Document:

Exhibit
4.3

 

 

 

INDENTURE

 

between

 

NEKTAR
THERAPEUTICS,

 

as
Issuer

 

and

 

J.P. MORGAN
TRUST COMPANY,

NATIONAL ASSOCIATION

 

as
Trustee

 

3%
CONVERTIBLE SUBORDINATED NOTES DUE 2010

 

Dated
as of June 30, 2003

 

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I

  
	
   

  
	
  DEFINITIONS
  AND INCORPORATION BY REFERENCE

  
	
   

  
	
  Section 1.1.

  	
  Definitions

  
	
  Section 1.2.

  	
  Incorporation by Reference of Trust
  Indenture Act

  
	
  Section 1.3.

  	
  Rules of Construction

  
	
   

  	
   

  
	
  ARTICLE II

  
	
   

  
	
  THE SECURITIES

  
	
   

  
	
  Section 2.1.

  	
  Title and Terms

  
	
  Section 2.2.

  	
  Form of Securities

  
	
  Section 2.3.

  	
  Legends

  
	
  Section 2.4.

  	
  Execution, Authentication, Delivery and
  Dating

  
	
  Section 2.5.

  	
  Registrar and Paying Agent

  
	
  Section 2.6.

  	
  Paying Agent to Hold Assets in Trust

  
	
  Section 2.7.

  	
  General Provisions Relating to Transfer and
  Exchange

  
	
  Section 2.8.

  	
  Book-Entry Provisions for the Global
  Securities

  
	
  Section 2.9.

  	
  Special
  Transfer Provisions

  
	
  Section 2.10.

  	
  Holder Lists

  
	
  Section 2.11.

  	
  Persons Deemed
  Owners

  
	
  Section 2.12.

  	
  Mutilated, Destroyed, Lost or Stolen
  Securities

  
	
  Section 2.13.

  	
  Treasury Securities

  
	
  Section 2.14.

  	
  Temporary Securities

  
	
  Section 2.15.

  	
  Cancellation

  
	
  Section 2.16.

  	
  CUSIP Numbers

  
	
  Section 2.17.

  	
  Defaulted Interest

  
	
   

  	
   

  
	
  ARTICLE III

  
	
   

  
	
  SATISFACTION AND DISCHARGE

  
	
   

  	
   

  
	
  Section 3.1.

  	
  Satisfaction and Discharge of Indenture

  
	
  Section 3.2.

  	
  Deposited Monies to be Held in Trust

  
	
  Section 3.3.

  	
  Return of Unclaimed Monies

  

 

i

 

	
  ARTICLE IV

  
	
   

  
	
  DEFAULTS
  AND REMEDIES

  
	
   

  	
   

  
	
  Section 4.1.

  	
  Events of Default

  
	
  Section 4.2.

  	
  Acceleration of Maturity; Rescission and
  Annulment

  
	
  Section 4.3.

  	
  Other Remedies

  
	
  Section 4.4.

  	
  Waiver of Past Defaults

  
	
  Section 4.5.

  	
  Control by Majority

  
	
  Section 4.6.

  	
  Limitation on Suit

  
	
  Section 4.7.

  	
  Unconditional Rights of Holders to Receive
  Payment and to Convert

  
	
  Section 4.8.

  	
  Collection of Indebtedness and Suits for
  Enforcement by the Trustee

  
	
  Section 4.9.

  	
  Trustee May File Proofs of Claim

  
	
  Section 4.10.

  	
  Restoration of Rights and Remedies

  
	
  Section 4.11.

  	
  Rights and Remedies Cumulative

  
	
  Section 4.12.

  	
  Delay or Omission Not Waiver

  
	
  Section 4.13.

  	
  Application of Money Collected

  
	
  Section 4.14.

  	
  Undertaking for Costs

  
	
  Section 4.15.

  	
  Waiver of Stay or Extension Laws

  
	
   

  
	
  ARTICLE V

  
	
   

  
	
  THE TRUSTEE

  
	
   

  
	
  Section 5.1.

  	
  Certain Duties and Responsibilities

  
	
  Section 5.2.

  	
  Certain Rights of Trustee

  
	
  Section 5.3.

  	
  Individual Rights of Trustee

  
	
  Section 5.4.

  	
  Money Held in Trust

  
	
  Section 5.5.

  	
  Trustee’s Disclaimer

  
	
  Section 5.6.

  	
  Notice of Defaults

  
	
  Section 5.7.

  	
  Reports by Trustee to Holders

  
	
  Section 5.8.

  	
  Compensation and Indemnification

  
	
  Section 5.9.

  	
  Replacement of Trustee

  
	
  Section 5.10.

  	
  Successor Trustee by Merger, Etc

  
	
  Section 5.11.

  	
  Corporate Trustee Required; Eligibility

  
	
  Section 5.12.

  	
  Collection of Claims Against the Company

  
	
   

  	
   

  
	
  ARTICLE VI

  
	
   

  
	
  CONSOLIDATION,
  MERGER, CONVEYANCE, TRANSFER OR LEASE

  
	
   

  	
   

  
	
  Section 6.1.

  	
  Company May Consolidate, Etc., Only on
  Certain Terms

  
	
  Section 6.2.

  	
  Successor Corporation Substituted

  

 

ii

 

	
  ARTICLE VII

  
	
   

  
	
  AMENDMENTS,
  SUPPLEMENTS AND WAIVERS

  
	
   

  	
   

  
	
  Section 7.1.

  	
  Without Consent of Holders of Securities

  
	
  Section 7.2.

  	
  With Consent of Holders of Securities

  
	
  Section 7.3.

  	
  Compliance with Trust Indenture Act

  
	
  Section 7.4.

  	
  Revocation of Consents and Effect of
  Consents or Votes

  
	
  Section 7.5.

  	
  Notation on or Exchange of Securities

  
	
  Section 7.6.

  	
  Trustee to Sign Amendment, Etc

  
	
   

  	
   

  
	
  ARTICLE VIII

  
	
   

  
	
  MEETING OF HOLDERS OF
  SECURITIES

  
	
   

  	
   

  
	
  Section 8.1.

  	
  Purposes for Which Meetings May Be Called

  
	
  Section 8.2.

  	
  Call Notice and Place of Meetings

  
	
  Section 8.3.

  	
  Persons Entitled to Vote at Meetings

  
	
  Section 8.4.

  	
  Quorum; Action

  
	
  Section 8.5.

  	
  Determination of Voting Rights; Conduct
  and Adjournment of Meetings

  
	
  Section 8.6.

  	
  Counting Votes and Recording Action of
  Meetings

  
	
   

  	
   

  
	
  ARTICLE IX

  
	
   

  
	
  COVENANTS

  
	
   

  	
   

  
	
  Section 9.1.

  	
  Payment of Principal, Premium and Interest

  
	
  Section 9.2.

  	
  Maintenance of Offices or Agencies

  
	
  Section 9.3.

  	
  Corporate Existence

  
	
  Section 9.4.

  	
  Maintenance of Properties

  
	
  Section 9.5.

  	
  Payment of Taxes and Other Claims

  
	
  Section 9.6.

  	
  Reports

  
	
  Section 9.7.

  	
  Compliance Certificate

  
	
  Section 9.8.

  	
  Resale of Certain Securities

  
	
   

  	
   

  
	
  ARTICLE X

  
	
   

  
	
  REDEMPTION
  OF SECURITIES

  
	
   

  	
   

  
	
  Section 10.1.

  	
  Provisional Redemption

  
	
  Section 10.2.

  	
  Optional Redemption

  
	
  Section 10.3.

  	
  Notice to Trustee

  
	
  Section 10.4.

  	
  Selection of Securities to Be Redeemed

  
	
  Section 10.5.

  	
  Notice of Redemption

  

 

iii

 

	
  Section 10.6.

  	
  Effect of Notice of Redemption

  
	
  Section 10.7.

  	
  Deposit of Redemption Price

  
	
  Section 10.8.

  	
  Securities Redeemed in Part

  
	
   

  	
   

  
	
  ARTICLE XI

  
	
   

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

  
	
   

  
	
  Section 11.1.

  	
  Repurchase Right

  
	
  Section 11.2.

  	
  Conditions to the Company’s Election to
  Pay the Repurchase Price in Common Stock or Acquirer Stock

  
	
  Section 11.3.

  	
  Notices; Method of Exercising Repurchase
  Right, Etc

  
	
   

  	
   

  
	
  ARTICLE XII

  
	
   

  
	
  CONVERSION
  OF SECURITIES

  
	
   

  
	
  Section 12.1.

  	
  Conversion Right and Conversion Price

  
	
  Section 12.2.

  	
  Exercise of Conversion Right

  
	
  Section 12.3.

  	
  Fractions of Shares

  
	
  Section 12.4.

  	
  Adjustment of Conversion Price

  
	
  Section 12.5.

  	
  Notice of Adjustments of Conversion Price

  
	
  Section 12.6.

  	
  Notice Prior to Certain Actions

  
	
  Section 12.7.

  	
  Company to Reserve Common Stock

  
	
  Section 12.8.

  	
  Taxes on Conversions

  
	
  Section 12.9.

  	
  Covenant as to Common Stock

  
	
  Section 12.10.

  	
  Cancellation of Converted Securities

  
	
  Section 12.11.

  	
  Effect of Reclassification,
  Consolidation, Merger or Sale

  
	
  Section 12.12.

  	
  Responsibility of Trustee for Conversion
  Provisions

  
	
   

  	
   

  
	
  ARTICLE XIII

  
	
   

  
	
  SUBORDINATION

  
	
   

  
	
  Section 13.1.

  	
  Securities Subordinated to Senior Debt

  
	
  Section 13.2.

  	
  Subrogation

  
	
  Section 13.3.

  	
  Obligation of the Company is Absolute
  and Unconditional

  
	
  Section 13.4.

  	
  Maturity of or Default on Senior Debt

  
	
  Section 13.5.

  	
  Payments on Securities Permitted

  
	
  Section 13.6.

  	
  Effectuation of Subordination by Trustee

  
	
  Section 13.7.

  	
  Knowledge of Trustee

  
	
  Section 13.8.

  	
  Trustee’s Relation to Senior Debt

  
	
  Section 13.9.

  	
  Rights of Holders of Senior Debt Not
  Impaired

  
	
  Section 13.10.

  	
  Modification of Terms of Senior Debt

  

 

iv

 

	
  Section 13.11.

  	
  Certain Conversions Not Deemed Payment

  
	
  Section 13.12.

  	
  Enforcement of Rights Under the Pledge
  Agreement

  
	
   

  	
   

  
	
  ARTICLE XIV

  
	
   

  
	
  SECURITY

  
	
   

  	
   

  
	
  Section 14.1.

  	
  Trust Indenture Act Requirements

  
	
  Section 14.2.

  	
  Opinions as to Collateral

  
	
   

  	
   

  
	
  ARTICLE XV

  
	
   

  
	
  OTHER PROVISIONS
  OF GENERAL APPLICATION

  
	
   

  	
   

  
	
  Section 15.1.

  	
  Trust Indenture Act Controls

  
	
  Section 15.2.

  	
  Notices

  
	
  Section 15.3.

  	
  Communication by Holders with Other
  Holders

  
	
  Section 15.4.

  	
  Acts of Holders of Securities

  
	
  Section 15.5.

  	
  Certificate and Opinion as to Conditions
  Precedent

  
	
  Section 15.6.

  	
  Statements Required in Certificate or
  Opinion

  
	
  Section 15.7.

  	
  Effect of Headings and Table of Contents

  
	
  Section 15.8.

  	
  Successors and Assigns

  
	
  Section 15.9.

  	
  Separability Clause

  
	
  Section 15.10.

  	
  Benefits of Indenture

  
	
  Section 15.11.

  	
  Governing Law

  
	
  Section 15.12.

  	
  Counterparts

  
	
  Section 15.13.

  	
  Legal Holidays

  
	
  Section 15.14.

  	
  Recourse Against Others

  

 

v

 

INDENTURE, dated as of June 30, 2003, between NEKTAR
THERAPEUTICS, 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 J.P. MORGAN TRUST COMPANY,
NATIONAL ASSOCIATION, a national banking association, as Trustee (the
“Trustee”), having its principal corporate trust office at 560 Mission Street,
13th Floor, San Francisco, California 94105.

