provisions of the TIA which are
required to be part of this Indenture, and shall, to the extent applicable, be
governed by such provisions.

         SECTION 14.2      NOTICES.

         Any notice or communication to the Company or the Trustee is duly given
if in writing and delivered in person or mailed by first-class mail to the
address set forth below:

         (a) if to the Company:

                    Inhale Therapeutic Systems, Inc.
                    150 Industrial Road
                    San Carlos, California
                    Attention:  Stephen L. Hurst, Esq.

             with a copy to:

                    Cooley Godward LLP
                    3000 Sand Hill Road
                    Building #3, Suite 230
                    Menlo Park, California 94025
                    Attention:  Mark P. Tanoury, Esq.

         (b) if to the Trustee:

                    Chase Manhattan Bank and Trust Company, National Association
                    101 California Street
                    Suite 2725
                    San Francisco, California 94111
                    Attention:  Corporate Trust Administration

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

         Any notice or communication to a Holder shall be mailed by first-class
mail to his address shown on the Register kept by the Registrar. Failure to mail
a notice or communication to a Holder or any defect in such notice or
communication shall not affect its sufficiency with respect to other Holders.

         If a notice or communication is mailed or sent in the manner provided
above within the time prescribed, it is duly given as of the date it is mailed,
whether or not the addressee receives it, except that notice to the Trustee
shall only be effective upon receipt thereof by the Trustee.

                                      89
<PAGE>

         If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee at the same time.

         SECTION 14.3      COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.

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

         SECTION 14.4      ACTS OF HOLDERS OF SECURITIES.

         (a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders of Securities may be embodied in and evidenced by:

                  (1) one or more instruments of substantially similar tenor
         signed by such Holders in person or by agent or proxy duly appointed in
         writing;

                  (2) the record of Holders of Securities voting in favor
         thereof, either in person or by proxies duly appointed in writing, at
         any meeting of Holders of Securities duly called and held in accordance
         with the provisions of Article 8; or

                  (3) a combination of such instruments and any such record.

Except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments or record or both are delivered to
the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments and record (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
of Securities signing such instrument or instruments and so voting at such
meeting. Proof of execution of any such instrument or of a writing appointing
any such agent or proxy, or of the holding by any Person of a Security, shall be
sufficient for any purpose of this Indenture and (subject to Section 5.1 hereof)
conclusive in favor of the Trustee and the Company if made in the manner
provided in this Section. The record of any meeting of Holders of Securities
shall be proved in the manner provided in Section 8.6 hereof.

         (b) The fact and date of the execution by any Person of any such
instrument or writing may be provided in any manner which the Trustee
reasonably deems sufficient.

         (c) The principal amount and serial numbers of Securities held by
any Person, and the date of such Person holding the same, shall be proved by
the Register.

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

                                      90
<PAGE>

         SECTION 14.5      CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.

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

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

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

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

         SECTION 14.6      STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.

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

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

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

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

                                      91
<PAGE>

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

         SECTION 14.7      EFFECT OF HEADINGS AND TABLE OF CONTENTS.

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

         SECTION 14.8      SUCCESSORS AND ASSIGNS.

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

         SECTION 14.9      SEPARABILITY CLAUSE.

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

         SECTION 14.10     BENEFITS OF INDENTURE.

         Nothing contained in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, the holders of Senior Debt and the Holders of Securities,
any benefit or legal or equitable right, remedy or claim under this Indenture.

         SECTION 14.11     GOVERNING LAW.

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

         SECTION 14.12     COUNTERPARTS.

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

         SECTION 14.13     LEGAL HOLIDAYS.

         In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security or the last day on which a Holder of a Security has a
right to convert such Security shall not be a Business Day at any Place of
Payment or Place of Conversion, then (notwithstanding any other provision of
this Indenture or of the Securities) payment of interest (including Liquidated
Damages, if any) or principal or premium, if any, or conversion of the
Securities, need not be made at such Place of Payment or Place of Conversion on
such day, but may be made on the next succeeding Business Day at such Place of
Payment or Place of Conversion with the same force and effect as if made on the
Interest Payment Date or Redemption Date or at the Stated Maturity or on such
last day for conversion, provided, that in the case that payment is

                                      92
<PAGE>

made on such succeeding Business Day, no interest shall accrue on the amount
so payable for the period from and after such Interest Payment Date,
Redemption Date or Stated Maturity, as the case may be.

         SECTION 14.14     RECOURSE AGAINST OTHERS.

         No recourse for the payment of the principal of or premium, if any, or
interest (including Liquidated Damages, if any) on any Security, or for any
claim based thereon or otherwise in respect thereof, shall be had against any
incorporator, shareholder, officer or director, as such, past, present or
future, of the Company or of any successor corporation, whether by virtue of any
constitution, statute or rule of law or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance thereof and as
part of the consideration for the issue thereof, expressly waived and released.

                                      93
<PAGE>

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

                                  INHALE THERAPEUTIC SYSTEMS, INC.