 

RECITALS
OF THE COMPANY

 

The Company has duly authorized the creation of an
issue of its 3% Convertible Subordinated Notes due 2010 (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:

 

ARTICLE I

 

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 15.4(a) hereof.

 

“Acquiring Party” has the meaning specified in
Section 11.1 hereof.

 

“Acquiror Stock” has the meaning specified in
Section 11.1 hereof.

 

“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, has been delivered to the Trustee.

 

“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 (i) 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

 

2

 

exceed 105% of the
Conversion Price of the Securities in effect on each such Trading Day or (ii)
in the case of a merger or consolidation, 90% of the consideration in such
merger or consolidation constituting the Change of Control consists of common
stock traded on a United States national securities exchange or quoted on the
Nasdaq National Market (or which will be so traded or quoted when issued or
exchanged in connection with such Change of Control) and as a result of such
transaction or transactions the Securities become convertible solely into such
common stock.  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 the chief executive
officer of the Company.

 

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

 

“Closing Date” means June 30, 2003 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

 

3

 

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 an Officer 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 4 New York Plaza, 15th Floor, New
York, New York 10004), 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
560 Mission Street, 13th Floor, San Francisco, CA 94105).

 

“corporation” means corporations, limited liability
companies, partnerships and 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 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.

 

4

 

“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 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

 

5

 

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 or other swap, cap 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 (5) 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.

 

“Initial Purchasers” mean Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Deutsche
Bank Securities Inc., Lehman Brothers Inc., Friedman, Billings,
Ramsey & Co., Inc. and SG Cowen Securities Corporation.

 

“Interest Payment Date” means each June 30 and
December 30.

 

6

 

“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, the Controller, the Comptroller 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 reasonably acceptable to the
Trustee.

 

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

 

(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

 

7

 

(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.

 

“Permitted Payments” means payments on the Securities
derived from United States treasury securities pledged by the Company for the ratable
benefit of the Holders pursuant to the Pledge Agreement or from amounts
deposited with the Trustee in accordance with the provisions of Article III
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.

 

“Pledge Account” has the meaning specified in the
Pledge Agreement.

 

“Pledge Agreement” means the Pledge Agreement, dated
as of the date hereof, by and among the Company, the Trustee and J.P. Morgan
Trust Company, National Association, as securities intermediary.

 

“Pledged Securities” has the meaning specified in the
Pledge Agreement.

 

“Pledged Securities Intermediary” means J.P. Morgan
Trust Company, National Association, as securities intermediary under the
Pledge Agreement until a successor securities intermediary shall have become
such pursuant to the applicable provisions of the Pledge Agreement, and
thereafter Pledged Securities Intermediary shall mean such successor Pledged
Securities Intermediary.

 

“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.

 

8

 

“Purchase Agreement” means the Purchase Agreement,
dated June 25, 2003, 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 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 Resale
Registration Rights Agreement dated as of June 30, 2003, between the Company
and the Initial Purchasers.

 

“Regular Record Date” for the interest on the
Securities (including Liquidated Damages, if any) payable means the June 15
(whether or  not a Business Day) next
preceding a June 30 Interest Payment Date and the December 15 (whether or not a
Business Day) next preceding a December 30 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.

 

“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

 

9

 

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 such
Indebtedness or the assumption or guarantee thereof expressly provides that
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 63⁄4% Convertible Subordinated
Debentures due October 2006 (the “2006 Debentures”), the 5% Convertible
Subordinated Notes due February 2007 (the “February 2007 Notes”) or
the 31⁄2% Convertible Subordinated Notes due October 2007 (the
“October 2007 Notes”) and shall rank pari passu with the 2006 Debentures,
the February 2007 Notes and the October 2007 Notes.  Neither the 2006 Debentures, the
February 2007 Notes nor the October 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.

 

10

 

“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;

 

(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

 

11

 

(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;

 

“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:

 

12

 

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

 

(b)                                 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

 

(c)                                  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.

 

ARTICLE II

 

THE SECURITIES

 

Section 2.1.  Title
and Terms.  The Securities shall be
known and designated as the “3% Convertible Subordinated Notes due 2010”of the
Company.  The aggregate principal amount
of Securities which may be authenticated and delivered under this Indenture is
limited to $100,000,000 (or $125,000,000 if the 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 June 30, 2010.

 

Interest shall accrue from June 30, 2003 at a rate of
3% per annum until the principal thereof is paid or made available for
payment.  Interest shall be payable
semiannually in arrears on June 30 and December 30, in each year, commencing
December 30, 2003.

 

Interest on the Securities shall be computed (i) for
any full semiannual period on the basis of a 360-day year of twelve 30-day
months.

 

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 (other than any
Security whose Maturity is prior to such 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,

 

13

 

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 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:

 

14

 

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

 

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

 

(c)                                  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 Officer executing such Securities, as evidenced by his/her
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:

 

15

 

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
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 NEKTAR
THERAPEUTICS (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), (D) PURSUANT TO ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (E) 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(E) 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)(E) 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) OR (2)(D)
ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE (OR ANY
SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER
IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.  THIS LEGEND WILL BE REMOVED UPON THE EARLIER
OF THE TRANSFER OF THE SECURITY EVIDENCED HEREBY PURSUANT TO CLAUSE (2)(E)
ABOVE OR THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE SECURITY
EVIDENCED HEREBY.

 

(ii)                                  Restricted
Securities Legend for Common Stock Issued Upon Conversion of the Securities.  Until two years after the original issuance
date of any Security, any

 

16

 

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
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 NEKTAR THERAPEUTICS (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.

 

(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;

 

(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

 

17

 

(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 NEKTAR THERAPEUTICS (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

 

18

 

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. 
An Officer shall execute the Securities on behalf of the Company by
manual or facsimile signature.  If the
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.

 

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:

 

(a)                                  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;

 

19

 

(b)                                 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

 

(c)                                  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 12:00 p.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 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

 

20

 

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:

 

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

 

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

 

(c)                                  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);

 

(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

 

21

 

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 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.

 

22

 

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:

 

(a)                                  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.

 

(b)                                 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:

 

(i)                                     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;

 

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

 

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

 

(iv)                              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

 

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

 

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

 

23

 

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.

 

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

 

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

 

(b)                                 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,

 

24

 

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.

 

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

 

25

 

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.

 

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.

 

ARTICLE III

SATISFACTION AND DISCHARGE

 

Section 3.1.  Satisfaction and Discharge of Indenture.

 

When:

 

(a)                                  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

 

26

 

(b)                                 (i)
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,

 

(ii)                                  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

 

(iii)                               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:

 

(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,

 

27

 

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.

 

ARTICLE IV

 

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; provided that a failure to make any of the first six
scheduled interest payments on any of the Securities within three Business Days
of the applicable Interest Payment Date will constitute an Event of Default
with no additional grace or cure period; or

 

28

 

(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, 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

 

29

 

its debts generally as they
become due, or the taking of corporate action by the Company expressly in
furtherance of any such action; or

 

(g)                                 the
Pledge Agreement, as such agreement may be amended, restated or supplemented or
otherwise modified from time to time, shall cease to be in full force and
effect or enforceable in accordance with its terms, other than in accordance
with its terms.

 

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:

 

(a)                                  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,

 

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

 

(c)                                  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

 

30

 

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:

 

(a)                                  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

 

(b)                                 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.

 

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:

 

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

 

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

 

(c)                                  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,

 

31

 

judicial
or otherwise, with respect to this Indenture or for the appointment of a
receiver or trustee) unless:

 

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

 

(b)                                 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;

 

(c)                                  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;

 

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

 

(e)                                  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.

 

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:

 

(a)                                  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 3 Business Days (in the case of any of the
first six interest payments on the Securities) or 30 days (in all other cases),
or

 

(b)                                 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

 

32

 

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 rate of interest
on the Security, 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.

 

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,

 

(a)                                  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

 

(b)                                 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.

 

33

 

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 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

 

34

 

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
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.

 

ARTICLE V

THE TRUSTEE

 

Section 5.1.  Certain Duties and Responsibilities.  (a) Except during the continuance of an Event
of Default,

 

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

 

(ii)                                  In
the absence of bad faith on its part, the Trustee may conclusively rely, as to
the truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee and conforming
to the requirements of this Indenture; 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).

 

35

 

(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:

 

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

 

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

 

(iii)                               The
Trustee shall not be liable with respect to any action taken or omitted to be
taken by it in good faith in accordance with 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.

 

(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.

 

36

 

(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 15.2 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 under the Pledge Agreement and as the Pledged Securities
Intermediary under the Pledge Agreement, 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 in relation to matters arising hereunder or under the Pledge Agreement:

 

(a)                                  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.

 

(b)                                 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.

 

(c)                                  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.

 

(d)                                 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.

 

(e)                                  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 negligence or willful misconduct.

 

(f)                                    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.

 

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

 

37

 

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
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 15.2
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

 

38

 

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, 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:

 

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

 

(b)                                 the
Trustee becomes incapable of acting.

 

(c)                                  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

 

(d)                                 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

 

39

 

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.

 

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.

 

40

 

ARTICLE VI

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 all or substantially all of its properties and assets to any Person,
unless:

 

(a)                                  it
is the continuing corporation or 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, all or substantially all of the properties and
assets of the Company is a corporation organized and validly existing under the
laws of the United States of America, any State thereof or the District of
Columbia and expressly assumes, (1) by an indenture supplemental hereto,
executed and delivered to the Trustee, in form reasonably 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 part of the Company
to be performed or observed, which supplemental indenture shall provide for
conversion rights in accordance with Section 12.11 hereof, and (2) by an
amendment to the Pledge Agreement, executed and delivered to the Trustee and
the Pledged Securities Intermediary, in form reasonably satisfactory to each of
them, the performance of every covenant of the Pledge Agreement on the part of
the Company to be performed or observed;

 

(b)                                 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

 

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

 

41

 

ARTICLE VII

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;

 

42

 

(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;

 

(k)                                  provide
for uncertificated notes in addition to or in place of certificated notes; or

 

(l)                                     modify
the provisions of the Indenture relating to the Pledge Agreement or any
transactions contemplated thereby, provided that such action pursuant to this
clause (k) does not adversely affect the interests of the Holders of
Securities in any material respect.

 

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 rate of 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,

 

43

 

(i)                                     modify
any of the provisions of this Section, Section 4.4 or Section 15.11,
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;

 

(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; or

 

(k)                                  impair
the right of any Holder to receive payment of interest on the first six
scheduled Interest Payment Dates from the portfolio of pledged U.S. treasury
securities as set forth in the Pledge Agreement.

 

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

 

44

 

(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.

 

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.

 

ARTICLE VIII

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 15.2 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

 

45

 

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
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.

 

46

 

(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.

 

(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.

 

ARTICLE IX

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.

 

47

 

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:

 

(a)                                  presented
or surrendered for payment;

 

(b)                                 surrendered
for registration of transfer or exchange;

 

(c)                                  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 3.3 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 15.2 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.

 

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.

 

48

 

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 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

 

49

 

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.

 

ARTICLE X

REDEMPTION OF SECURITIES

 

Section 10.1.  Provisional Redemption.  Any time prior to June 30, 2006, 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, payable in cash, 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 $90 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 calculate the amount of the Make-Whole
Payment and make such 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

 

50

 

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);

 

(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 June 30, 2006 (the “Optional
Redemption Date”).  On or after June 30,
2006, 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 June 30 of the years indicated and ending June 29 of
the following year:

 

	
  During the Twelve

  Months Commencing

  	
   

  	
  Redemption
  Price

  	
   

  
	
  2006

  	
   

  	
   

  	
  101.714

  	
  %

  
	
  2007

  	
   

  	
   

  	
  101.286

  	
  %

  
	
  2008

  	
   

  	
   

  	
  100.857

  	
  %

  
	
  2009

  	
   

  	
   

  	
  100.429

  	
  %

  

 

(the “Optional Redemption
Price”), plus any interest accrued but not paid prior to the Optional
Redemption Date.