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

                                  CHASE MANHATTAN BANK AND TRUST COMPANY,
                                  NATIONAL ASSOCIATION

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

                                      94
<PAGE>
                                                                      EXHIBIT A
                                FORM OF SECURITY

                               [FACE OF SECURITY]

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY ("DTC") TO INHALE THERAPEUTIC SYSTEMS, INC. (OR ITS
SUCCESSOR) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, CONVERSION OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT HEREON 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 SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.(1)

THE SECURITY EVIDENCED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR
TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT
IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT; (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE
ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THE SECURITY
EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH
SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (D) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER; AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED
HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(D) ABOVE) A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THE SECURITY EVIDENCED HEREBY WITHIN TWO YEARS AFTER THE ORIGINAL
ISSUANCE OF SUCH SECURITY (OTHER THAN A TRANSFER PURSUANT TO CLAUSE (2)(D)
ABOVE), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE
HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO
THE TRUSTEE (OR ANY SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED
TRANSFER IS PURSUANT TO CLAUSE (2)(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE (OR ANY SUCCESSOR TRUSTEE, AS

------------------------------
(1) This legend should be included only if the Security is issued in global
    form.

<PAGE>

APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE
COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED
UPON THE EARLIER OF THE TRANSFER OF THE SECURITY EVIDENCED HEREBY PURSUANT TO
CLAUSE (2)(D) ABOVE OR THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE
OF THE SECURITY EVIDENCED HEREBY. AS USED HEREIN, THE TERMS "UNITED STATES"
AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.

                                      A-2
<PAGE>

                        INHALE THERAPEUTIC SYSTEMS, INC.

                  3 1/2% Convertible Subordinated Note due 2007

                                                         CUSIP NO. 457191 AG 9

No.________                                                        $___________

                  INHALE THERAPEUTIC SYSTEMS, INC., a Delaware corporation
(the "Company", which term includes any successor corporation under the
Indenture hereinafter referred to), for value received, hereby promises to
pay to ___________________, or its registered assigns, the principal sum of
_________________ U.S. Dollars ($______ ) on October 17, 2007.

                  Interest Payment Dates: April 17 and October 17, commencing
                  April 17, 2001

                  Regular Record Dates: April 2 and October 2

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

                                      A-3
<PAGE>

                  IN WITNESS WHEREOF, the Company has caused this Security to be
duly executed manually or by facsimile by its duly authorized officers.

Dated:  October 17, 2000                   INHALE THERAPEUTIC SYSTEMS, INC.

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

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

Trustee's Certificate of Authentication

This is one of the 3 1/2% Convertible Subordinated
Notes due 2007 described in the within-named Indenture.

CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION,
as Trustee

By:
    -------------------------------
         Authorized Signatory

Dated:                 , 2000
       ---------------

                                      A-4
<PAGE>

                              [REVERSE OF SECURITY]

                        INHALE THERAPEUTIC SYSTEMS, INC.

                  3 1/2% Convertible Subordinated Note due 2007

         Capitalized terms used herein but not defined shall have the meanings
assigned to them in the Indenture referred to below unless otherwise indicated.

1.       Principal and Interest.

         Inhale Therapeutic Systems, Inc., a Delaware corporation (the
"Company") promises to pay interest on the principal amount of this Security at
the Interest Rate from the date of issuance until repayment at Maturity,
redemption or repurchase. The Company will pay interest on this Security
semiannually in arrears on April 17 and October 17 of each year (each an
"Interest Payment Date"), commencing April 17, 2001.

         Interest on the Securities shall be computed (i) for any full
semiannual period for which a particular Interest Rate is applicable on the
basis of a 360-day year of twelve 30-day months and (ii) for any period for
which a particular Interest Rate is applicable shorter than a full semiannual
period for which interest is calculated, on the basis of a 30-day month and, for
such periods of less than a month, the actual number of days elapsed over a
30-day month.

         A Holder of any Security at the close of business on a Regular Record
Date shall be entitled to receive interest on such Security on the corresponding
Interest Payment Date. A Holder of any Security which is converted after the
close of business on a Regular Record Date and prior to the corresponding
Interest Payment Date (other than any Security whose Maturity is prior to such
Interest Payment Date) shall be entitled to receive interest on the principal
amount of such Security, notwithstanding the conversion of such Security prior
to such Interest Payment Date. However, any such Holder which surrenders any
such Security for conversion during the period between the close of business on
such Regular Record Date and ending with the opening of business on the
corresponding Interest Payment Date shall be required to pay the Company an
amount equal to the interest on the principal amount of such Security so
converted, which is payable by the Company to such Holder on such Interest
Payment Date, at the time such Holder surrenders such Security for conversion.
Notwithstanding the foregoing, any such Holder which surrenders for conversion
any Security which has been called for redemption by the Company in a notice of
redemption given by the Company pursuant to Section 10.5 of the Indenture shall
be entitled to receive (and retain) such interest and need not pay the Company
an amount equal to the interest on the principal amount of such Security so
converted at the time such Holder surrenders such Security for conversion.

         In accordance with the terms of the Resale Registration Rights
Agreement, dated October 17, 2000, between the Company and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc., Lehman
Brothers Inc. and U.S. Bancorp Piper Jaffray Inc., during the first 90 days
following a Registration Default (as defined in the Resale Registration Rights
Agreement), the Interest Rate borne by the Securities shall be increased by
0.25% on:

                                     A-5
<PAGE>

                  (A) January 17, 2001, if the shelf registration statement (the
         "Shelf Registration Statement") is not filed prior to or on January 16,
         2001;

                  (B) April 18, 2001, if the Shelf Registration Statement is not
         declared effective by the Securities and Exchange Commission prior to
         or on April 17, 2001;

                  (C) the day after the fifth Business Day after the Shelf
         Registration Statement, previously declared effective, ceases to be
         effective or fails to be usable, if a post-effective amendment (or
         report filed pursuant to the Exchange Act) that cures the Shelf
         Registration Statement is not filed with the Securities and Exchange
         Commission during such five Business Day period; or

                  (D) the day following the 45th or 60th day, as the case may
         be, of any period that the prospectus contained in the Shelf
         Registration Statement has been suspended, if such suspension has not
         been terminated.