 

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

 

51

 

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 15.2 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:

 

(a)                                  the
Redemption Date;

 

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

 

(c)                                  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;

 

52

 

(d)                                 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;

 

(e)                                  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;

 

(f)                                    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;

 

(g)                                 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

 

(h)                                 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.

 

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 3% per annum.

 

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.

 

53

 

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.

 

ARTICLE XI

REPURCHASE AT THE OPTION OF A HOLDER

UPON A CHANGE OF CONTROL

 

Section 11.1.  Repurchase Right.  In the event that a Change of 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, at its
option, elect to pay the Repurchase Price in Common Stock or in securities of
the acquiring party in a Change of Control (the “Acquiring Party”) for which the
Common Stock is exchanged in connection with such Change of Control (the
“Acquiror Stock”), or a combination thereof with cash, by delivering the number
of shares of Common Stock or Acquiror Stock equal to (i) the Repurchase Price
(less any amounts paid in cash) divided by (ii) 95% of the average of the
Closing Prices per share of Common Stock or Acquiror Stock, as applicable, for
the five consecutive Trading Days immediately preceding and including the third
Trading Day prior to the Repurchase Date.

 

54

 

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 or Acquirer Stock.  (a) The shares of Common Stock or
Acquirer 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

 

(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 or Acquirer 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 or Acquiror Stock which may be issued upon repurchase of
Securities will be issued out of the Company’s or the Acquiring Party’s, as the
case may be, authorized but unissued Common Stock or Acquiror Stock, as
applicable, 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 of
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 15.2
hereof, of the occurrence of the Change of Control and of the Repurchase Right
set forth herein

 

55

 

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:

 

(i)                                     the
Repurchase Date;

 

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

 

(iii)                               the
Repurchase Price and accrued and unpaid interest, if any, and whether the
Repurchase Price shall, at the option of the Company and in accordance with the
provisions of this Article 11, be paid by the Company in (x) cash,
(y) by delivery of shares of Common Stock or Acquiror Stock or (z) in
a combination of cash and delivery of Common Stock or Acquiror Stock, as the
case may be, in which case the portion of the Redemption Price that will be
paid in cash and the portion that will be paid in shares of Common Stock or
Acquiror Stock;

 

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

 

(v)                                 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;

 

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

 

(vii)                           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:

 

(i)                                     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 all or any

 

56

 

portion of the Repurchase Price shall be paid with
shares of Common Stock or Acquiror Stock, the name or names (with addresses) in
which the certificate or certificates for shares of Common Stock or Acquiror
Stock, as the case may be, shall be issued, and

 

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

 

Such written notice shall
be irrevocable, except that the right of the Holder to convert the Securities
with respect to which the Repurchase Right is being exercised shall continue
until the close of business on the 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 or Acquiror Stock or the applicable
combination thereof, as provided above, for payment to the Holder on the
Repurchase Date or, if shares of Common Stock or Acquiror 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 Date at the rate of interest on
the Security, 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 or Acquiror 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 or
Acquiror 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 or the Acquiring Party, as
the case may be, 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

 

57

 

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 or Acquiror Stock
issued upon repurchase of any Security declared prior to the Repurchase Date.

 

(g)                                 No
fractions of shares of Common Stock or Acquiror 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 or Acquiror
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 or Acquiror 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 or Acquiror Stock as of the Trading Day preceding the
Repurchase Date.

 

(h)                                 Any
issuance and delivery of certificates for shares of Common Stock or Acquiror
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.

 

(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.

 

ARTICLE XII

 

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 June 30, 2010.

 

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

 

58

 

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 $11.35 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 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

 

59

 

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

 

(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

 

60

 

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 for a period of not more than 60 days 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 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

 

61

 

(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 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;

 

62

 

(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):

 

(i)                                     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

 

(ii)                                  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:

 

(i)                                     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

 

(ii)                                  a
dividend or distribution of such shares of Common Stock, such subdivision or
combination or such rights or warrants (and any further Conversion

 

63

 

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:

 

(i)                                     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

 

(ii)                                  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,

 

exceeds (A) 1% in the case of any such dividend or
other distribution made prior to June 30, 2006 or (B) 10% in the case of any
such dividend or distribution made on or after June 30, 2006, 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,

 

64

 

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 1% or 10%, as the case may be, 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:

 

(i)                                     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

 

(ii)                                  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

 

65

 

pursuant to such tender
offer (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:

 

(A)                              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

 

(B)                                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:

 

(i)                                     “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:

 

(A)                              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

 

66

 

fraction
by which the Conversion Price is so required to be adjusted as a result of such
other event;

 

(B)                                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

 

(C)                                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

 

67

 

(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.

 

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.

 

(ii)                                  “fair
market value” shall mean the amount which a willing buyer would pay a willing
seller in an arm’s length transaction.

 

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

 

(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

 

68

 

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 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:

 

(a)                                  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;

 

69

 

(b)                                 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;

 

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

 

(d)                                 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 15.2 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

 

70

 

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
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:

 

(a)                                  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),

 

(b)                                 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

 

(c)                                  any
sale or conveyance of all or substantially all of the properties and assets of
the Company 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 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”),

 

71

 

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

 

72

 

ARTICLE XIII

 

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)                                  Subject
to the rights of the Holders of the Securities pursuant to the Pledge
Agreement, 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 (except, in each
case, for Permitted Payments) 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 (except,
in each case, for Permitted Payments) 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.

 

73

 

(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 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 (except, in each case, for Permitted
Payments) 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 (except, in each case, for Permitted Payments) 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 (except for any Permitted 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,

 

74

 

(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,

 

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 (and except for Permitted Payments) 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

 

75

 

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 (other than with respect to
Permitted Payments).

 

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.

 

76

 

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:

 

(a)                                  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

 

(b)                                 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

 

77

 

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.

 

Section 13.12.  Enforcement of Rights Under the Pledge
Agreement.  No provision in this
Article 13 shall prohibit any Holder from enforcing its rights under the Pledge
Agreement.

 

ARTICLE XIV

 

SECURITY

 

Section 14.1.  Pledge Agreement.  The Company agrees to (i) enter into the
Pledge Agreement on the Closing Date and comply with the terms and provisions
thereof and (ii) purchase the Pledged Securities to be pledged to the Trustee
for ratable benefit of the Holders in such amount as will be sufficient upon
receipt of scheduled interest and/or principal payments of such Pledged
Securities to provide for payment in full of the first six scheduled interest
payments due on the Securities and to secure repayment of the principal,
premium, if any, and interest on the Securities in the event that the
Securities become due and payable prior to such time as the first six scheduled
interest payments thereon shall have been paid in full. The Pledged Securities
shall be pledged by the Company to the Trustee for the ratable benefit of the
Holders, and shall be held by the Trustee in the Pledge Account pending
disposition pursuant to the Pledge Agreement.

 

Section 14.2.  Acceptance of Terms of Pledge Agreement.  Each Holder, by its acceptance of a
Security, consents and agrees to the terms of the Pledge Agreement (including,
without limitation, the provisions providing for foreclosure and release of the
Pledged Securities) as the same may be in effect or may be amended from time to
time in accordance with its terms, and authorizes and directs the Trustee, in
its capacity as such, to enter into the Pledge Agreement and to perform its
obligations and exercise its rights thereunder in accordance therewith.  The Company will do or cause to be done all
such acts and things as may be necessary or reasonably requested by the
Trustee, or as may be required by the provisions of the Pledge Agreement, to
assure and confirm to the Trustee the security interest in the Pledged
Securities contemplated hereby, by the Pledge Agreement or any part thereof, as
from time to time constituted, so as to render the same available for the
security and benefit of this Indenture and of the Securities

 

78

 

secured thereby,
according to the intent and purposes herein and therein expressed.  The Company shall take, or shall cause to be
taken, upon request of the Trustee, any and all actions reasonably required to
cause the Pledge Agreement to create and maintain, as security for the
obligations of the Company under this Indenture and the Securities, valid and
enforceable first priority liens in and on all the Pledged Securities, in favor
of the Trustee, superior to and prior to the rights of third Persons and
subject to no other liens.

 

Section 14.3.  Trust
Indenture Act Requirements.  The
release of any Pledged Securities (as defined in the Pledge Agreement) pursuant
to the Pledge Agreement will not be deemed to impair the security granted
thereunder in respect of the Securities in contravention of the provisions
hereof and thereof if and to the extent the Pledged Securities are released
pursuant to this Indenture and the Pledge Agreement.  To the extent applicable, the Company shall cause TIA Section
314(d) relating to the release of property or securities from the lien and
security interest created under the Pledge Agreement and relating to the
substitution therefor of any property or securities to be subjected to the lien
and security interest created under the Pledge Agreement to be complied with.
Any certificate or opinion required by TIA Section 314(d) may be made by an
Officer of the Company, except in cases where TIA Section 314(d) requires that
such certificate or opinion be made by an independent Person, which Person
shall be an independent engineer, appraiser or other expert selected by the
Company.

 

Section 14.4.  Opinions as to
Collateral.  The Company shall cause
TIA Section 314(b) to be complied with.

 

ARTICLE XV

 

OTHER PROVISIONS OF
GENERAL APPLICATION

 

Section 15.1.  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 15.2.  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:

 

Nektar Therapeutics

150 Industrial Road

San Carlos, California

Attention: Paula Kesler, Esq.

 

with a
copy to:

 

Cooley Godward LLP

3000 Sand Hill Road

Building #3, Suite 230

 

79

 

Menlo Park, California
94025

Attention: John Geschke, Esq.

 

(b)                                 if
to the Trustee:

 

J.P. Morgan Trust
Company, National Association

560 Mission Street

13th Floor

San Francisco, California 94105

Attention: Institutional Trust Services

 

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 j 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.

 

If the Company mails a notice or communication to
Holders, it shall mail a copy to the Trustee at the same time.

 

Section 15.3.  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 15.4.  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:

 

(i)                                     one
or more instruments of substantially similar tenor signed by such Holders in
person or by agent or proxy duly appointed in writing;

 

(ii)                                  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

 

(iii)                               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

 

80

 

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.

 

Section 15.5.  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

 

81

 

specifically required by any provision of this Indenture relating to
such particular application or request, no additional certificate or opinion
need be furnished.

 

Section 15.6.  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:

 

(a)                                  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;

 

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

 

(c)                                  a
statement that, in the opinion of 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

 

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

 

Section 15.7.  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 15.8.  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 15.9.  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 15.10.  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 15.11.  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 15.12.  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 15.13.  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

 

82

 

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 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 15.14.  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.

 

83

 

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

 

	
   

  	
  NEKTAR THERAPEUTICS

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  J.P. MORGAN TRUST
  COMPANY,

  NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

84

 

EXHIBIT A

 

FORM
OF SECURITY

 

[FACE
OF SECURITY]

 

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (“DTC”) TO NEKTAR THERAPEUTICS
(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 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 NEKTAR
THERAPEUTICS (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), (D) PURSUANT TO ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (E)
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(E)
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)(E) 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

 

(1) This legend should be included on if the Security is issued in
global form

 

A-1

 

PURSUANT TO CLAUSE (2)(C) OR (2)(D) ABOVE, THE HOLDER MUST, PRIOR
TO SUCH TRANSFER, FURNISH TO THE TRUSTEE (OR ANY SUCCESSOR TRUSTEE, AS
APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE
COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.  THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF
THE SECURITY EVIDENCED HEREBY PURSUANT TO CLAUSE (2)(E) ABOVE OR THE
EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE SECURITY EVIDENCED
HEREBY.

 

A-2

 

NEKTAR
THERAPEUTICS

 

3% Convertible
Subordinated Note due 2010

 

CUSIP
NO. 640268AA6

 

	
  No. 1

  	
  $100,000,000

  

 

NEKTAR THERAPEUTICS, 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 June 30, 2010.

 

Interest Payment Dates: June 30 and December 30,
commencing December 30, 2003

 

Regular Record Dates: June 15 and December 15

 

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

 

IN WITNESS WHEREOF, the Company has caused this
Security to be duly executed manually or by facsimile by its duly authorized
officers.

 

Dated:  June
30, 2003

 

	
   

  	
  NEKTAR THERAPEUTICS

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

Trustee’s Certificate of
Authentication

 

This is one of the 3%
Convertible Subordinated

Notes due 2010 described in the within-named

Indenture.

 

 

J.P. MORGAN TRUST
COMPANY,

NATIONAL ASSOCIATION, as Trustee

 

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized Signatory

  
	
   

  
	
  Dated:                    ,
  2003

  
				

 

A-4

 

[REVERSE OF
SECURITY]

 

NEKTAR
THERAPEUTICS

 

3% Convertible
Subordinated Note due 2010

 

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.

 

Nektar Therapeutics, a Delaware corporation (the
“Company”) promises to pay interest on the principal amount of this Security at
the rate of 3 percent per annum from the date of issuance until repayment at
Maturity, redemption or repurchase.  The
Company will pay interest on this Security semiannually in arrears on June 30
and December 30 of each year (each an “Interest Payment Date”), commencing December
30, 2003.

 

Interest on the Securities shall be computed on the
basis of a 360-day year of twelve 30-day months.

 

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.

 

To the maximum extent permitted by applicable law, in
the event that any amounts owing in respect of the principal of, the premium
(if any) or interest on the Securities is not paid in full on the due date
therefor, interest shall accrue on such unpaid amounts at the rate of 3% per
annum until such amounts are paid in full.

 

In accordance with the terms of the Resale
Registration Rights Agreement, dated June 30, 2003, between the Company and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank
Securities Inc., Lehman Brothers Inc., Friedman, Billings,
Ramsey & Co., Inc. and SG Cowen Securities Corporation (the
“Registration Rights Agreement”), during the first 90 days

 

A-5

 

following a Registration Default (as defined in the Registration Rights
Agreement), the interest rate borne by the Securities shall be increased by
0.25% on:

 

(a)          September
29, 2003, if the shelf registration statement (the “Shelf Registration
Statement”) is not filed prior to or on September 28, 2003;

 

(b)         January
27, 2004, if the Shelf Registration Statement is not declared effective by the
Securities and Exchange Commission prior to or on January 26, 2004;

 

(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, 60th or 90th 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
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.

 

A-6

 

3.                                       Paying
Agent and Registrar.

 

Initially, J.P. Morgan 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.

 

4.                                       Indenture.

 

The Company issued this Security under an Indenture,
dated as of June 30, 2003 (the “Indenture”), between the Company and
J.P. Morgan 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 June 30, 2006 (a “Provisional Redemption”), at a Redemption Price, payable
in cash, 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 $90 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.

 

A-7

 

6.                                       Optional
Redemption.

 

Except as provided above, this Security is not
redeemable prior to June 30, 2006.  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 June 30, 2006, at the option of
the Company, at the Redemption Prices (expressed as percentages of the
principal amount) set forth below if redeemed during the 12-month period
beginning June 30 of the years indicated and ending June 29 of the following
years, plus any interest accrued but not paid prior to the Optional Redemption
Date.

 

	
  During the Twelve Months

  Commencing

  	
   

  	
  Redemption
  Prices

  	
   

  
	
  June
  30, 2006

  	
   

  	
  101.714

  	
  %

  
	
  June
  30, 2007

  	
   

  	
  101.286

  	
  %

  
	
  June
  30, 2008

  	
   

  	
  100.857

  	
  %

  
	
  June
  30, 2009

  	
   

  	
  100.429

  	
  %

  

 

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 of 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.

 

Subject to the conditions provided in the Indenture,
the Company may, at its option, elect to pay the Repurchase Price in Common
Stock or in securities of the acquiring party in a Change of Control for which
the Common Stock is exchanged in connection with such Change of Control, or a
combination thereof with cash, by delivering the number of shares of Common
Stock or Acquiror Stock equal to (i) the Repurchase Price (less any amounts
paid in cash)

 

A-8

 

divided by (ii) 95% of the average of the Closing Prices per share of
Common Stock or Acquiror Stock, as applicable, 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 or Acquiror Stock
will be issued upon repurchase of any Securities.  Instead of any fractional share of Common Stock or Acquiror 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 June 30, 2010, 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
$11.35 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.

 

A-9

 

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 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.                                 Security.

 

The Holder of this Note is entitled to the benefits of
a Pledge Agreement, dated as of June 30, 2003, among the Company, the
Trustee and the Pledged Securities Intermediary named therein, pursuant to
which the Company has placed in the Pledge Account cash or Pledged Securities
sufficient to provide for the payment of the first six scheduled interest
payments due on the Notes and to secure repayment of the principal, premium (if
any) and interest on the Notes in the event that the Notes become due and
payable prior to such time as the first six scheduled interest payments thereon
shall have been paid in full.

 

11.                                 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.

 

12.                                 Persons
Deemed Owners.

 

The registered Holder of this Security shall be
treated as its owner for all purposes.

 

13.                                 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

 

A-10

 

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.

 

14.                                 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.

 

15.                                 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.

 

16.                                 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;

 

A-11

 

(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; provided that a failure to make any of the
first six scheduled interest payments on any of the Securities within three
Business Days of the applicable Interest Payment Date will constitute an Event
of Default with no additional grace or cure period;

 

(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 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;

 

(e)          the
Pledge Agreement, as such agreement may be amended, restated or supplemented or
otherwise modified from time to time, shall cease to be in full force and effect
or enforceable in accordance with its terms, other than in accordance with its
terms; and

 

(f)            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.

 

17.                                 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.

 

18.                                 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).

 

A-12

 

19.                                 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.

 

20.                                 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.

 

21.                                 Governing
Law.

 

The Indenture and this Security shall be governed by,
and construed in accordance with, the law of the State of New York.

 

22.                                 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

 

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

 

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]

 

o
(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

 

o
(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

 

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

 

CONVERSION NOTICE

 

TO:                            NEKTAR
THERAPEUTICS

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*:

  	
   

  	
   

  
									

 

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

 

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

 

NOTICE OF EXERCISE
OF REPURCHASE RIGHT

 

TO:                            NEKTAR
THERAPEUTICS

150 Industrial Road

San Carlos, California 94070

 

The undersigned registered owner of this Security
hereby irrevocably acknowledges receipt of a notice from Nektar Therapeutics
(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*:

  	
   

  	
   

  
								

 

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-19

 

SCHEDULE OF EXCHANGES FOR
PHYSICAL SECURITIES (2)

 

The following exchanges of a part of this Global
Security for Physical Securities have been made:

 

	
  Date of Exchange

  	
   

  	
  Amount of
  decrease in

  Principal Amount of this 

  Global Security

  	
   

  	
  Amount of
  increase in 

  Principal Amount of this 

  Global Security

  	
   

  	
  Principal
  Amount of this 

  Global Security following

  such decrease (or increase)

  	
   

  	
  Signature
  of authorized 

  officer of Trustee

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

(2) This schedule should be included only if the Security is issued in
global form.

 

A-20

ATTESTATION BY ASSISTANT
SECRETARY

 

I,  Paula
Kasler, the duly-appointed Assistant Secretary of the Company, do hereby attest
to the execution of this Security.

 

Dated:  June
30, 2003

 

 

	
   

  	
  NEKTAR THERAPEUTICS

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Attest:

  	
  /s/ PAULA KASLER

  
	
   

  	
   

  	
  Name:

  	
  Paula Kasler

  
	
   

  	
   

  	
  Title:

  	
  Assistant SecretaryExhibit 10.1

 

PLEDGE AGREEMENT

 

This PLEDGE AGREEMENT (this “Agreement”) is made and entered into as of
June 30, 2003 by and among NEKTAR THERAPEUTICS, a Delaware corporation (the
“Grantor”), having its principal executive offices at 150 Industrial Road, San
Carlos, California 94070 and J.P. MORGAN TRUST COMPANY, NATIONAL
ASSOCIATION (“J.P. Morgan”), having an office at 560 Mission Street, 13th
Floor, San Francisco, California 94105, (i) in its capacity as trustee (the
“Trustee”) for the holders (the “Holders”) of the Notes (as hereinafter
defined) issued by the Grantor under the Indenture referred to below and (ii)
in its individual capacity, as securities intermediary (in such capacity, the
“Pledged Securities Intermediary”) at its office in New York c/o: J.P. Morgan
Chase Bank, Institutional Trust Services, 4 New York Plaza, 15th Floor, New
York, New York 10004 (the “Account Office”) with respect to the Pledge Account
(as hereinafter defined).  Capitalized
terms used herein and not otherwise defined herein shall have the meanings
given to such terms in the Indenture.

 

W I T N E S S E T H

 

WHEREAS, the Grantor and the Trustee have entered into that certain
Indenture dated as of the date hereof (as amended, restated, supplemented or
otherwise modified from time to time, the “Indenture”), pursuant to which the
Grantor is issuing on the date hereof $100,000,000 in aggregate principal
amount of its 3% Convertible Subordinated Notes due 2010 (the “Notes”); and

 

WHEREAS, subject to the terms of this Agreement, the Pledged Securities
Intermediary has established for the Grantor, as beneficial owner, a securities
account (the “Pledge Account”) at the Account Office, registered in the name of
the Trustee, as entitlement holder, and designated as Account No. 10205801.1,
Reference: “J.P. Morgan Trust Company, National Association as Pledged
Securities Intermediary, Nektar Therapeutics Convertible Bond Collateral A/C”;
and

 

WHEREAS, the Grantor has agreed to purchase or cause the purchase of
security entitlements with respect to the U. S. Government Securities
identified by CUSIP number in Schedule I hereto (such security entitlements
being, collectively, the “Pledged Securities”), for the account of the Pledged
Securities Intermediary for credit to the Pledge Account, in an amount that
will be sufficient, upon receipt of the scheduled interest and principal
payments in respect thereof, to provide for the payment of the first six
scheduled interest payments due on the Notes; and

 

WHEREAS, to secure the obligations of the Grantor under the Indenture
and the Notes to pay in full each of the first six scheduled interest payments
on the Notes and to pay in full all of the principal, premium (if any) and
interest on the Notes and all other amounts payable by the Grantor under the Indenture
in the event that the Notes or any principal thereof or premium, if any,
thereon becomes due and payable prior to such time as the first six scheduled
interest payments thereon shall have been paid in full (collectively, the
“Obligations”), the Grantor has

 

 

agreed (i) to grant to the
Trustee, for its benefit and the ratable benefit of the Holders of the Notes, a
security interest in the Pledge Account and all cash, Pledged Securities and
other Collateral (as hereinafter defined) from time to time deposited therein
or credited thereto and (ii) to execute and deliver this Agreement in order to
secure the payment and performance by the Grantor of all the Obligations; and;

 

WHEREAS, it is
a condition precedent to the purchase of the Notes by the initial Holders
thereof that the Grantor shall have granted the security interests contemplated
by this Agreement; and

 

WHEREAS,
unless otherwise defined herein or in the Indenture, terms used herein that are
defined in Article 8 or 9 of the Uniform Commercial Code as in effect in the
State of New York (the “UCC”) are used herein as therein defined:

 

NOW,
THEREFORE, in consideration of the mutual promises herein contained, and in
order to induce the initial Holders to purchase the Notes, the Grantor hereby
agrees with the Trustee, for the benefit of the Trustee and for the ratable
benefit of the Holders of the Notes, and with the Pledged Securities
Intermediary as follows:

 

SECTION
1.  Grant of Security Interest.  The Grantor hereby grants to the Trustee,
for its benefit and for the ratable benefit of the Holders of the Notes, a
security interest in and to all of the Grantor’s right, title and interest in,
to and under the following, in each case whether now owned or hereafter
acquired, wherever located and whether now or hereafter existing (hereinafter
collectively referred to as the “Collateral”):

 

(a)                                  the
Pledge Account;

 

(b)                                 all
cash or credit balances from time to time deposited in or credited to the
Pledge Account;

 

(c)                                  the
Pledged Securities and all other financial assets (including certificated and
uncertificated securities) and security entitlements from time to time
deposited in, credited to, or created or otherwise carried in the Pledge
Account;

 

(d)                                 all
interest, dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the Collateral;

 

(e)                                  all
securities (whether certificated or uncertificated) or other financial assets,
security entitlements, securities accounts, accounts, general intangibles,
instruments, documents, cash or deposit accounts representing or evidencing any
or all of the Collateral; and

 

(f)                                    to
the extent not covered by clauses (a) through (e) above, all proceeds of any
and all of the foregoing Collateral (including, without limitation, proceeds
that constitute property of the types described in clauses (a) through (e)
above).