From and after the 91st day following such Registration Default, the Interest
Rate borne by the Securities shall be increased by 0.50%. In no event shall the
Interest Rate borne by the Securities be increased by more than 0.50%.

         Any amount of additional interest will be payable in cash semiannually,
in arrears, on each Interest Payment Date and will cease to accrue on the date
the Registration Default is cured. The Holder of this Security is entitled to
the benefits of the Resale Registration Rights Agreement.

2.       Method of Payment.

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

         Principal of, and premium, if any, and interest on, Global Securities
will be payable to the Depositary in immediately available funds.

         Principal and premium, if any, on Physical Securities will be payable
at the office or agency of the Company maintained for such purpose, initially
the Corporate Trust Office of the Trustee. Interest on Physical Securities will
be payable by (i) U.S. Dollar check drawn on a bank in The City of New York
mailed to the address of the Person entitled thereto as such address shall
appear in the Register, or (ii) upon application to the Registrar not later than
the relevant Record Date by a Holder of an aggregate principal amount in excess
of $5,000,000, wire transfer in immediately available funds.

3.       Paying Agent and Registrar.

         Initially, Chase Manhattan Bank and Trust Company, National
Association, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change the Paying Agent or Registrar without notice
to any Holder.

                                     A-6
<PAGE>

4.       Indenture.

         The Company issued this Security under an Indenture, dated as of
October 17, 2000 (the "Indenture"), between the Company and Chase Manhattan Bank
and Trust Company, National Association, as trustee (the "Trustee"). The terms
of the Security include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended ("TIA").
This Security is subject to all such terms, and Holders are referred to the
Indenture and the TIA for a statement of all such terms. To the extent permitted
by applicable law, in the event of any inconsistency between the terms of this
Security and the terms of the Indenture, the terms of the Indenture shall
control.

5.       Provisional Redemption.

         The Securities may be redeemed at the election of the Company, as a
whole or from time to time in part or any date, at any time prior to October 17,
2003 (a "Provisional Redemption"), at a Redemption Price equal to $1,000 per
$1,000 principal amount of the Securities, on the date of redemption (the
"Provisional Redemption Date") if (i) the Closing Price of the Common Stock has
exceeded 150% of the Conversion Price (as may be adjusted from time to time)
then in effect for at least 20 Trading Days in any consecutive 30 Trading Day
period ending on the Trading Day prior to the date of mailing of the provisional
notice of redemption upon not less than 20 nor more than 60 days notice (the
"Notice Date'), and (ii) a registration statement covering resales of the
Securities and Common Stock issuable upon the conversion thereof is effective
and available for use and is expected to remain effective for the 30 days
following the Provisional Redemption Date.

         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 Notice Date in an amount equal to
$105.00 per $1,000 principal amount of the Securities, less the amount of any
interest actually paid on such Securities 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 may elect to pay the Make-Whole Payment or any portion
thereof (i) in cash or, (ii) subject to the fulfillment by the Company of the
conditions set forth in Section 10.1 of the Indenture, by delivering the number
of shares of Common Stock equal to (x) the Make-Whole Payment (or any portion
thereof that the Company elects to pay in shares of Common Stock) divided by (y)
97% of the average of the Closing Prices per share of Common Stock for the five
consecutive Trading Days immediately preceding and including the first Trading
Day prior to the Provisional Redemption Date.

6.       Optional Redemption.

         Except as provided above, this Security is not redeemable prior to
October 17, 2003. This Security may be redeemed in whole or in part, upon not
less than 20 nor more than 60 days' notice, at any time on or after October 17,
2003, at the option of the Company, at the Redemption Prices (expressed as
percentages of the principal amount) set forth below if

                                       A-7
<PAGE>

redeemed during the 12-month period beginning October 17 of the years
indicated and ending October 16 of the following years, plus any interest
accrued but not paid prior to the Optional Redemption Date, if the Closing
Price of the Common Stock has exceeded 120% of the Conversion Price (as
defined in Article 12 of the Indenture and as such may be adjusted from time
to time) then in effect for at least 20 Trading Days in any consecutive 30
Trading Day period ending on the Trading Day immediately prior to the date of
mailing of the notice of optional redemption pursuant to Section 10.5 of the
Indenture, plus any interest accrued but unpaid to the Redemption Date.

<TABLE>
<CAPTION>
                  DURING THE TWELVE MONTHS
                  COMMENCING                                                             REDEMPTION PRICES
                  ------------------------                                               -----------------
                  <S>                                                                    <C>
                  October 17, 2003..............................................         102.00%
                  October 17, 2004..............................................         101.50%
                  October 17, 2005..............................................         101.00%
                  October 17, 2006..............................................         100.50%
</TABLE>

         Securities in original denominations larger than $1,000 may be redeemed
in part. If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed to
be the portion selected for redemption (provided, however, that the Holder of
such Security so converted and deemed redeemed shall not be entitled to any
additional interest payment as a result of such deemed redemption than such
Holder would have otherwise been entitled to receive upon conversion of such
Security). Securities which have been converted during a selection of Securities
to be redeemed may be treated by the Trustee as Outstanding for the purpose of
such selection.