 

2

 

SECTION
2.  Secured Obligations.  This Agreement and the grant of a security
interest in the Collateral secure the prompt and complete payment and
performance when due (whether at stated maturity, by acceleration, upon
redemption or otherwise) of all Obligations now or hereafter existing, whether
for principal, premium, interest, fees, indemnities or otherwise, and all
obligations of the Grantor now or hereafter existing under this Agreement (all
such Obligations and such other obligations being, collectively, the “Secured
Obligations”).  Without limiting the generality
of the foregoing, this Agreement and the grant of a security interest in the
Collateral hereunder secure, to the fullest extent permitted by applicable law,
the payment of all amounts that constitute part of the Secured Obligations and
that would be owed by the Grantor to the Trustee or the Holders under the Notes
or the Indenture but for the fact that they are unenforceable or not allowable
due to the existence of a bankruptcy, reorganization or similar proceeding
involving the Grantor.

 

SECTION
3.  Maintaining the Pledge Account.  Prior to or concurrently with the execution
and delivery hereof and for so long as any Secured Obligation shall remain
outstanding,

 

(a)                                  the
Trustee shall establish and maintain (and the Pledged Securities Intermediary
shall maintain and administer in accordance with this Agreement) the Pledge
Account with the Pledged Securities Intermediary at the Account Office in
accordance with the terms of this Agreement. The Pledge Account shall at all
times be under the sole dominion and control of, and shall at all times be
segregated from any other custodial, collateral or other accounts maintained
by, or under the dominion and control of, the Trustee;

 

(b)                                 it
shall be a term and condition of the Pledge Account, notwithstanding any term
or condition to the contrary in any other agreement relating to the Pledge
Account, and except as otherwise provided by the provisions of Section 5 and
Section 15.9 of this Agreement, that no Collateral (including proceeds thereof)
shall be paid or released from the Pledge Account to or for the account of, or
withdrawn by or for the account of, and no entitlement orders with respect to
any of the Collateral shall be given to the Pledged Securities Intermediary by,
the Grantor or any other Person other than the Trustee as provided herein;

 

(c)                                  subject
to the provisions of this Agreement, the Pledge Account shall be registered in
the name of the Trustee on the books and records of the Pledged Securities
Intermediary, the Trustee shall be identified on such books and records as the
entitlement holder with respect to all security entitlements in all financial
assets from time to time held in or credited to the Pledge Account, and the
Trustee shall have the sole right to (i) deliver entitlement orders with respect
to the Pledge Account and any Collateral from time to time credited thereto,
deposited therein or represented thereby or (ii) make withdrawals from the
Pledge Account or otherwise exercise any other rights with respect to any
Collateral from time to time credited thereto or on deposit therein; and

 

(d)                                 the
Pledge Account shall be subject to such applicable laws, and such applicable
regulations of any appropriate banking or governmental authority, as may now or
hereafter be in

 

3

 

effect, including without
limitation any applicable regulations of the Board of Governors of the Federal
Reserve System.

 

SECTION
4.  Acquisition of Pledged Securities
for Credit to the Pledge Account.

 

(a)                                  On
or prior to the date hereof, the Grantor shall purchase or cause the purchase
of the Pledged Securities for the account of the Pledged Securities
Intermediary for credit to the Pledge Account.

 

(b)                                 Upon
transfer or credit of the Pledged Securities to the Pledged Securities
Intermediary, as confirmed to the Pledged Securities Intermediary by the
Federal Reserve Bank of New York or another securities intermediary at which
the Pledged Securities Intermediary maintains a securities account, the Pledged
Securities Intermediary shall make appropriate book entries indicating that the
Pledged Securities have been credited to and are held in the Pledge Account.

 

SECTION
5.  Disbursements From the Pledge
Account; Transfers of Additional Amounts to the Pledge Account.

 

(a)                                  At
least three Business Days prior to the due date of any of the first six
scheduled interest payments on the Notes, the Grantor may, pursuant to written
instructions given by the Grantor to the Trustee (each an “Issuer Order”),
instruct the Trustee to direct the Pledged Securities Intermediary to release
from the Pledge Account, and pay to the Holders of the Notes as of the
applicable Regular Record Date, proceeds of the Pledged Securities sufficient
to provide for payment in full of such interest then due on the Notes.  Upon receipt of an Issuer Order, the Trustee
will direct the Pledged Securities Intermediary to release funds from (and to
the extent of) proceeds of the Pledged Securities in the Pledge Account in an
amount sufficient to provide for the payment in full of such interest then due
on the Notes, as instructed in such Issuer Order, and to transfer such funds to
the Holders of the Notes in accordance with the payment provisions of the
Indenture.  Nothing in this Section 5
shall affect the Trustee’s rights to direct the application of the Collateral
to the payment of amounts due on the Notes upon acceleration thereof in
accordance with the terms of the Indenture.

 

(b)                                 If
the Grantor makes all or any portion of any interest payment for which the
Collateral is security from a source of funds other than the Pledge Account
(“Grantor Funds”), the Grantor may, after payment in full of such interest
payment, instruct the Trustee, pursuant to an Issuer Order, to direct the
Pledged Securities Intermediary to release to the Grantor, or to another party
designated by the Grantor in such Issuer Order (the “Grantor’s Designee”),
proceeds from the Pledge Account in an amount that, in the discretion of the
Grantor, is less than or equal to the amount of Grantor Funds applied to such
interest payment; provided that, after giving effect to such release, the
scheduled interest and principal payments in respect of the Pledged Securities
remaining in the Pledge Account, together with any cash remaining in the Pledge
Account, equal or exceed the amount necessary to provide for the timely payment
in full of interest on the Notes for as many of the first six scheduled
interest payments as shall then remain. 
Upon (i) receipt by the Trustee of such Issuer Order and (ii)
confirmation by the Trustee

 

4

 

of the payment in full of
such interest payment (from such Grantor Funds and, if necessary, additional
funds released from the Pledge Account in accordance with Section 5(a)), the
Trustee shall direct the Pledged Securities Intermediary to release funds from
(and to the extent of) proceeds of the Pledged Securities in the Pledge Account
and to transfer such funds to the Grantor or the Grantor’s Designee, as the
case may be, as instructed in such Issuer Order as soon as practicable after
such conditions are satisfied.

 

(c)                                  If
at any time the scheduled interest and principal payments in respect of the
Pledged Securities then credited to the Pledge Account, together with any cash
then held in the Pledge Account, exceed 100% of the amount necessary (which
shall be certified in writing by an Officer of the Company or, if such amount,
together with all other amounts disbursed from the Pledge Account in the
preceding 12 month period, equals or exceeds $100,000, by a nationally
recognized firm of independent accountants selected by the Grantor and
delivered to the Trustee) to provide for the payment in full, when due, of the
first six scheduled interest payments on the Notes (or such number of the first
six scheduled interest payments on the Notes as shall then remain, as the case
may be), the Grantor may instruct the Trustee, pursuant to an Issuer Order, to
direct the Pledged Securities Intermediary to release any such excess amount to
the Grantor or to the Grantor’s Designee. 
Upon receipt of such Issuer Order (which shall be accompanied by a
certificate in accordance with, and meeting the requirements of, the provisions
of Section 314(d) of the TIA or, if the amount to be released from the pledge,
together with all other amounts disbursed from the Pledge Account in the
preceding 12 month period, equals or exceeds $100,000, by a certificate of such
nationally recognized firm of independent accountants stating that the
scheduled interest and principal payments in respect of the Pledged Securities
credited to the Pledge Account, together with any cash held in the Pledge
Account, in each case after giving effect to such release, equal or exceed 100%
of the amount necessary to provide for the payment in full, when due, of such
remaining scheduled interest payments on the Notes), the Trustee shall instruct
the Pledged Securities Intermediary to release funds from (and to the extent
of) proceeds of such Pledged Securities in accordance with such Issuer Order
and the accompanying certificate and to transfer such funds to the Grantor or
the Grantor’s Designee, as the case may be.

 

(d)                                 Upon
the release of any Collateral from the Pledge Account in accordance with the
terms of this Section 5, whether upon release of proceeds of Collateral to the
Holders as payment of interest or upon release of proceeds of Collateral to the
Grantor or the Grantor’s Designee as provided in Section 5(b) or Section 5(c),
the security interest evidenced by this Agreement in such released Collateral
will automatically terminate and be of no further force and effect.

 

(e)                                  At
least three Business Days prior to the due date of each of the first six
scheduled interest payments on the Notes, the Grantor shall give the Trustee
notice (by Issuer Order) as to whether such interest payment will be made
pursuant to Section 5(a) or 5(b) above and the respective amounts of interest
that will be paid from the Pledge Account and from Grantor Funds (it being
understood that the failure by the Grantor to provide an Issuer Order shall not
constitute an Event of Default). Any Grantor Funds to be used to make any
interest payment (or portion thereof) shall be delivered to the Trustee, in
immediately available funds, prior to 12:00 p.m.

 

5

 

(New York City time) on
such interest payment date. If no such notice is given or such Grantor Funds
have not been so delivered, the Trustee will act pursuant to Section 5(a) above
as if it had received an Issuer Order pursuant thereto for the payment in full
of the interest then due from the proceeds of Pledged Securities in the Pledge
Account.

 

(f)                                    If
on any interest payment date there are insufficient proceeds of Pledged
Securities in the Pledge Account to make the scheduled payment of interest due
on such date (after taking into account any Grantor Funds delivered to the
Trustee as provided in Section 5(b) above), the Trustee shall direct the
Pledged Securities Intermediary to liquidate Collateral in the Pledge Account
to the extent necessary to pay, in full, such scheduled payment of interest.

 

(g)                                 Nothing
contained in this Agreement (including without limitation the provisions hereof
regarding the delivery of Issuer Orders by the Grantor to the Trustee) shall
(i) afford the Grantor any right to issue entitlement orders to the Pledged
Securities Intermediary or any other Person with respect to the Pledge Account
or any security entitlement in respect of the Pledged Securities, or otherwise
afford the Grantor control of the Pledge Account or any such security
entitlement, or (ii) otherwise give rise to any rights of the Grantor with
respect to the Pledge Account, the Pledged Securities, or any security
entitlement thereto, other than the Grantor’s rights under this Agreement as the
beneficial owner of Collateral pledged to and subject to the exclusive dominion
and control (subject to the Trustee’s obligations to comply with Sections 5(a)
through (f) and Section 15.9 hereof) of the Trustee in its capacity as such
(and not as a securities intermediary). 
The Grantor acknowledges, confirms and agrees that the Trustee holds a
security interest in the Pledged Securities solely as Trustee for the Holders
of the Notes and not as a securities intermediary.

 

(h)                                 Anything
contained herein to the contrary notwithstanding, prior to any release of any
Collateral to the Grantor or the Grantor’s Designee, the Grantor shall deliver
to the Trustee such certificates, opinions or other documents as may be
required by the Indenture or the TIA in connection with such release and shall
otherwise comply with the requirements of the Indenture and the TIA applicable
thereto.

 

(i)                                     If
at any time the Grantor is obligated to pay any amount to the Trustee pursuant
to the terms of this Agreement and the Trustee charges such amount against the
Pledge Account with the result that the scheduled interest and principal
payments in respect of the Pledged Securities then credited to the Pledge
Account, together with any cash then held in the Pledge Account, are less than 100%
of the amount necessary to provide for the payment in full, when due, of the
first six scheduled interest payments on the Notes (or such number of the first
six scheduled interest payments on the Notes as shall then remain, as the case
may be), the Grantor shall deposit cash into the Pledge Account in the amount
of such deficiency and shall deliver to the Trustee a certificate signed by one
of its Officers (as defined in the Indenture) stating that the scheduled
interest and principal payments in respect of the Pledged Securities credited
to the Pledge Account, together with any cash held in the Pledge Account, in
each case after giving effect to such deposit by the Grantor, equal or exceed
100% of the amount necessary to provide for the payment in full, when due, of
such remaining scheduled interest payments on the Notes.

 

6

 

(j)                                     Neither
the Trustee nor the Pledged Securities Intermediary shall be liable for any
disbursement made or other action taken in accordance with an Issuer Order. In
no event shall either of the Pledged Securities Intermediary or the Trustee in
its role hereunder be liable for any special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits),
except as a result of its gross negligence or willful misconduct.

 

SECTION
6.  Securities Intermediary.  (a) J.P. Morgan, as Pledged Securities
Intermediary, hereby represents and warrants to, and agrees with the Grantor
and the Trustee, as follows:

 

(a)                                  It
is a securities intermediary as of the date hereof and, for so long as this
Agreement remains in effect and J.P. Morgan is acting as the Pledged Securities
Intermediary hereunder, it shall remain a securities intermediary and shall at
all times act in such capacity with respect to the Trustee, the Pledge Account
and all other Collateral.

 

(b)                                 The
Pledge Account is and will be maintained as a securities account.

 

(c)                                  Each
item of property (whether cash, certificated or uncertificated securities,
security certificates, security entitlements or any other property whatsoever)
credited to the Pledge Account shall be treated as a financial asset.

 

(d)                                 All
financial assets in registered form or payable to, or to the order of, any
Person and credited to the Pledge Account shall be registered in the name of,
payable to or to the order of, or endorsed to, the Pledged Securities
Intermediary, and in no case during the term of this Agreement will any
financial asset credited to the Pledge Account be registered in the name of,
payable to or to the order of, or endorsed to, the Grantor, except to the
extent the foregoing have been subsequently endorsed by the Grantor to the
Pledged Securities Intermediary or in blank.

 

(e)                                  It
(i) shall, upon written direction from the Trustee, as entitlement holder with
respect to the Pledge Account, the Pledged Securities and all other Collateral,
and without further consent from the Grantor, comply with all instructions,
entitlement orders and directions of any kind originated by the Trustee
concerning the Collateral, including without limitation directions to liquidate
or otherwise dispose of the Collateral as and to the extent directed by the
Trustee and to pay over to the Trustee, or as otherwise directed by the
Trustee, all proceeds and other value therefrom or otherwise distributed with
respect thereto, without any set-off or deduction, and (ii) shall not, except
as otherwise directed in writing by the Trustee, as entitlement holder with
respect to the Pledge Account, the Pledged Securities and all other Collateral,
comply or agree to comply with any instructions, entitlement orders or
directions of any kind that are originated by the Grantor or any other Person
with respect to any of the Collateral.

 

(f)                                    Except
for the claims and interests of the Trustee under this Agreement and the rights
of the Grantor vis-à-vis the Trustee hereunder, it does not know of any claim
to or security interest or other interest in the Collateral.

 

7

 

(g)                                 It
hereby waives its rights to set off any obligations of the Grantor to it
against any or all of the Collateral, and hereby agrees that any and all liens,
encumbrances, claims or security interests which it may have against the
Collateral, either now or in the future, are and shall be subordinate and
junior in right of payment to the prior payment in full of all Secured
Obligations.

 

SECTION
7.  Representations and Warranties.  The Grantor hereby represents and warrants
that:

 

(a)                                  The
execution and delivery by the Grantor of, and the performance by the Grantor of
its obligations under, this Agreement will not contravene any provision of
applicable law or the articles of incorporation or by-laws of the Grantor or
any material agreement or other material instrument binding upon the Grantor or
any judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Grantor, or result in the creation or imposition of any
lien on any assets of the Grantor, except for the security interests granted
under this Agreement.

 

(b)                                 No
consent of any other Person and no approval, authorization or order of, action
by or qualification with, any governmental authority, regulatory body, agency
or other third party is required (i) for the execution, delivery or performance
by the Grantor of its obligations under this Agreement or (ii) for the grant by
the Grantor of the security interests created by this Agreement.  To the best of Grantor’s knowledge, no
consent of any other Person and no approval, authorization or order of, action
by or qualification with, any governmental authority, regulatory body, agency
or other third party is required for the exercise by the Trustee of the rights
provided for in this Agreement or the remedies in respect of the Collateral
pursuant to this Agreement.

 

(c)                                  The
Grantor is the beneficial owner of the Collateral, free and clear of any lien
or claim of any Person (except for the security interests created by this
Agreement and any lien arising under the Indenture in favor of the
Trustee).  The Grantor has not at any
time transferred any of the Collateral to any Person other than the Trustee or
encumbered any of the Collateral with a lien in favor of any other Person.  No financing statement or instrument similar
in effect covering all or any part of the Grantor’s interest in any of the
Collateral is on file in any public or recording office, other than the
financing statements filed pursuant to this Agreement.  Other than the Grantor’s previous name,
Inhale Therapeutics, Inc., the Grantor has no trade names.

 

(d)                                 This
Agreement has been duly authorized, executed and delivered by the Grantor and
constitutes a valid and binding agreement of the Grantor, enforceable against
the Grantor in accordance with its terms, except as the enforceability hereof
may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors’ rights generally or by equitable principles of general
applicability.

 

(e)                                  Upon
the transfer to the Pledged Securities Intermediary of the Pledged Securities,
the crediting thereof to the Pledge Account in accordance with Section 4 above
and the execution and delivery of this Agreement by all of the parties hereto,
the grant of a security interest in the Collateral pursuant to this Agreement
for the benefit of the Trustee and the Holders of the Notes

 

8

 

will create a valid and
perfected first priority security interest in such Collateral securing the
payment of the Secured Obligations.

 

(f)                                    There
are no legal or governmental proceedings pending or, to the best of the
Grantor’s knowledge, threatened to which the Grantor is a party or to which any
of the properties of the Grantor is subject that would adversely affect in any
material respect the power or ability of the Grantor to perform its obligations
under this Agreement or to consummate the transactions contemplated hereby.

 

(g)                                 The
pledge of the Collateral pursuant to this Agreement is not prohibited by any
law or governmental regulation (including, without limitation, Regulations U
and X of the Board of Governors of the Federal Reserve System) applicable to
the Grantor.

 

(h)                                 To
the best of Grantor’s knowledge, no Default or Event of Default exists.

 

(i)                                     The
Grantor’s exact legal name is that indicated on the signature page hereof.

 

(j)                                     The
Grantor is a corporation organized in the State of Delaware

 

(k)                                  The
Grantor’s organizational identification number is •.

 

(l)                                     The
Grantor’s place of business or, if more than one, its chief executive office as
well as the Grantor’s mailing address is as is set forth in Section 15.1.

 

SECTION
8.  Further Assurances.

 

(a)                                  The
Grantor agrees that from time to time, it will, at its own expense, promptly
upon reasonable request by the Trustee, execute and deliver or cause to be
executed and delivered, or use its commercially reasonable efforts to procure,
all assignments, instruments and other documents, all in form and substance
reasonably satisfactory to the Trustee, deliver any instruments to the Trustee
and take any other actions that may be necessary or, in the reasonable opinion
of the Trustee, desirable to perfect, continue the perfection of, or protect
the first priority of the Trustee’s security interest in and to the Collateral,
to protect the Collateral against the rights, claims, or interests of third
Persons (other than any such rights, claims or interests created by or arising
through the Trustee) or to effect the purposes of this Agreement.

 

(b)                                 The
Grantor hereby authorizes the Trustee to file any financing or continuation
statements with respect to the Collateral without the signature of the Grantor
(to the extent permitted by applicable law); provided, however, that the
Grantor shall not be relieved of any of its obligations under Section 8(a) or
8(d) hereof.  A photocopy or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.

 

9

 

(c)                                  The
Grantor will furnish to the Trustee from time to time statements and schedules
further identifying and describing the Collateral and such other reports in
connection with the Collateral as the Trustee may reasonably request, all in
reasonable detail.

 

(d)                                 The
Grantor will promptly pay all costs and expenses reasonably incurred in
connection with any of the foregoing within 30 days of receipt of an invoice
therefor. The Grantor also agrees, whether or not requested by the Trustee, to
take all actions that are necessary to perfect and to continue the perfection
of, and to protect the first priority of, the Trustee’s security interest in
and to the Collateral, including the filing of all necessary financing and
continuation statements, and to protect the Collateral against the rights,
claims or interests of third Persons (other than any such rights, claims or
interests created by or arising through the Trustee).

 

(e)                                  The
Grantor hereby irrevocably authorizes the Trustee at any time and from time to
time to file in any Uniform Commercial Code jurisdiction any initial financing
statements and amendments thereto that (x) indicate the Collateral as being of
an equal or lesser scope or with greater detail, and (y) contain any other
information required by part 5 of Article 9 of the Uniform Commercial Code of
the appropriate jurisdiction for the sufficiency or filing office acceptance of
any financing statement or amendment; provided that the Trustee shall have no
obligation to perform any of the foregoing actions other than those expressly
provided herein or in the Indenture.

 

(f)                                    The
Pledged Securities Intermediary covenants and agrees with the Grantor and the
Trustee that for so long as the Pledged Securities Intermediary holds assets in
the Pledge Account, the Pledged Securities Intermediary will, as soon as
reasonably practicable, certify in writing the aggregate dollar value of the
assets held in such Pledge Account on a monthly basis, as of the Grantor’s
fiscal month end or at such other time as the parties may mutually agree.  The Grantor will provide the Pledged
Securities Intermediary with a schedule of its fiscal months as soon as such
schedule becomes reasonably available.

 

SECTION
9.  Covenants.  The Grantor covenants and agrees with the
Trustee and the Holders of the Notes that from and after the date of this
Agreement until the earlier of (x) payment in full in cash of each of the first
six scheduled interest payments due on the Notes under the terms of the
Indenture or (y) payment in full in cash of all Secured Obligations due and
owing under the Indenture and the Notes in the event such Secured Obligations
become due and payable prior to the payment in full of the first six scheduled
interest payments on the Notes:

 

(a)                                  it
will not (and will not purport to) sell or otherwise dispose of, or grant any
option, right or warrant with respect to, any of the Collateral or its
beneficial interest therein, and it will not create or permit to exist any lien
or other adverse interest in or with respect to its beneficial interest in any
of the Collateral (except for the security interests granted under this
Agreement and any lien arising under the Indenture in favor of the Trustee);

 

(b)                                 it
will not (i) enter into any agreement or understanding that restricts or
inhibits or purports to restrict or inhibit the Trustee’s rights or remedies
hereunder, including without

 

10

 

limitation the Trustee’s
right to sell or otherwise dispose of the Collateral, or (ii) fail to pay or
discharge when due any tax, assessment or levy of any nature with respect to
its beneficial interest in the Collateral not later than five days prior to the
date of any proposed sale under any judgment, writ or warrant of attachment
with respect to such beneficial interest; and

 

(c)                                  it
will not, without providing at least five days prior written notice to the
Trustee, change its name, its place of business or, if more than one, chief
executive office, or its mailing address or organizational identification
number and will not change its type of organization, jurisdiction of
organization or other legal structure.