         On and after the Redemption Date, interest ceases to accrue on
Securities or portions of Securities called for redemption, unless the Company
defaults in the payment of the Redemption Price and accrued and unpaid interest.

         Notice of redemption will be given by the Company to the Holders as
provided in the Indenture.

7.       Repurchase Right Upon a Change of Control.

         If a Change in Control occurs, the Holder of Securities, at the
Holder's option, shall have the right, in accordance with the provisions of the
Indenture, to require the Company to repurchase the Securities (or any portion
of the principal amount hereof that is at least $1,000 or an integral multiple
thereof, provided that the portion of the principal amount of this Security to
be Outstanding after such repurchase is at least equal to $1,000) at the
Repurchase Price in cash, plus any interest accrued and unpaid to the Repurchase
Date.

                                       A-8
<PAGE>

         Subject to the conditions provided in the Indenture, the Company may
elect to pay the Repurchase Price by delivering a number of shares of Common
Stock equal to (i) the Repurchase Price divided by (ii) 95% of the average of
the Closing Prices per share for the five consecutive Trading Days immediately
preceding and including the third Trading Day prior to the Repurchase Date.

         No fractional shares of Common Stock will be issued upon repurchase of
any Securities. Instead of any fractional share of Common Stock which would
otherwise be issued upon conversion of such Securities, the Company shall pay a
cash adjustment as provided in the Indenture.

         A Company Notice will be given by the Company to the Holders as
provided in the Indenture. To exercise a repurchase right, a Holder must deliver
to the Trustee a written notice as provided in the Indenture.

8.       Conversion Rights.

         Subject to and upon compliance with the provisions of the Indenture,
the Holder of Securities is entitled, at such Holder's option, at any time
before the close of business on October 17, 2007, to convert the Holder's
Securities (or any portion of the principal amount hereof which is $1,000 or an
integral multiple thereof), at the principal amount thereof or of such portion,
into duly authorized, fully paid and nonassessable shares of Common Stock of the
Company at the Conversion Price in effect at the time of conversion.

         In the case of a Security (or a portion thereof) called for redemption,
such conversion right in respect of the Security (or such portion thereof) so
called, shall expire at the close of business on the second Business Day
preceding the Redemption Date, unless the Company defaults in making the payment
due upon redemption. In the case of a Change of Control for which the Holder
exercises its Repurchase Right with respect to a Security (or a portion
thereof), such conversion right in respect of the Security (or portion thereof)
shall expire at the close of business on the Business Day preceding the
Repurchase Date.

         The Conversion Price shall be initially equal to $50.46 per share of
Common Stock. The Conversion Price shall be adjusted under certain circumstances
as provided in the Indenture.

         To exercise the conversion right, the Holder must surrender the
Security (or portion thereof) duly endorsed or assigned to the Company or in
blank, at the office of the Conversion Agent, accompanied by a duly signed
conversion notice to the Company. Any Security surrendered for conversion during
the period from the close of business on any Regular Record Date to the opening
of business on the corresponding Interest Payment Date (other than any Security
whose Maturity is prior to such Interest Payment Date), shall also be
accompanied by payment in New York Clearing House funds or other funds
acceptable to the Company of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of the Securities being
surrendered for conversion.

         No fractional shares of Common Stock will be issued upon conversion of
any Securities. Instead of any fractional share of Common Stock which would
otherwise be issued upon conversion of such Securities, the Company shall pay a
cash adjustment as provided in the Indenture.

9.       Subordination.

         The Indebtedness evidenced by this Security is, to the extent and in
the manner provided in the Indenture, subordinated and subject in right of
payment to the prior payment in full of all

                                       A-9
<PAGE>

amounts then due on all Senior Debt of the Company, and this Security is
issued subject to such provisions of the Indenture with respect thereto. Each
Holder of this Security, by accepting the same, (a) agrees to and shall be
bound by such provisions, (b) authorizes and directs the Trustee on such
Holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination so provided and (c) appoints the Trustee such
Holder's attorney-in-fact for any and all such purposes.

10.      Denominations; Transfer; Exchange.

         The Securities are issuable in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000 in excess thereof. A
Holder may register the transfer or exchange of Securities in accordance with
the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture.

         In the event of a redemption in part, the Company will not be required
(a) to register the transfer of, or exchange, Securities for a period of 15 days
immediately preceding the date notice is given identifying the serial numbers of
the Securities called for such redemption, or (b) to register the transfer of,
or exchange, any such Securities, or portion thereof, called for redemption.

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

11.      Persons Deemed Owners.

         The registered Holder of this Security shall be treated as its owner
for all purposes.

12.      Unclaimed Money.

         The Trustee and the Paying Agent shall pay to the Company any money
held by them for the payment of principal, premium, if any, or interest that
remains unclaimed for two years after the date upon which such payment shall
have become due. After payment to the Company, Holders entitled to the money
must look to the Company for payment as general creditors unless an applicable
abandoned property law designates another Person, and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.

13.      Discharge Prior to Redemption or Maturity.

         Subject to certain conditions contained in the Indenture, the Company
may discharge its obligations under the Securities and the Indenture if (1) (a)
all of the Outstanding Securities shall become due and payable at their
scheduled Maturity within one year or (b) all of the Outstanding Securities are
scheduled for redemption within one year, and (2) the Company shall have
deposited with the Trustee money and/or U.S. Government Obligations sufficient
to pay the principal of, and premium, if any, and interest on, all of the
Outstanding Securities on the date of Maturity or redemption, as the case may
be.