 

SECTION
10.  Power of Attorney.  In addition to all of the powers granted to
the Trustee pursuant to the Indenture, the Grantor hereby appoints and
constitutes the Trustee as the Grantor’s attorney-in-fact (with full power of
substitution), with full authority in the place and stead of the Grantor and in
the name of the Grantor or otherwise, from time to time in the Trustee’s
reasonable discretion to take any action and to execute any instrument that the
Trustee may deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation:

 

(a)                                  to
ask for, demand, collect, sue for, recover, compromise, receive and give
acquittance and receipt for moneys due and to become due under or in respect of
any of the Collateral,

 

(b)                                 to
receive, indorse and collect any drafts or other instruments, documents and
chattel paper,

 

(c)                                  to
file any claims or take any action or institute any proceedings that the
Trustee may reasonably deem necessary or desirable for the collection of any of
the Collateral or otherwise to enforce the rights of the Trustee with respect
to any of the Collateral, and

 

(d)                                 to
pay or discharge any taxes or liens levied or placed upon the Collateral, the
legality or validity thereof and the amounts necessary to discharge the same
all as determined by the Trustee in its sole discretion, it being understood
that any such payments made by the Trustee shall become part of the Secured
Obligations of the Grantor to the Trustee, and shall be due and payable
immediately upon demand;

 

provided, however,
that the Trustee shall have no obligation to perform any of the foregoing
actions. The Trustee’s authority under this Section 10 shall include, without
limitation, the authority to endorse and negotiate any checks or instruments
representing proceeds of Collateral in the name of the Grantor, execute and
give receipt for any certificate of ownership or any document constituting
Collateral, transfer title to any item of Collateral, authorize the filing of
any financing statements (to the extent permitted by applicable law) or any
other documents reasonably deemed necessary or appropriate by the Trustee to
preserve, protect or perfect the security interest in the Collateral and to
file the same, prepare, file and sign the Grantor’s name on any notice of lien,
and to take any other actions arising from or incident to the powers granted

 

11

 

to the Trustee in this Agreement. This power of attorney is coupled
with an interest and is irrevocable by the Grantor.

 

SECTION
11.  No Assumption of Duties;
Reasonable Care.  The rights and
powers conferred on the Trustee hereunder are solely to preserve and protect
the security interest of the Trustee and the Holders of the Notes in and to the
Collateral granted hereby and shall not be interpreted to, and shall not,
impose any duties on the Trustee in connection therewith other than those
expressly provided herein or in the Indenture or imposed under applicable law.
Except as provided by herein, by applicable law or by the Indenture, the
Trustee shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which the Trustee accords similar
property held by itself for its own account, it being understood that the
Trustee, in its capacity as such, shall not have any responsibility for (a)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities or other matters relative to any Collateral, whether or not the
Trustee has or is deemed to have knowledge of such matters, (b) taking any
necessary steps to preserve rights against any parties with respect to any
Collateral or (c) investing or reinvesting any of the Collateral or any loss on
any investment. Without limiting any rights of the Trustee hereunder, the
rights and limitations upon the liability of the Trustee set forth in Article 5
of the Indenture are expressly incorporated herein and made a part hereof and
shall extend to the role of the Trustee as Pledged Securities Intermediary.

 

SECTION
12.  Indemnity.  The Grantor shall indemnify, hold harmless
and defend the Trustee, the Pledged Securities Intermediary and each of their
respective directors, officers, agents and employees, from and against any and
all claims, actions, obligations, liabilities and expenses, including defense
costs, investigative fees and costs, and legal fees and damages arising from
their execution of or performance under this Agreement, except to the extent
that such claim, action, obligation, liability or expense is directly
attributable to the bad faith, gross negligence or willful misconduct of such
indemnified person. This indemnification shall survive the termination of this
Agreement.

 

SECTION
13.  Remedies Upon Event of Default.  If any Event of Default shall have occurred
and be continuing:

 

(a)                                  The
Trustee may exercise, in addition to all other rights given by law or by this
Agreement or the Indenture, all of the rights and remedies with respect to the
Collateral of a secured party under the Uniform Commercial Code as in effect
from time to time in any relevant jurisdiction and also may, without notice
except as specified below, (i) sell, redeem or liquidate any of the Collateral,
(ii) transfer any or all of the Collateral to any account designated by the
Trustee, including an account or accounts established in the Trustee’s name,
(iii) register title to any Collateral in any name specified by the Trustee,
including the name of the Trustee or any of its nominees or agents, without
reference to any interest of the Grantor, or (iv), sell the Collateral or any part
thereof in one or more parcels at any broker’s board or at public or private
sale, in one or more sales or lots, at any of the Trustee’s offices or
elsewhere, for cash, on credit or for future delivery, and upon such other
terms as the Trustee may deem commercially reasonable.  

 

12

 

The Grantor agrees that
the Collateral is of a type customarily sold on recognized markets and,
accordingly, that no notice to any Person is required before any sale of any of
the Collateral pursuant to the terms of this Agreement; provided, however that,
without prejudice to the foregoing, to the extent notice of any such sale shall
be required by law, the Grantor agrees that at least ten days’ notice to the
Grantor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. The
Trustee shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Trustee may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor,
and such sale may, without further notice, be made at the time and place to
which it was so adjourned. The purchaser of any or all Collateral so sold shall
thereafter hold the same absolutely free from any claim, encumbrance or right
of any kind whatsoever created by or through the Grantor. Any sale of the
Collateral conducted in conformity with reasonable commercial practices of
banks, insurance companies, commercial finance companies, or other financial
institutions disposing of property similar to the Collateral shall be deemed to
be commercially reasonable. The Trustee or any Holder of Notes may, in its own
name or in the name of a designee or nominee, buy any of the Collateral at any
public sale and, if permitted by applicable law, at any private sale. All
expenses (including court costs and reasonable attorneys’ fees, expenses and
disbursements) of, or incident to, the enforcement of any of the provisions
hereof shall be recoverable from the proceeds of the sale or other disposition
of the Collateral.  If there are
insufficient Pledged Securities together with proceeds of Pledged Securities
and other Collateral in the Pledge Account to make any required payment on the
Secured Obligations, the Grantor shall be liable to the Trustee for any
deficiency.

 

(b)                                 All
cash proceeds received by or on behalf of the Trustee in respect of any sale
of, collection from, or other realization upon all or any part of the
Collateral may, following the payment of the reasonable fees and expenses of
the Trustee, be held by the Trustee (or by the Pledged Securities Intermediary
on its behalf) as collateral for, and/or then or at any time thereafter applied
(after payment of any amounts payable to the Trustee pursuant to Section 14) in
whole or in part by the Trustee as provided in clause SECOND of Section 4.13 of
the Indenture.  Any surplus of such cash
or cash proceeds held by or on behalf of the Trustee and remaining after
payment in full of all the Secured Obligations shall be paid over as provided
in clause THIRD of Section 4.13 of the Indenture.

 

(c)                                  The
Trustee may, without notice to the Grantor except as required by law and at any
time or from time to time, charge, set-off and otherwise apply all or any part
of the Secured Obligations against the Pledge Account or any part thereof.

 

(d)                                 The
Grantor further agrees to use its commercially reasonable efforts to do or
cause to be done all such other acts as may be necessary to make such sale or
sales of all or any portion of the Collateral pursuant to this Section 13 valid
and binding and in compliance with any and all other applicable requirements of
law. The Grantor further agrees that a breach of any of the covenants contained
in this Section 13 will cause irreparable injury to the Trustee and the Holders
of the Notes, that the Trustee and the Holders of the Notes have no adequate
remedy at law in respect of such breach and, as a consequence, that each and
every covenant contained in 

 

13

 

this Section 13 shall be
specifically enforceable against the Grantor and, to the fullest extent
permitted by law, the Grantor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants except
for a defense that no Event of Default has occurred and is continuing.

 

SECTION
14.  Expenses.  The Grantor will promptly upon demand pay to
the Trustee and the Pledged Securities Intermediary the amount of any and all
reasonable expenses, including, without limitation, the reasonable fees,
expenses and disbursements of counsel, experts and agents retained by the
Trustee or the Pledged Securities Intermediary, as the case may be, that the
Trustee or the Pledged Securities Intermediary, as the case may be, may incur
in connection with (a) the review, negotiation and administration of this
Agreement, (b) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Collateral, (c) the exercise or
enforcement of any of the rights of the Trustee and the Holders of the Notes
hereunder or (d) the failure by the Grantor to perform or observe any of the
provisions hereof.

 

SECTION
15.  Miscellaneous Provisions.

 

Section
15.1.  Notices.  Any notice or other communication given
hereunder shall be sufficiently given if in writing and delivered in person or
mailed by first class mail, commercial courier service or telecopier
communication, addressed as follows:

 

IF TO THE GRANTOR:

Nektar Therapeutics

150 Industrial Road

San Carlos, California 94070

Attention: Chief Financial Officer

Fax: 650-631-3150

 

IF TO THE
TRUSTEE OR PLEDGED SECURITIES INTERMEDIARY:

 

J.P. Morgan Trust Company, National Association

560 Mission Street

13th Floor

San Francisco, California 94105

Attention: Institutional Trust Services

Fax: 415-315-7585

 

All such
notices and other communications shall, when mailed, delivered or telecopied,
respectively, be effective when deposited in the mails, delivered or telecopied,
respectively, addressed as aforesaid.

 

Section
15.2.  No Adverse Interpretation of
Other Agreements.  This Agreement
may not be used to interpret another pledge, security or debt agreement of the
Grantor or any subsidiary thereof. No such pledge, security or debt agreement
(other than the Indenture) may be used to interpret this Agreement.

 

14

 

Section
15.3.  Severability.  The provisions of this Agreement are
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then, to the fullest
extent permitted by law, such invalidity or unenforceability shall affect in
that jurisdiction only such clause or provision, or part thereof, and shall not
in any manner affect such clause or provision in any other jurisdiction or any
other clause or provision of this Agreement in any jurisdiction.

 

Section
15.4.  Headings.  The headings in this Agreement have been
inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof.

 

Section
15.5.  Counterpart Originals.  This Agreement may be signed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same agreement.

 

Section
15.6.  Benefits of Agreement.  Nothing in this Agreement, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, and the Holders of the Notes, any benefit or any legal or
equitable right, remedy or claim under this Agreement.

 

Section
15.7.  Amendments, Waivers and
Consents.  Any amendment or waiver
of any provision of this Agreement and any consent to any departure by the
Grantor from any provision of this Agreement shall be effective only if made or
duly given in compliance with all of the terms and provisions of the Indenture,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given, provided that an amendment
or supplement to this Agreement for the purpose contemplated by Section 16 may
be entered into by the Grantor, the Trustee and the Pledged Securities
Intermediary without the consent of any Holder, so long as such amendment or
supplement is reasonably satisfactory in form and substance to the Grantor, the
Trustee and the Pledged Securities Intermediary.  Neither the Trustee nor any Holder of Notes shall be deemed, by
any act, delay, indulgence, omission or otherwise, to have waived any right or
remedy hereunder or to have acquiesced in any Event of Default or in any breach
of any of the terms and conditions hereof. 
Failure of the Trustee or any Holder of Notes to exercise, or delay in exercising,
any right, power or privilege hereunder shall not preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.  A waiver by the Trustee or any Holder of
Notes of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy that the Trustee or such Holder would
otherwise have on any future occasion. 
The rights and remedies herein provided are cumulative, may be exercised
singly or concurrently and are not exclusive of any rights or remedies provided
by law.

 

Section
15.8.  Interpretation of Agreement.  To the fullest extent permitted by
applicable law, acceptance of or acquiescence in a course of performance
rendered under this Agreement shall not be relevant to determine the meaning of
this Agreement even though the accepting or acquiescing party had knowledge of
the nature of the performance and opportunity for objection.

 

15

 

Section
15.9.  Continuing Security Interest;
Termination.

 

(a)                                  This
Agreement shall create a continuing security interest in and to the Collateral
and shall, unless otherwise provided in this Agreement, remain in full force
and effect until the payment in full in cash of the Secured Obligations. This
Agreement shall be binding upon the Grantor, its transferees, successors and
assigns, and shall inure, together with the rights and remedies of the Trustee
hereunder, to the benefit of the Trustee, the Holders of the Notes, the Pledged
Securities Intermediary and their respective successors, transferees and
assigns.

 

(b)                                 This
Agreement (other than Grantor’s obligations under Sections 12 and 14) shall
terminate upon the earlier of (i) the payment in full in cash of the Secured
Obligations and (ii) the payment in full in cash of the first six scheduled
interest payments on all of the Notes. 
At such time, the Trustee shall, pursuant to an Issuer Order, direct the
Pledged Securities Intermediary to promptly transfer to the Grantor all of the
Collateral hereunder that has not been sold, disposed of, retained or applied
by or on behalf of the Trustee in accordance with the terms of this Agreement
and the Indenture and take all other actions that are necessary to release the
security interest created by this Agreement in and to the Collateral, including
the execution and delivery of all termination statements necessary to terminate
any financing or continuation statements filed with respect to the
Collateral.  Such transfer shall be
without warranty by or recourse to the Trustee in its capacity as such, except
as to the absence of any liens on the Collateral created by or arising through
the Trustee, and shall be at the expense of the Grantor.