                                       A-10
<PAGE>

14.      Amendment; Supplement; Waiver.

         The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Outstanding Securities (or such
lesser amount as shall have acted at a meeting pursuant to the provisions of the
Indenture). The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by the Holder of this Security shall be conclusive and binding upon such Holder
and upon all future Holders of this Security and of any Security issued upon
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security or
such other Security.

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

15.      Defaults and Remedies.

         The Indenture provides that an Event of Default with respect to the
Securities occurs when any of the following occurs:

                  (a) the Company defaults in the payment of the principal of or
         premium, if any, on any of the Securities when it becomes due and
         payable at Maturity, upon redemption or exercise of a Repurchase Right
         or otherwise, whether or not such payment is prohibited by the
         subordination provisions of Article 13 of the Indenture;

                  (b) the Company defaults in the payment of interest on any of
         the Securities when it becomes due and payable and such default
         continues for a period of 30 days, whether or not such payment is
         prohibited by the subordination provisions of Article 13 of the
         Indenture;

                  (c) the Company fails to perform or observe any other term,
         covenant or agreement contained in the Securities or the Indenture and
         such default continues for a period of 60 days after written notice of
         such failure is given as specified in the Indenture;

                  (d) (i) the Company fails to make any payment by the end of
         the applicable grace period, if any, after the maturity of any
         Indebtedness for borrowed money in an amount in excess of $5,000,000
         (provided that such failure shall not constitute an Event of Default if
         (1) the Company determines, in good faith, that a lessor under a lease
         described in clause (3)(a) of the definition of Indebtedness set forth
         in the Indenture breached a covenant under the lease and the Company
         has given notice of the

                                       A-11
<PAGE>

         breach to the lessor and the Trustee and (2) as a result of the breach,
         the Company withholds payment under the lease) (a "Default Exception"),
         or (ii) there is an acceleration of any Indebtedness for borrowed money
         in an amount in excess of $5,000,000 because of a default with respect
         to such Indebtedness (other than a Default Exception) without such
         Indebtedness having been discharged or such acceleration having been
         cured, waived, rescinded or annulled, in the case of either clause (i)
         or (ii) above, for a period of 30 days after written notice is given to
         the Company as specified in the Indenture; and

                  (e) there are certain events of bankruptcy, insolvency or
         reorganization of the Company.

         If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.

16.      Authentication.

         This Security shall not be valid until the Trustee (or authenticating
agent) executes the certificate of authentication on the other side of this
Security.

17.      Abbreviations.

         Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), 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).

18.      Additional Rights of Holders of Transfer Restricted Securities.

         In addition to the rights provided to Holders under the Indenture,
Holders of Transfer Restricted Securities shall have all the rights set forth in
the Registration Rights Agreement.

19.      CUSIP Numbers.

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

20.      Governing Law.

         The Indenture and this Security shall be governed by, and construed in
accordance with, the law of the State of New York.

                                       A-12

<PAGE>

21.      Successor Corporation.

         In the event a successor corporation assumes all the obligations of the
Company under this Security, pursuant to the terms hereof and of the Indenture,
the Company will be released from all such obligations.

                                       A-13

<PAGE>

                                 ASSIGNMENT FORM

         To assign this Security, fill in the form below and have your signature
guaranteed: (I) or (we) assign and transfer this Security to:

         _______________________________________________________________________
                  (Insert assignee's soc. sec. or tax I.D. no.)
         _______________________________________________________________________
         _______________________________________________________________________
         _______________________________________________________________________
         _______________________________________________________________________
         _______________________________________________________________________
              (Print or type assignee's name, address and zip code)

and irrevocably appoint_________________________________________________________
to transfer this Security on the books of the Company.  The agent may substitute
another to act for him.
Dated:_________________    Your Name:___________________________________________
                           (Print your name exactly as it appears on the face
                           of this Security)

                           Your Signature:______________________________________
                           (Sign exactly as your name appears on the face of
                           this Security)

                           Signature Guarantee*:________________________________

         * PARTICIPANT IN A RECOGNIZED SIGNATURE GUARANTEE MEDALLION PROGRAM (OR
OTHER SIGNATURE GUARANTOR ACCEPTABLE TO THE TRUSTEE).

                                       A-14

<PAGE>

In connection with any transfer of this Security occurring prior to the date
which is the earlier of the end of the period referred to in Rule 144(k) under
the Securities Act, the undersigned confirms that without utilizing any general
solicitation or general advertising that:

                           [Check One]

[ ] (a) this Security is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided by Rule 144A
thereunder.

                           or

[ ] (b) this Security is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the conditions of
transfer set forth in this Security and the Indenture.

If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Security in the name of any Person other than
the Holder hereof unless the conditions to any such transfer of registration set
forth herein and in Sections 2.7, 2.8 and 2.9 of the Indenture shall have been
satisfied.

Dated:______________    ________________________________________________________
                        NOTICE: The signature to this assignment must correspond
                        with the name as written upon the face of the
                        within-mentioned instrument in every particular, without
                        alteration or any change whatsoever.

                        Signature Guarantee:

                        ________________________________________________________
                        Signature must be guaranteed by a
                        participant in a recognized
                        signature guaranty medallion program
                        or other signature guarantor
                        acceptable to the Trustee.

                                      A-15

<PAGE>

TO BE COMPLETED BY PURCHASER IF (a) 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, in each case for investment and not with a view to
distribution, and that it and any such account is a "Qualified Institutional
Buyer" within the meaning of Rule 144A under the Securities Act of 1933 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 not to request
such information and that it is aware that the 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-16
<PAGE>

                                CONVERSION NOTICE

TO:      INHALE THERAPEUTIC SYSTEMS, INC.
         150 Industrial Road
         San Carlos, California 94070

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

Dated:                            Your Name:
      -------------------                   -----------------------------------
                                        (Print your name exactly as it appears
                                        on the face of this Security)

                                  Your Signature:
                                                 ------------------------------
                                        (Sign exactly as your name appears on
                                        the face of this Security)

                                  Signature Guarantee*:
                                                       ------------------------

                                  Social Security or other Taxpayer
                                  Identification Number:
                                                         ----------------------

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

         * PARTICIPANT IN A RECOGNIZED SIGNATURE GUARANTEE MEDALLION PROGRAM (OR
OTHER SIGNATURE GUARANTOR ACCEPTABLE TO THE TRUSTEE).

                                     A-17

<PAGE>

Fill in for registration of shares (if to be issued) and Securities (if to be
delivered) other than to and in the name of the registered holder:

                  ------------------------------------------------------
                  (Name)

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

                  ------------------------------------------------------
                  (City, State and Zip Code)

                                     A-18

<PAGE>

                     NOTICE OF EXERCISE OF REPURCHASE RIGHT

TO:      INHALE THERAPEUTIC SYSTEMS, INC.
         150 Industrial Road
         San Carlos, California 94070

         The undersigned registered owner of this Security hereby irrevocably
acknowledges receipt of a notice from Inhale Therapeutic Systems, Inc. (the
"Company") as to the occurrence of a Change of Control with respect to the
Company and requests and instructs the Company to repay the entire principal
amount of this Security, or the portion thereof (which is $1,000 principal
amount or an integral multiple thereof) below designated, in accordance with the
terms of the Indenture referred to in this Security, together with interest
(including Liquidated Damages, if any) accrued and unpaid to, but excluding,
such date, to the registered holder hereof, in cash or by delivery of shares of
Common Stock as specified in the Company's notice.

Dated:                            Your Name:
      -------------------                   -----------------------------------
                                        (Print your name exactly as it appears
                                        on the face of this Security)

                                  Your Signature:
                                                 ------------------------------
                                        (Sign exactly as your name appears on
                                        the face of this Security)

                                  Signature Guarantee*:
                                                       ------------------------

                                  Social Security or other Taxpayer
                                  Identification Number:
                                                         ----------------------

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

         * PARTICIPANT IN A RECOGNIZED SIGNATURE GUARANTEE MEDALLION PROGRAM (OR
OTHER SIGNATURE GUARANTOR ACCEPTABLE TO THE TRUSTEE).

                                     A-19

<PAGE>

SCHEDULE OF EXCHANGES FOR PHYSICAL SECURITIES(2)

          The following exchanges of a part of this Global Security for
Physical Securities have been made:

<TABLE>
<CAPTION>
                                                                          Principal Amount of
                           Amount of decrease                            this Global Security
                           in Principal Amount   Amount of increase in      following such          Signature of
                             of this Global       Principal Amount of        decrease (or        authorized officer
    Date of Exchange            Security          this Global Security         increase)             of Trustee
---------------------     --------------------   ---------------------   ---------------------   -------------------
<S>                       <C>                   <C>                      <C>                    <C>

</TABLE>
--------------------
(2) This schedule should be included only if the Security is issued in global
    form.

                                     A-20

<PAGE>

===============================================================================

                                    INDENTURE

                                     BETWEEN

                        INHALE THERAPEUTIC SYSTEMS, INC.,

                                    AS ISSUER

                                       AND

                     CHASE MANHATTAN BANK AND TRUST COMPANY,
                              NATIONAL ASSOCIATION

                                   AS TRUSTEE

                 3 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2007

                          DATED AS OF OCTOBER 17, 2000

===============================================================================

<PAGE>

                             CROSS-REFERENCE TABLE*

<TABLE>
<CAPTION>

Trust Indenture                                                                                           Indenture
Act Section                                                                                                 Section
----------------                                                                                          ----------
<S>                                                                                                      <C>
310(a)(1)......................................................................................................5.11
         (a)(2)................................................................................................5.11
         (a)(3).................................................................................................n/a
         (a)(4).................................................................................................n/a
         (a)(5)................................................................................................5.11
         (b)..............................................................................................5.3; 5.11
         (c)....................................................................................................n/a

311(a)   5.12
         (b)...................................................................................................5.12
         (c)....................................................................................................n/a

312(a)   2.10
         (b) ..................................................................................................14.3
         (c)...................................................................................................14.3

313(a)   5.7
         (b)(1).................................................................................................n/a
         (b)(2).................................................................................................5.7
         (c)..............................................................................................5.7; 14.2
         (d)....................................................................................................5.7

314(a)(1), (2), (3).......................................................................................9.6; 14.6
         (a)(4)......................................................................................9.6; 9.7; 14.6
         (b)....................................................................................................n/a
         (c)(1)................................................................................................14.5
         (c)(2)................................................................................................14.5
         (c)(3).................................................................................................n/a
         (d)....................................................................................................n/a
         (e)...................................................................................................14.6
         (f)....................................................................................................n/a

315(a)   ....................................................................................................5.1(a)
         (b)..............................................................................................5.6; 14.2
         (c).................................................................................................5.1(b)
         (d).................................................................................................5.1(c)
         (e)...................................................................................................4.14

316(a)(last sentence)..........................................................................................2.13
         (a)(1)(A)..............................................................................................4.5
         (a)(1)(B)..............................................................................................4.4
         (a)(2).................................................................................................n/a
         (b)....................................................................................................4.7

                                       i.