 

Section
15.10.  Survival of Representations
and Covenants.  All representations,
warranties and covenants of the Grantor contained herein shall survive the
execution and delivery of this Agreement and the termination of this Agreement.

 

Section
15.11.  Waivers.  The Grantor, to the fullest extent permitted
by applicable law, waives presentment and demand for payment of any of the
Obligations, protest and notice of dishonor or default with respect to any of
the Obligations, and all other notices to which the Grantor might otherwise be
entitled, except as otherwise expressly provided herein or in the Indenture.

 

Section
15.12.  Authority of the Trustee.

 

(a)                                  The
Trustee shall have and be entitled to exercise all powers hereunder that are
specifically granted to it by the terms hereof, together with such powers as
are reasonably incident thereto. The Trustee may perform any of its duties
hereunder or in connection with the Collateral by or through agents or
employees and shall be entitled to retain counsel and to act in reliance upon
the advice of counsel concerning all such matters. Except as otherwise
expressly provided in this Agreement or the Indenture, neither the Trustee nor
any director, officer, employee, attorney or agent of the Trustee shall be
liable to the Grantor for any action taken or omitted to be taken by the
Trustee, in its capacity as Trustee, hereunder, except for its own bad faith,
gross negligence or willful misconduct, and the Trustee shall not be
responsible for the validity, effectiveness or sufficiency hereof or of any
document or security furnished pursuant hereto. The Trustee and its directors,
officers, employees, attorneys and agents shall be entitled

 

16

 

to rely on any
communication, instrument or document reasonably believed by it or them to be genuine
and correct and to have been signed or sent by the proper person or persons.

 

(b)                                 The
Grantor acknowledges that the rights and responsibilities of the Trustee under
this Agreement with respect to any action taken by the Trustee or the exercise
or non-exercise by the Trustee of any option, right, request, judgment or other
right or remedy provided for herein or resulting or arising out of this
Agreement shall, as between the Trustee and the Holders of the Notes, be
governed by the Indenture and by such other agreements with respect thereto as
may exist from time to time among them, but, as between the Trustee and the
Grantor, the Trustee shall be conclusively presumed to be acting as agent for
the Holders of the Notes with full and valid authority so to act or refrain
from acting, and the Grantor shall not be obligated or entitled to make any
inquiry respecting such authority.

 

Section
15.13.  Final Expression.  This Agreement, together with the Indenture
and any other agreement executed in connection herewith, is intended by the
parties as a final expression of this Agreement and is intended as a complete
and exclusive statement of the terms and conditions thereof.

 

Section
15.14.  Rights of Holders of the
Notes. No Holder of Notes shall have any independent rights hereunder other
than those rights granted to individual Holders of the Notes pursuant to the
Indenture; provided
that nothing in this subsection shall limit any rights granted to the Trustee
under the Notes or the Indenture.

 

Section
15.15.  Governing Law; Submission to
Jurisdiction; Waiver of Jury Trial; Waiver of Damages.

 

(a)                                  THIS
AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED UNDER THE LAWS OF THE STATE OF
NEW YORK.

 

(b)                                 ANYTHING
CONTAINED IN THIS AGREEMENT OR IN ANY OTHER AGREEMENT BETWEEN THE TRUSTEE AND
THE PLEDGED SECURITIES INTERMEDIARY TO THE CONTRARY NOTWITHSTANDING, THE
“PLEDGED SECURITIES INTERMEDIARY’S JURISDICTION” WITH RESPECT TO THE PLEDGED
SECURITIES FOR PURPOSES OF SECTIONS 8-110(e), 9-305(a)(3) AND 9-304(b)(1) OF
THE UCC SHALL BE THE STATE OF NEW YORK.

 

(c)                                  FOR
ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE GRANTOR
HEREBY AGREES TO SUBMIT TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT
LOCATED IN THE CITY OF NEW YORK.

 

(d)                                 THE
GRANTOR AGREES THAT THE TRUSTEE SHALL, IN ITS CAPACITY AS TRUSTEE OR IN THE
NAME AND ON BEHALF OF ANY HOLDER OF NOTES, HAVE THE RIGHT, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW (AND TO THE EXTENT THE TRUSTEE HAS RECEIVED
INDEMNITY DEEMED SATISFACTORY TO IT AND HAS AGREED TO DO SO), TO PROCEED
AGAINST THE GRANTOR OR

 

17

 

THE COLLATERAL IN A COURT
IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH (AND HAVING PERSONAL OR IN
REM JURISDICTION OVER THE GRANTOR OR THE COLLATERAL, AS THE CASE MAY BE) TO
ENABLE THE TRUSTEE TO REALIZE ON SUCH COLLATERAL, OR TO ENFORCE A JUDGMENT OR
OTHER COURT ORDER ENTERED IN FAVOR OF THE TRUSTEE. THE GRANTOR AGREES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THAT IT WILL NOT ASSERT ANY
COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS IN ANY PROCEEDING BROUGHT BY THE TRUSTEE
TO REALIZE ON SUCH PROPERTY OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF THE TRUSTEE, EXCEPT FOR SUCH COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS
WHICH, IF NOT ASSERTED IN ANY SUCH PROCEEDING, COULD NOT OTHERWISE BE BROUGHT
OR ASSERTED.  THE GRANTOR WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY HAVE TO
THE LOCATION OF THE COURT IN THE CITY OF NEW YORK IN THE BOROUGH OF MANHATTAN
ONCE THE TRUSTEE HAS COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS.

 

(e)                                  THE
GRANTOR AGREES THAT NONE OF ANY HOLDER OF NOTES, (EXCEPT AS OTHERWISE PROVIDED
IN THIS AGREEMENT OR THE INDENTURE) THE TRUSTEE IN ITS CAPACITY AS TRUSTEE, OR
J.P. MORGAN IN ITS CAPACITY AS PLEDGED SECURITIES INTERMEDIARY SHALL HAVE ANY
LIABILITY TO THE GRANTOR (WHETHER ARISING IN TORT, CONTRACT OR OTHERWISE) FOR
LOSSES SUFFERED BY THE GRANTOR IN CONNECTION WITH, ARISING OUT OF, OR IN ANY
WAY RELATED TO, THE TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED
BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION
THEREWITH, UNLESS SUCH LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART
OF THE TRUSTEE OR SUCH HOLDERS OF NOTES, AS THE CASE MAY BE, CONSTITUTING BAD
FAITH, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

 

(f)                                    TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE GRANTOR WAIVES THE POSTING
OF ANY BOND OTHERWISE REQUIRED OF THE TRUSTEE OR ANY HOLDER OF NOTES IN
CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO ENFORCE ANY JUDGMENT OR
OTHER COURT ORDER PERTAINING TO THIS AGREEMENT OR ANY RELATED AGREEMENT OR
DOCUMENT ENTERED IN FAVOR OF THE TRUSTEE OR ANY HOLDER OF NOTES, OR TO ENFORCE
BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR
PERMANENT INJUNCTION, THIS AGREEMENT OR ANY RELATED AGREEMENT OR DOCUMENT
BETWEEN THE GRANTOR ON THE ONE HAND AND THE TRUSTEE AND/OR THE HOLDERS OF THE
NOTES ON THE OTHER HAND.

 

18

 

SECTION
16.  Provisions Relating to
Additional Notes.  The Grantor and
the Trustee, on behalf of the Holders of the Notes originally issued on the
date hereof (the “Initial Notes”) and on behalf of the Holders of any
“Additional Notes” (which term includes any additional Notes issued as part of
a reopening of the Notes in accordance with the provisions of the Indenture and
any “Optional Notes” as defined in the Purchase Agreement dated June 25, 2003
among the Grantor and the Initial Purchasers named therein and relating to the
Notes), hereby acknowledge that the Grantor may issue Additional Notes from
time to time after the date hereof and that, pursuant to the terms of the
Indenture, the Initial Notes and any Additional Notes will be treated as part
of a single class for all purposes under the Indenture.  Accordingly, anything contained herein to
the contrary notwithstanding, (a) upon the issuance of any Additional Notes (i)
for all purposes under this Agreement the term “Notes” shall thereafter include
such Additional Notes; provided that any references herein to the
first six scheduled interest payments due on the Notes shall mean, with respect
to such Additional Notes, only such number, if any, of the first six scheduled
interest payments on the Notes as shall then remain at the time such Additional
Notes are originally issued (such number, if any, of the first six scheduled
interest payments on the Notes that shall remain at such time being the
“Covered Interest Payments” in respect of such Additional Notes), (ii) in the
event that any Additional Notes are issued prior to such time as the first six
scheduled interest payments on the Notes shall have been paid in full, the
Grantor shall purchase or cause to be purchased, for the account of the Pledged
Securities Intermediary for credit to the Pledge Account, additional security
entitlements with respect to U. S. Government Securities (such security
entitlements being, collectively, the “Additional Pledged Securities”) in an
amount that will be sufficient, upon receipt of the scheduled interest and
principal payments in respect thereof, to provide for the payment of all
Covered Interest Payments in respect of such Additional Notes, and (iii) for
all purposes under this Agreement (including without limitation Section 4(b))
the term “Pledged Securities” shall thereafter include any such Additional
Pledged Securities, and (b) as provided in Section 15.7, in connection with the
issuance of any Additional Notes, the parties hereto shall be permitted to
enter into such amendments or supplements to this Agreement as may be necessary
or advisable in order to give effect to the provisions of this Section 16
without the consent of the Holders of the Initial Notes or the Holders of any
Additional Notes that are outstanding at the time of such issuance.  For the avoidance of doubt and without
limiting the generality of the foregoing, the Grantor and the Trustee, on
behalf of the Holders of the Notes, hereby acknowledge and agree that the
Holders of the Initial Notes and the Holders of any Additional Notes shall be
entitled to share ratably in the benefits of this Agreement.  In the event that the Grantor shall issue
Additional Notes on more than one occasion, then the provisions of this Section
16 shall apply to such successive issuances of Additional Notes, mutatis
mutandis.

 

19

 

IN WITNESS
WHEREOF, the Grantor, the Trustee and the Pledged Securities Intermediary have
each caused this Agreement to be duly executed and delivered as of the date
first above written.

 

	
   

  	
  Grantor:

  
	
   

  	
   

  
	
   

  	
  NEKTAR THERAPEUTICS

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Trustee:

  
	
   

  	
   

  
	
   

  	
  J.P. MORGAN TRUST COMPANY,

  NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Pledged Securities Intermediary:

  
	
   

  	
   

  
	
   

  	
  J.P. MORGAN TRUST COMPANY,

  NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

20

 

SCHEDULE I

 

PLEDGED SECURITIES

 

	
  SECURITY

  	
   

  	
  CUSIP NO.

  	
   

  	
  MATURITY

  	
   

  	
  PRINCIPAL

  AMOUNT AT

  MATURITY

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  United States Treasury

  	
   

  	
  912820DJ3

  	
   

  	
  11/15/03

  	
   

  	
  1,500,000

  
	
  United States Treasury

  	
   

  	
  912833FU9

  	
   

  	
  05/15/04

  	
   

  	
  1,500,000

  
	
  United States Treasury

  	
   

  	
  912833FV7

  	
   

  	
  11/15/04

  	
   

  	
  1,500,000

  
	
  United States Treasury

  	
   

  	
  912833FW5

  	
   

  	
  05/15/05

  	
   

  	
  1,500,000

  
	
  United States Treasury

  	
   

  	
  912833FX3

  	
   

  	
  11/15/05

  	
   

  	
  1,500,000

  
	
  United States Treasury

  	
   

  	
  912833FY1

  	
   

  	
  05/15/06

  	
   

  	
  1,500,000

  
	
  TOTAL

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  9,000,000

  

 

21

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