<PAGE>

         (c)....................................................................................................7.4

317(a)(1).......................................................................................................4.8
         (a)(2).................................................................................................4.9
         (b)....................................................................................................2.5

318(a)   14.1
         (b)....................................................................................................n/a
         (c)...................................................................................................14.1

</TABLE>
--------------------------------
"n/a" means not applicable.

*This Cross-Reference Table shall not, for any purpose, be deemed to be a
 part of the Indenture.

                                      ii.
<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                               PAGE

                                Table of Contents
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                           <C>
ARTICLE 1         DEFINITIONS AND INCORPORATION BY REFERENCE

Section 1.1.      Definitions.....................................................................................2
Section 1.2.      Incorporation by Reference of Trust Indenture Act..............................................13
Section 1.3.      Rules of Construction..........................................................................14

ARTICLE 2         THE SECURITIES

Section 2.1.      Title and Terms................................................................................15
Section 2.2.      Form of Securities.............................................................................16
Section 2.3.      Legends........................................................................................17
Section 2.4.      Execution, Authentication, Delivery and Dating.................................................22
Section 2.5.      Registrar and Paying Agent.....................................................................22
Section 2.6.      Paying Agent to Hold Assets in Trust...........................................................23
Section 2.7.      General Provisions Relating to Transfer and Exchange...........................................23
Section 2.8.      Book-Entry Provisions for the Global Securities................................................24
Section 2.9.      Special Transfer Provisions....................................................................25
Section 2.10.     Holder Lists...................................................................................27
Section 2.11.     Persons Deemed Owners..........................................................................28
Section 2.12.     Mutilated, Destroyed, Lost or Stolen Securities................................................28
Section 2.13.     Treasury Securities............................................................................29
Section 2.14.     Temporary Securities...........................................................................29
Section 2.15.     Cancellation...................................................................................29
Section 2.16.     CUSIP Numbers..................................................................................30
Section 2.17.     Defaulted Interest.............................................................................30

ARTICLE 3         SATISFACTION AND DISCHARGE

Section 3.1.      Satisfaction and Discharge of Indenture........................................................31
Section 3.2.      Deposited Monies to be Held in Trust...........................................................32
Section 3.3.      Return of Unclaimed Monies.....................................................................32

ARTICLE 4         DEFAULTS AND REMEDIES

Section 4.1.      Events of Default..............................................................................33
Section 4.2.      Acceleration of Maturity; Rescission and Annulment.............................................34
Section 4.3.      Other Remedies.................................................................................35
Section 4.4.      Waiver of Past Defaults........................................................................35
Section 4.5.      Control by Majority............................................................................35
Section 4.6.      Limitation on Suit.............................................................................36
Section 4.7.      Unconditional Rights of Holders to Receive Payment and to Convert..............................36
Section 4.8.      Collection of Indebtedness and Suits for Enforcement by the Trustee............................37

                                     iii.

<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)
<CAPTION>
                                                                                                               PAGE
<S>                                                                                                           <C>
Section 4.9.      Trustee May File Proofs of Claim...............................................................37
Section 4.10.     Restoration of Rights and Remedies.............................................................38
Section 4.11.     Rights and Remedies Cumulative.................................................................38
Section 4.12.     Delay or Omission Not Waiver...................................................................38
Section 4.13.     Application of Money Collected.................................................................39
Section 4.14.     Undertaking for Costs..........................................................................39
Section 4.15.     Waiver of Stay or Extension Laws...............................................................39

ARTICLE 5         THE TRUSTEE

Section 5.1.      Certain Duties and Responsibilities............................................................41
Section 5.2.      Certain Rights of Trustee......................................................................42
Section 5.3.      Individual Rights of Trustee...................................................................43
Section 5.4.      Money Held in Trust............................................................................43
Section 5.5.      Trustee's Disclaimer...........................................................................43
Section 5.6.      Notice of Defaults.............................................................................44
Section 5.7.      Reports by Trustee to Holders..................................................................44
Section 5.8.      Compensation and Indemnification...............................................................44
Section 5.9.      Replacement of Trustee.........................................................................45
Section 5.10.     Successor Trustee by Merger, Etc...............................................................46
Section 5.11.     Corporate Trustee Required; Eligibility........................................................46
Section 5.12.     Collection of Claims Against the Company.......................................................46

ARTICLE 6         CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

Section 6.1.      Company May Consolidate, Etc...................................................................47
Section 6.2.      Successor Corporation Substituted..............................................................47

ARTICLE 7         AMENDMENTS, SUPPLEMENTS AND WAIVERS

Section 7.1.      Without Consent of Holders of Securities.......................................................49
Section 7.2.      With Consent of Holders of Securities..........................................................50
Section 7.3.      Compliance with Trust Indenture Act............................................................51
Section 7.4.      Revocation of Consents and Effect of Consents or Votes.........................................51
Section 7.5.      Notation on or Exchange of Securities..........................................................51
Section 7.6.      Trustee to Sign Amendment, Etc.................................................................52

ARTICLE 8         MEETING OF HOLDERS OF SECURITIES

Section 8.1.      Purposes for Which Meetings May Be Called......................................................53
Section 8.2.      Call Notice and Place of Meetings..............................................................53
Section 8.3.      Persons Entitled to Vote at Meetings...........................................................53
Section 8.4.      Quorum; Action.................................................................................53
Section 8.5.      Determination of Voting Rights; Conduct and Adjournment of Meetings............................54
Section 8.6.      Counting Votes and Recording Action of Meetings................................................55

                                     iv.

<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)
<CAPTION>
                                                                                                               PAGE
<S>                                                                                                           <C>
ARTICLE 9         COVENANTS

Section 9.1.      Payment of Principal, Premium and Interest.....................................................56
Section 9.2.      Maintenance of Offices or Agencies.............................................................56
Section 9.3.      Corporate Existence............................................................................57
Section 9.4.      Maintenance of Properties......................................................................57
Section 9.5.      Payment of Taxes and Other Claims..............................................................57
Section 9.6.      Reports........................................................................................57
Section 9.7.      Compliance Certificate.........................................................................58
Section 9.8.      Resale of Certain Securities...................................................................58

ARTICLE 10        REDEMPTION OF SECURITIES

Section 10.1.     Provisional Redemption.........................................................................59
Section 10.2.     Optional Redemption............................................................................59
Section 10.3.     Notice to Trustee..............................................................................60
Section 10.4.     Selection of Securities to Be Redeemed.........................................................60
Section 10.5.     Notice of Redemption...........................................................................60
Section 10.6.     Effect of Notice of Redemption.................................................................61
Section 10.7.     Deposit of Redemption Price....................................................................61
Section 10.8.     Securities Redeemed in Part....................................................................62

ARTICLE 11        REPURCHASE AT THE OPTION OF A HOLDER UPON A CHANGE OF CONTROL

Section 11.1.     Repurchase Right...............................................................................63
Section 11.2.     Conditions to the Company's Election to Pay the Repurchase Price in Common Stock...............63
Section 11.3.     Notices; Method of Exercising Repurchase Right, Etc............................................64

ARTICLE 12        CONVERSION OF SECURITIES

Section 12.1.     Conversion Right and Conversion Price..........................................................68
Section 12.2.     Exercise of Conversion Right...................................................................68
Section 12.3.     Fractions of Shares............................................................................69
Section 12.4.     Adjustment of Conversion Price.................................................................69
Section 12.5.     Notice of Adjustments of Conversion Price......................................................78
Section 12.6.     Notice Prior to Certain Actions................................................................78
Section 12.7.     Company to Reserve Common Stock................................................................79
Section 12.8.     Taxes on Conversions...........................................................................79
Section 12.9.     Covenant as to Common Stock....................................................................80
Section 12.10.    Cancellation of Converted Securities...........................................................80
Section 12.11.    Effect of Reclassification, Consolidation, Merger or Sale......................................80
Section 12.12.    Responsibility of Trustee for Conversion Provisions............................................81

                                      v.

<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)
<CAPTION>
                                                                                                               PAGE
<S>                                                                                                           <C>
ARTICLE 13        SUBORDINATION

Section 13.1.     Securities Subordinated to Senior Debt.........................................................83
Section 13.2.     Subrogation....................................................................................85
Section 13.3.     Obligation of the Company is Absolute and Unconditional........................................85
Section 13.4.     Maturity of or Default on Senior Debt..........................................................85
Section 13.5.     Payments on Securities Permitted...............................................................86
Section 13.6.     Effectuation of Subordination by Trustee.......................................................86
Section 13.7.     Knowledge of Trustee...........................................................................86
Section 13.8.     Trustee's Relation to Senior Debt..............................................................87
Section 13.9.     Rights of Holders of Senior Debt Not Impaired..................................................87
Section 13.10.    Modification of Terms of Senior Debt...........................................................87
Section 13.11.    Certain Conversions Not Deemed Payment.........................................................87

ARTICLE 14        OTHER PROVISIONS OF GENERAL APPLICATION

Section 14.1.     Trust Indenture Act Controls...................................................................89
Section 14.2.     Notices........................................................................................89
Section 14.3.     Communication by Holders with Other Holders....................................................90
Section 14.4.     Acts of Holders of Securities..................................................................90
Section 14.5.     Certificate and Opinion as to Conditions Precedent.............................................91
Section 14.6.     Statements Required in Certificate or Opinion..................................................91
Section 14.7.     Effect of Headings and Table of Contents.......................................................92
Section 14.8.     Successors and Assigns.........................................................................92
Section 14.9.     Separability Clause............................................................................92
Section 14.10.    Benefits of Indenture..........................................................................92
Section 14.11.    Governing Law..................................................................................92
Section 14.12.    Counterparts...................................................................................92
Section 14.13.    Legal Holidays.................................................................................92
Section 14.14.    Recourse Against Others........................................................................93

                                     vi.

<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)
<CAPTION>
                                                                                                               PAGE
<S>                                                                                                           <C>
EXHIBITS

         EXHIBIT A:                 Form of Security                                                            A-1

</TABLE>

                                     vii.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00019-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00019-of-00352.parquet"}]]